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
“(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.
Risk management, risk financing in insurance captives, and risk transfer through reputation insurances comprise the constituent elements of a comprehensive solution. What’s your strategy?