Reputation is one of the most important and valuable intangibles for organizations, therefore, its measurement and monitoring are elements to which organizations are paying increasing attention within their risk management frameworks. Reputational damage affects brand equity, customer loyalty, shareholder perception, and value. In the absence of proactive management, reputational capital can quickly be destroyed. Therefore, organizations should consider the reputational impact of potential risks and develop the corresponding capabilities for their proper management.
Reputational risk can come from a variety of sources, such as: customer complaints, intentional or unintentional acts by employees, suppliers, customers and other stakeholders, non-compliance with regulatory laws and regulations, information security and cybersecurity risks, fraud and operational losses, money laundering, terrorist financing and untimely or inadequate responses to problems and events.
The way organizations identify, monitor, and manage reputational risk directly influences their ability to do business, their social license to operate, and their potential as a loyalty brand for valuable employees. That is why, in order to avoid the materialization of a reputational risk, it is essential to develop and implement a management framework that includes the following elements:
-Definition of objectives and scope. That allow the identification of internal and external factors that can generate events with reputational impacts, as well as the identification of sources of reputational risks and analysis of the areas involved.
-Organization, government and policies. To establish roles and responsibilities for reputational risk management and its integration into the organization’s corporate governance model.
-Data measurement and analytics methodologies that make it possible to quantify reputational risk. These methodologies are based on quantitative and qualitative indicators that can influence the reputation of an organization and how it is perceived by its main stakeholders or that can be influenced by reputational events.
-Reputational risk map to monitor risks and anticipate their impact on the organization’s reputation. This map is based on a set of indicators and metrics for monitoring the value of the organization perceived by the interested parties.
-Integration with the reputational risk management framework in the daily management of the organization and incorporation of this risk in the risk appetite.
Additionally, today, artificial intelligence and machine learning play an important role in identifying reputational risks. This type of technology allows large volumes of data to be processed to identify spaces as diverse as conversations in digital media and social networks, with a predictive approach to identifying patterns and trends to anticipate what may be a reputational risk for an organization.
Reputational risk can arise unexpectedly and can affect all types of companies, regardless of their industry or size. It is essential to consider and manage it strategically, since its materialization generates financial impacts, relations with interest groups and, in some cases, it can mean a direct impact on the continuity of the business.
—The author is
Risk Advisory Partner at Deloitte Dominican Republic.