Features of Risk

Reputation risk features typically include economic harm from angry, disappointed stakeholders that is often exacerbated by media amplification. Steel City Re helps executives, companies, and sovereign entities identify and defend against these risks.

Reputation risk is a threat to reputation value—a behavioral economic construct.

Customers’ decision to purchase, employees’ desires to be employed by a particular firm, the rating of bonds by credit analysts, the recommendations for equities by buy-side analysts, and the decision to prosecute by regulators are all social processes. All are influenced by stories. When those stories speak to quality products, superior employment experiences, authentic systems for risk management, quality governance and compliance in terms that create expectations; they produce corporate (and personal) value.

Stories that create value promote emotional investments—such as trust—in quality, ethics, safety, security, sustainability, and innovation.

Media stories are merely one of many influencers of expectations. Other influences include:

  • Corporate culture evidenced in governance decisions
  • Financial and extra-financial information
  • Associations and affiliations
  • Stakeholders’ own experiences

Reputation risk, the economic threat to enterprise value, lurks in the gap between stakeholder expectations and operational reality. When reality falls short, media plays a role in amplifying and exacerbating stakeholder disappointment and anger.

“Brexiteers promised the advantages of EU membership with none of the disadvantages …disillusionment was inevitable.”

Bagehot, The Economist

When stakeholders hold a company, its executives or its board culpable for their disappointment, the anger creates go-forward reputational value losses, which are “costs of disappointment.”

Disappointed stakeholders destroy value by becoming disloyal customers, disengaged employees, distracted suppliers, distrustful creditors, dismissive investors, and determined litigators & regulators.

Reputation risk features include the potential to blossom into full blown reputational crises with the speed and intensity of a tornado. That is why reputation risk management—a battle for the mind of stakeholders—must begin preemptively. Insurances can be a key part of this effort.

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Authentic stories prepositioned and widely shared are reputation tornado shelters—protection against climate change of the cultural kind. The stories must be simple, convincing and completely credible. They must illustrate corporate reputation risk management systems, policies and procedures, backed by demonstrable evidence such as third party insurances, so that stakeholders can appreciate and value corporate intent and direct anger away from company, its executives or its board.

Redirected anger underpins reputation resilience.

Relevant Articles

Governance experts including the National Association of Corporate Directors and other authorities are encouraging boards to support management more closely in an "uncertain — and possibly volatile — environment," even at the risk of appearing to micromanage. But with engagement comes culpability for the reactions of already-angry stakeholders. Simply put, the costs of leaning into a reputation crisis may include the dispensation of board members whose personal losses will not be covered by D&O liability insurance. Board members need personal reputation insurance.
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We often talk about how the essence of reputation risk is the risk of economic damage from a list of emotional disappointed stakeholders, usually wrapping up with social license holders. Here is a story of one such aggrieved group from Rockdale County, GA, which is trying to oust BioLab from its site after a devastating industrial fire. […] “We can no longer stand by and allow a corporation to continuously affect our current and future physical health, our mental health and our overall quality of life,” Rockdale County Commissioner Sherri Washington said.
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Boeing employees are striking for…more input into product safety. This labor action is a manifestation of lost reputation value. This labor action is a stark reminder that angry, disappointed employees are one of many expressions of a reputation crisis. Corporate leadership and governors must be mindful that that the long tail of reputation risk typically includes costly investor, regulator, and yes, employee actions.
Boeing employees are striking for…more input into product safety. This labor action is a manifestation…
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At the end of reputation risks’ long tail are board-level consequences, exemplified by the denouement of this infamous winter 2022 crisis precipitated by software quality issues, unaddressed. “Southwest Airlines on Tuesday announced an overhaul of its board of directors, including the planned departure of its executive chairman, Gary Kelly, after a meeting with a hedge fund that has called for sweeping changes at the company.” The takeaway: reputation risk management is always a vital governance issue.
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Dwindling Reputation for Brand Safety at Elon Musk’s X. About one-quarter of advertisers plan to cut spending on social media site X, according to according to a new survey of marketers by Kantar.
Dwindling Reputation for Brand Safety at Elon Musk’s X. About one-quarter of advertisers plan to…
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32.9% of companies, including American Airlines and US Bancorp, have compensation clawback policies for reputation harm.
32.9% of companies, including American Airlines and US Bancorp, have compensation clawback policies for reputation…
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