Brand owners tackle risk and reputation

07 October 2010

NEW YORK: Many brand owners are taking a more active approach to risk management, after the credit crunch and experiences of firms like BP and Toyota proved the importance of protecting corporate reputation.

BP's travails in the Gulf of Mexico, Toyota's vehicle recalls and the controversial departure of former HP ceo Mark Hurd have all recently put the spotlight on big business.

Similarly, the widespread antipathy to certain automakers and financial services providers during the downturn has emphasised the vital need to retain public trust.

"Risk management overall has had a higher profile because of the financial crisis, and that's helped increase interest in the chief risk officer position," Julia Graham, chief risk officer at law firm DLA Piper, told the Wall Street Journal.

Peter Anthonissen, founder of specialist consultancy Anthonissen & Associates, argued this issue must command attention at the top level.

"A company's reputation is, without a doubt, its most precious commodity," he said. "It's essential that someone on the board of directors or within the executive committee is responsible for reputation management."

Anthony Fitzsimmons, chairman of Reputability, suggested up to 40% of a company's value rests on its perceived standing.

"The challenge is to build strong foundations that will make a reputation sustainable through bad times as well as good," he said. "Culture, behavior and leadership are key."

However, Fitzsimmons added established enterprises with complex structures often struggle when events threaten to undermine their status.

"One perception of BP is that the board didn't know what was going on in the engine room," he stated. "If that is true, it is not surprising."

"It regularly emerges from large organisations that staff at lower levels have all kinds of information about what is going on but don't pass the information to their bosses."

Tesco, the retailer, has constructed a Key Risk Register detailing potential obstacles, including likelihood and possible impact.

"It's about culture more than anything else," said Lucy Neville-Rolfe, Tesco's director of corporate affairs.

"We need to focus on reputation specifically as well as in every area of the business which can have a bearing on that reputation."

"There is a big overlap with our core risks. Every area of our business has a bearing on reputation."

Christie's, the auctioneers, also created formal guidelines in order to promote company-wide standards.

"We have a code of conduct which underpins everything that we do," said Nicky Harvey, head of risk management, Christie's.

"It's a challenge to ensure everyone is on board right across the organisation but it's critical to managing our reputation."

Arnout van der Veer, chief risk officer at publishing group Reed Elsevier, posited that monitoring performance is a secondary objective.

"The much more important aspect is that you have an impact on people, so the whole business comes to think differently about its risks and deals with them differently," he said.

Nomura, the Japanese bank which acquired the European and Asian arms of Lehman Brothers, has implemented a rigorous approach covering its entire operations.

"For the last year and a half we have been reformulating our risk appetite in three dimensions: balance sheet risk, liquidity risk and earnings risk," said David Benson, Nomura's chief risk officer.

"We have refocused a lot of our risk resource to provide a more global perspective."

Data sourced from Wall Street Journal; additional content by Warc staff