Reputation risk is the largest, scariest and least manageable of all operational risks. Boards of many large companies have little confidence that their executives are even aware of what major reputation flare-up is around the corner (let alone hidden deep in social media). Anthony Johndrow is Founder and CEO of Reputation Economy Advisors. Anticipating the panel discussion he will lead at the Strategic Summit, which takes place this May 9-10, we asked Anthony to share strategies to integrate reputation risk management into ongoing crisis mitigation plans.
SUMMIT DIRECTOR: Why is reputation risk getting so much attention?
Anthony Johndrow: Enron, WorldCom, The Big Short, Deepwater Horizon, Toyota, Volkswagen, Wells Fargo, Trump tweets, Uber… We didn’t start the fire… Anyway, imagine yourself as CEO (or on the board) of a big, high-profile company right now. You’ve seen all of these crises (and many more) and are wondering – what could be just around the corner (or under the rug) of this company? Every time you’re given a report on the largest risks facing the organization, “Reputation Risk” shows up multiple times, at or near the top. When you ask, “what are we doing about Reputation Risk?” you’re shown the crisis communications plan binder. What do you do — nod and smile? Sleep well at night?
SUMMIT DIRECTOR: Who is responsible for reputation risk?
Anthony Johndrow: The trite answer to this question is “everyone,” but we all know that’s not how companies work. A recent Deloitte study of global companies points to CEOs (36%) or Boards (14%) as being responsible. That adds up to 50% – 100% of which don’t want direct responsibility for anything.
SUMMIT DIRECTOR: What’s wrong with the existing process? Enterprise Risk Management?
Anthony Johndrow: Enterprise Risk Management (ERM) does a great job of identifying, quantifying and prioritizing risks facing the enterprise. In fact, these efforts, implemented at most large companies, have gone a long way toward making even reputation risks numerically tangible. That said, the output of this process is a spreadsheet with some numbers and a one-line description of the risk — it does not “unpack” or describe the risk in such a way that a board member (or really anyone) can understand it, let alone do something about it. EVERY other risk in the ERM output list has a part of the organization (function or business unit) tied to it. Reputation risks typically link over to corporate communications for the corresponding crisis communications plan, but wouldn’t it be nice to do something to mitigate these big risks BEFORE they hit?
SUMMIT DIRECTOR: How is reputation risk management different from crisis management?
Anthony Johndrow: One way to think about the difference — crisis management is reputation risk management gone wrong. In reality, both are “management” and are much stronger if done thoroughly in advance of any negative event. Ideally, the two disciplines are integrated from the beginning and support each other — one from the strategic, upstream end, the other from the tactical, downstream aspect. Yet another important way to think about these two disciplines is timing — every organization needs to come to the realization that they need to do something different about reputation risk. Some organizations will get there after a painful crisis for which they were unprepared, and will tend to think about it this way. Others will observe peer companies go through something awful and realize that they have an opportunity to get in front of the issues they face.
SUMMIT DIRECTOR: When will someone come up with a new way to manage reputation risk?
Anthony Johndrow: The structural and organizational challenges of reputation risk are not new, but the urgency (social/digital age) and specificity (ERM analysis infrastructure) have created an opportunity for smart leaders to implement a new approach. At its core, this new approach is a low-tech (minimal spreadsheets), high-touch (very people-driven), cross-functional (true engagement across the major functions and business units of the enterprise) process. In my presentation at the National Summit on Strategic Communications on Tuesday, May 9, I will discuss the new way forward with senior executives from Bechtel and The Farm Credit System.