March 19, 2018

The going-forward costs of reputation risk. “In the past 12 months, shares of United Continental Holdings (UAL) have risen only 3%. Delta Air Lines (DAL) is up 20% in the past 12 months, while American Airlines (AAL) is up 32%.” Follow Steel City Re for more insights on the reputational impacts of events in the news.

United’s botched response made the situation into a national news story. Munoz had to issue a mea culpa after the airline’s first two statements were seen as callous (at first, Munoz apologized for having to “re-accomodate … customers”).

Then, in April, Dr. David Dao was violently dragged off a United plane from Chicago to Louisville, in order to make space for commuting crew members. The incident was captured by passengers on their phones, and quickly went viral.

Over the next year, Munoz managed to stabilize the company. He prioritized labor relations and renegotiated new contracts with workers, restructured the management team, boosted on-time performance and launchedan overhauled business class . In March 2017, the magazine PRWeek named Munoz its U.S. Communicator of the Year.

“[An airline has] three legs on a stool — its customers, its investors and its labor. And United had fallen behind on all three,” said John Strong, a professor of business administration at the College of William and Mary and an airline industry expert.

March 19, 2018
CNN Business

“(Munoz) was told he would not take over as chairman of United’s board later that month.”

Reputation risk: It is always personal in the C-suite and boardroom.

Reputations are valuable strategic intangible assets. Threats to these assets⏤ enterprise reputation risks, often mislabeled “brand risks” ⏤ need to be managed, and management needs to be overseen through reputation risk governance lest reputational damage or reputational harm result in long-tailed go-forward losses in economic value and/or political power. Because these intangible risks arise from the interplay of stakeholder expectation, experiences, and media amplification, parametric insurances for intangible asset risks, for reputational value, for reputational harm, and for reputation assurance help mitigate risk by telling a simple, convincing and completely credible story of quality reputation governance to stakeholders. This story telling effect is the expressive power of insurance complementing insurance’s better known instrumental power of indemnification.

Reputation value is a strategic power companies use to sell more, faster, and at premium prices; and to obtain labor, vendor services, as well as capital on preferred terms.

Steel City Re mitigates the hazards of ESG (reputation) risk that threaten reputation value. We use parametric reputation insurances, ESG insurances, and risk management advisory services to make our clients reputationally resilient.

Risk management, risk financing in insurance captives, and risk transfer through reputation insurances comprise the constituent elements of a comprehensive Steel City Re reputation risk governance and management solution.

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Context and Background

Risk managers are now central to the process for managing risks to reputation and that’s a process marketers and communications professionals need to be a part of. The oversight of reputation risk management is mission-critical.

Courts have increasingly been ruling that reputation is a mission critical function and oversight of its management is a responsibility of the board of directors. Courts are also ruling that marketing statements companies make – if they related to issues that affect their reputation, like ESG – may be considered material by investors. Litigation along these lines has yielded large settlements or verdicts for plaintiffs.

And now, the SEC has proposed new rules requiring disclosures by public companies related to their ESG activities; those statements could become a communications and reputational minefield.

As a result, reputation risk management is evolving into an intelligence gathering operation spanning the entire enterprise, roping in the enterprise risk manager, compliance counsel, and increasingly, reporting up to the Chief Legal Officer. There is a growing recognition that reputation is not a product merely of marketing and media coverage, but of the degree to which stakeholders’ expectations are aligned with actual performance. The reputation risk management process requires a thorough and ongoing analysis of stakeholder expectations, the risks of disappointment, and a plan for either managing those expectations or assessing and insuring against the cost of failure.    

One Last Question

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