Backlash Over AI Work. Companies can mitigate the risk of backlash by encouraging collaboration between IT, enterprise risk management and communications within the organization, as well as getting the board involved in overseeing the risk management process, said Steel City Re’s Kossovsky.
ESG risk is one of a growing number of stakeholder-centric issues falling under the greater rubric of reputation risk. High-profile, costly risk management failures at AB InBev (Bud Light), Southwest Airlines and Silicon Valley Bank indicate that it is time for risk management to be more fully integrated into corporate processes, like marketing: #letriskmanagersmanagerisk! Reputation risk management needs to be a standard area of enterprise risk management responsibility. Can we drink to that?
“As of now, we’re starting to learn that what made OceanGate’s expeditions cost-effective and easy to execute were also factors that increased the risk and dangers to passengers. […] It seems as though OceanGate might have attempted to skirt many of these complexities in favor of saving money.”
Record high profit risk. Experts warn that exuberant price increases may come with reputational risks. “Boards should communicate that the firm’s risk management process…is thoughtful, dutifully overseen, and applies to everything that is mission critical, Kossovsky wrote.
CEOs Going Viral. Starbucks founder Howard Schultz recently clashed with Sen. Bernie Sanders “There being nothing to surprise their respective stakeholders, raise their emotional states, and shift their prior expectations, I don’t think there was any material reputational impact to anyone,” Kossovsky wrote.
Lead enterprise-wide strategy. Risk management is surely broken. Ambitious risk managers committed to upgrading risk strategy and creating enterprise value with better enterprise intelligence, strategic packaging and a unified organization can fix it.
The U.S. Department of Labor has now launched an investigation and said it will hold not only companies that employ child labor accountable, but the larger, better known companies that have child labor in their supply chains. The new regulatory stakeholders in companies’ supply chains bring with them investors and litigators, who had material financial consequences to activities already being followed by activists.
ESG rhetoric pledge regrets. With ESG becoming as important to some companies as EBITDA and marketing departments ramping up the ESG rhetoric, the effective scope of dutiful oversight has expanded…The Delaware court increasingly sees oversight of all things mission-critical as a board duty.
The settlement with Activision Blizzard could have widespread implications for how companies choose to manage risk, according to Nir Kossovsky, CEO of Steel City Re, which provides insurance for reputation and assists companies in establishing risk management functions. Kossovsky said that companies should create “reputation risk leadership committees” composed of representatives from “every silo” of the company that interacts with a critical stakeholder group…“No one can argue with thoughtful risk management and dutiful oversight, but you need a demonstrable, effective process to make that claim.”
Mission critical risk denial can be costly. A holiday flight cancellation fiasco by Southwest Airlines crushed the company’s market capitalization and caused the company to take an $800 million dollar write-down for Q4 and record losses three times greater than analysts had expected. Equity returns 42 days into the crisis show Southwest trailing the Dow Jones U.S. Airlines Index by 18.4%. Had it merely kept pace with that index, Southwest’s market cap would have been more than $3.3 billion higher.