ACE Study: Reputation the Hardest Risk to Manage

July 23, 2013

  • July 30, 2013 at 3:42 pm
    Don Turnblade says:
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    Reputation risk needs to drill down further in to specific kinds of risk by industry sector and firm size. The added detail does lead to less blur in sizing and modeling the level of impact involved. The spread in reputational risk varies both by Industry, adverse event, the innovation of the reputational message and intangible resonance in a firms customer base.

    Consider a damaged guitar event with United Airlines. This resulted in an offended musician creating a viral video on Youtube, “United Breaks Guitars” The event itself is a mere $3000 loss. The Reputational damage resonated with Airline customers and the public smirk is still virally spreading to this day.

    But, this might be an exceptional case of Reputation risk. For computer breaches, public notification is often required. Some of these are solved simply and customer turn over is limited to 3.4% of annual revenue. In other cases, Medical Breaches in the State of Utah amounted to career ending moves for corporate officers and public office holders.

    In some cases, a firm my own more than 50% of the market share. If its customers revolt and accept the switching costs, where could such a firm find new customers fast enough to save itself from financial devastation? These firms may have no choice but to through corporate officers “to the wolves”.

    Reputational Risk is needs improved definition in the “Define and Measure” stage of risk assessment. There is simply too much dependency to jump to “Analyze Improve or Control” of such risks without added context.

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