The Buzz: Risky Business
February 2024
“Risk,” Warren Buffett has said, “comes from not knowing what you’re doing,” which seems a little harsh. While no one can foresee all the possible outcomes of any action, it is still crucial to figure out what perils you might encounter along the way and plan accordingly.
And even if you do nothing wrong, unfair accusations can wreck your organization’s reputation, which is why reputational risk is an increasingly important concern to business leaders and the public affairs professionals who work with them.
How important? A survey of 375 senior executives from 20 countries finds that they are more and more aware of the potential cost of reputational risk. But their confidence in their ability to respond effectively has fallen in the past few years. Conducted by WTW, a global consulting firm operating in 140 countries, the survey found that international business leaders especially fret about the potential cost of reputational damage resulting from environmental, social and governance (ESG) concerns.
“Reputation is now a top-three risk for 26% of companies, up from 18% in 2021, and a top five risk for 55%,” WTW reports. Even so, only 10% engage monthly with stakeholders on the subject of their reputation, which decreased from 37% in 2021. Only 13% say “their resilience to reputational issues is very good,” a drop from 23% in the past three years.
Reality Check
As worrisome as this might be, there is an explanation that offers some encouragement. “These findings represent a downgrading of risk management capabilities,” WTW says. “However, it may be more of a reality check than a change in reality. As reputation risk is increasingly viewed through a finance and ESG lens, assessments of risk readiness are likely to be more rigorous and therefore less optimistic.”
Until recently, reputation risk was regarded as “an afterthought, primarily handled by crisis communication teams.” But because it is seen increasingly as a financial risk, finance departments are taking a greater role in strategy and tactics. “Three of five companies surveyed now have their senior financial controller as a member of their crisis event team,” according to WTW. “That’s up by nearly 50% from 2021.”
Buffett says this, too: “It takes 20 years to build a reputation, and five minutes to ruin it.” That’s why a damaged rep can cost the company billions, which makes the role of public affairs professionals more important than ever.
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A survey of 375 senior executives from 20 countries finds that they are more and more aware of the potential cost of reputational risk. But their confidence in their ability to respond effectively has fallen in the past few years.
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