Reputation risk and ERM

Have a read at this article in CFO.com about reputation risk.

I always remind readers that reputation risk is a second order risk caused by some other event or risk. Think about Toyota: their reputation was harmed by the recent recalls but as a risk it is not something they could have treated proactively and explicitly – they could only treat the causes. Having said that, the author quotes something from the recent Goldman Sachs annual report: “We may be adversely affected by…negative publicity…regardless of the factual basis for the assertions being made, often results in some type of investigation by regulators, legislators, and law-enforcement officials, or in lawsuits”.

In effect Goldman’s is saying its reputation was harmed by the media while ignoring the root causes including their (alledged) involvement in the recent financial crisis.

Finally, the author notes that: “One reason that companies may be particularly vulnerable to reputational risk is that it is not adequately addressed by enterprise risk management”. I find that pretty unlikely as there are probably more organizations aware of and managing their reputation risk than there are organizations actually doing ERM. And again, if organizations are doing ERM properly, then they are probably managing the root causes of reputation risk.

Riskczar doesn’t think this argument flies.

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