Reputational risk and Australia’s top organisations

  • A recent survey by Norton Rose Fulbright highlights what reputational risk means for business leaders and their companies across Australia.
  • In order to manage reputational risk effectively, an open dialogue between board members and the executive team, general counsel and risk managers is necessary. 
  • The survey shows only a minority of organisations has quantified risks related to reputation.

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Reputation matters. There is no exact formula to quantify its value, yet damage to reputation is immediately noticeable, and long-lasting.

The challenge of managing complex, multifaceted reputational risk is compounded by the fast-moving nature of our digital age. Social media enhances the speed at which news travels, is commented upon, and occasionally becomes viral, turning crisis management into a race against time.

Norton Rose Fulbright has surveyed business leaders across Australia in order to better understand what reputational risk means for them and their companies. The results of the research are outlined in this special report.

Risk awareness is high amongst Australian business leaders; however, views differ on the key exposures that may affect a company’s reputation, and on the potential impact of reputational damage.

The majority of respondents considered that reputational risk management was the executive team’s responsibility. However, the sources of exposure most associated with reputational damage (that is, regulatory investigations, cyber incidents, corporate governance and organisational or key person misconduct) are complex, and by nature cross-functional. An open dialogue between board members and the executive team, general counsel and risk managers is necessary in order to manage reputational risk effectively. 

Most respondents indicated that their companies have implemented certain reputational risk management strategies. Some have taken a long-term, continuous improvement view and embedded regular compliance audits into organisational processes; others have relied on governance structures or on insurance for risk mitigation. But only a minority of organisations has quantified risks related to reputation and less than one third has tested policies’ resilience against risk scenarios. Supply chain risk mapping is another key area for improvement: while most companies have mapped their risks and set up mitigation strategies, supply chains have not been analysed for exposures by more than half of respondents.

Increased transparency, accountability and ethical behaviour are the trends shaping tomorrow’s business world. Several factors are driving the change: enhanced international cooperation between regulators, public scrutiny, and rapidly spreading, social media-powered news. While CEOs appeared highly concerned with social media, neither they nor other respondents were as concerned with disruptive innovation (that is, artificial intelligence, Internet of Things, augmented reality). Similarly, respondents did not appear to link flexible work and outsourcing to potential reputational damage, a view that may be contested as employment structures are reinvented and tasks increasingly delegated through global supply chains.

The foundations of an effective reputational risk management strategy are present for most companies included in this research. The next step in fostering organisational resilience is to address areas for improvement, such as supply chain risk mapping, risk quantification and regular training, in order to embed risk management into the corporate culture.

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