Deloitte ‘Reputation@Risk’ finds revenue and brand take the biggest hits and customers are key

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Deloitte ‘Reputation@Risk’ survey

Finds revenue and brand take the biggest hits and customers are key

Survey shows reputational issues have a strong impact on customer confidence, brand value, and a company’s bottom line

20 November 2014: The majority of global companies (76%) are confident that their reputations are strong, according to the 2014 Reputation at Risk survey conducted by Forbes Insights on behalf of Deloitte. However that confidence declines when it comes to protecting against and responding to reputation risks. In fact, only 19 % of companies award themselves an “A” grade for their ability to manage such risks.

The global survey of more than 300 executives found that 39% of companies rated the maturity of their reputation risk management programs as either average or below average. Yet such programs are critical to the bottom line and an organisation’s ability to rebound from a hit to their reputation. Respondents from companies that had previously experienced a negative reputation event reported that revenue (41%) and loss of brand value (41%) were impacted most.

“Companies are concerned about the consequential effects that escalating reputational issues can have,” said Harvey Christophers, national Managing Partner Risk Services Deloitte. “Almost 90% of executives rate reputation risk as more important or much more important than other strategic risks their companies face. And, 88% say they are explicitly focusing on managing reputation risk, with more than half investing in brand monitoring tools, crisis management and scenario planning to do so.”

Executive-level concerns and their views on the potential consequences of reputation risk include:

  • Reputation risk is a top strategic business issue: 88% of executives explicitly focus on reputation risk as a key business challenge.
  • Senior level executives are responsible for reputation risk: Primary ownership is with the chief executive officer (36%), chief risk officer (21%), board of directors (14%), or chief financial officer (11%).
  • Customers are the most important stakeholders for managing reputation risk (81%).
  • Other key stakeholders include regulators (73%), senior executive (68%), employees (68%), and investors (65%).
  • Companies are least confident when it comes to risk that is beyond their direct control, including third-party/extended enterprise issues (47%), competitive attacks (44%), and hazard or other catastrophes (44%).
  • Companies are investing to improve their capabilities for managing reputation risk: More than half of companies (57%) say they plan to address reputation risk by investing in technology such as analytical and brand monitoring tools as well as crisis management and scenario planning.

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Graeme Newton, Deloitte Crisis Management leader said: “There is an 80% chance of a company losing at least 20% of its value (over and above the market) in any single month, in a given five-year period due to the impact of a crisis on reputation.”

Adding that in each case researched, the value loss was sustained. “A robust, evidence-based reputation strategy will minimise the likelihood of a critical event turning into a reputation crisis and will maximise the probability of recovery,” Newton said.

“There are situations where corporates might halve their share price overnight because of a major cyber event or some warning to the market about their financial position,” he said. “So whilst the trigger events like natural disasters, cyber, financial crime and financial irregularities can all be different, they can have similar effects on boards, executives and shareholders.”

The Forbes/Deloitte Reputation at Risk survey found that the underlying drivers of reputation risk were related to ethics and integrity (55%) such as fraud, bribery and corruption; followed by security risks (45%), both physical and cyber; and product and service risks (43%). These three drivers are expected to remain the leading factors for at least the next three years.

Top three drivers of reputation risk: past, present, and future

Peter Matruglio, Deloitte Risk Transformation leader said: “As organisations seek to develop new markets and enter into more and more joint ventures and alliances, the risks through third-party relationships are another rapidly emerging area. Companies are increasingly being held accountable for their joint venture and alliance partners’ actions and in some cases the actions and omissions of their suppliers and vendors.

“As scrutiny over third-party relationships rises, the opportunities for potential risks grow. In addition to revenue and brand value loss, which were both shown as leading impacts at 41%, 37 % of the surveyed executives indicated regulatory investigations were another major consequence. And that number balloons to 45% of respondents from financial services firms.”

One of the Australian survey participants, Clayton Herbert, Group Chief Risk Officer, Suncorp Limited said: “When we deal with reputation risk, the internally driven issues are often quickly dealt with. What we worry about are the consequential impacts where reputational issues continue to escalate and evolve, even though the underlying issue has been mitigated.”

About the Survey: The Reputation@Risk survey was conducted by Forbes Insights on behalf of Deloitte with more than 300 executives from companies representing five major industries and geographic regions.

For more information visit Risk Services.

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