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Putting Your Money Where Your Risk Is: The Business Case for Risk-Based Crisis Management

July 9, 2013 by Andrea Bonime-Blanc

Understanding reputational risk is the first step towards effective reputation protection and so we are delighted to feature a guest blogpost on this topic from Andrea Bonime-Blanc, CEO of GEC Risk Advisory, a strategic risk and reputation management consulting firm based in New York City, specializing in global governance, risk, compliance, ethics and CSR advice.

Can toy manufacturers placing most of their orders with remote suppliers in jurisdictions with weak rule of law, low labor costs and no safety or quality standards to speak of foresee the potential reputational risk of harmful products and slave labor conditions? Surely major manufacturers with sophisticated executive teams, logistic operations and general counsels can foresee such risks.

Can professional consulting firms that provide clients with regulatory and compliance advice foresee the potential reputational risk of conflicts of interest, insider trading and fraudulent billing? Surely such professional services thought leaders are equipped to foresee such risks.

Can global banks that accept deposits from millions of customers around the world foresee the potential reputational risks of gambling their depositors’ life savings on exotic derivatives and collateralized mortgage backed securities? Almost every global banking institution on the planet can foresee these risks with just a little care, caution and a sense of stewardship and responsibility.

These are but three illustrations of the reputational risks confronting global actors today. Whether they are corporations, non-profits, universities or even government agencies, not paying attention to, purposefully ignoring, or not being prepared for the possible reputational damage of risks you could have foreseen is the least stakeholders (whether shareholders, employees, customers or others) should expect from their stake-holdings.

Alternatively, paying attention to, purposefully focusing on and preparing for potential reputational crises that could typically hit your entity, sector or industry is not only good for your reputation it’s also good for capitalism and value creation.

Why? Because good capitalists care about their products and services and stakeholders – from shareholders demanding a bottom line return and employees wanting a safe work environment to customers desiring to buy a quality product. Not to mention that regulators and media will be honing in on your details and demanding transparency and accountability.

Understanding what your cutting edge risks are and preparing for them through crisis management scenario planning is one of the wiser investments an entity can make. Why is this?

  • Knowledge is power: knowing your risks allows you to mitigate them
  • Risks can be mitigated: mitigating risks avoids costly consequences
  • Value can be created from risk and mistake avoidance
  • Value can be created from better processes and decision-making
  • Value can be created from lessons learned and better product and service design

So, for companies in the manufacturing, banking, financial or professional services sectors, using any one of the risks mentioned earlier in a hypothetical tabletop crisis management exercise would be a healthy and rewarding start.

Most risks are not that hard to identify. The real trick is to identify and prioritize your critical risks through a systematic risk identification process and then conduct an appropriate crisis management exercise to prepare for those risks. Because sooner or later one or more of those risks may rear its ugly head and take a big bite out of your hard earned reputation.

Take a look at this video from Insignia’s Jonathan Hemus to understand a little more about why businesses often under-estimate reputational risk and how this can be addressed.

Dr Andrea Bonime-Blanc is chief executive of GEC Risk Advisory, a governance, risk, ethics, compliance and corporate responsibility management consultancy. She is chair emeritus of the Ethics and Compliance Officer Association, a member of Ethical Corporation’s editorial advisory board, and a life member of the Council on Foreign Relations. You can follow Andrea on Twitter (@GlobalEthicist) or email her directly via [email protected]

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