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.

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

As SEC sees it, we live in a Manichean world where allies are pliant, and anyone who is anything else, is an activist. No more engagement to offer a gentle nudge. "Investors that threaten to vote against directors' reelection if the company is not aligned with their stewardship policies or views on environmental, social or governance issues will not be considered passive and must instead file a Schedule 13D as activists, according to a new compliance and disclosure interpretation released by the SEC's Division of Corporation Finance this week.
As SEC sees it, we live in a Manichean world where allies are pliant, and…
Read More
Reputation risk: financial damage from emotional stakeholders who are angered, or worst, feel betrayed. “We laid out the strategic and budget plan for 2025 expecting that American products, including American whiskey, will be less accepted by those countries outside of the US because of first, tariffs and, second, emotion,” said Takeshi Niinami, chief executive of drinks giant Suntory Holdings.
Reputation risk: financial damage from emotional stakeholders who are angered, or worst, feel betrayed. “We…
Read More
Target failed to warn investors of risks associated with its mandates regarding its ESG/DEI initiatives.
Great companies with the most sophisticated boards will sometimes disappoint stakeholders. In our increasingly chaotic…
Read More
Securities class-action lawsuits increased. There were 225 filings last year, up from 215 in 2023 and 208 in 2022.
Securities class-action lawsuits increased. There were 225 filings last year, up from 215 in 2023…
Read More
"Whether they condone, condemn or ignore such comments, some dutiful and conscientious board members will paradoxically suffer personal reputational harm if aggrieved stakeholders feel betrayed."
Public comments made by Cleveland-Cliffs’ CEO and chair against Japan and Nippon Steel that appeared…
Read More
Reputational risk remains one of the most fearsome risks that board members and their institutions can face. Thousands of executives overseeing public firms are now just one reputation crisis away from losing all their board seats as well as future business opportunities. Captives may be a solid way of managing those risks.
Reputational risk remains one of the most fearsome risks that board members and their institutions…
Read More