FCPA Compliance and Ethics Blog

March 11, 2015

Managing Your Reputation Risk

Reputation Risk HandbookOne of my favorite virtual friends is Dr. Andrea Bonime-Blanc, the Chief Executive Officer (CEO) and founder of GEC Risk Advisory LLC, the global governance, risk, integrity, reputation and crisis advisory firm which serves executives, boards, investors and advisors in diverse sectors, growth stages and industries, primarily in the Americas, Europe and Africa, providing strategic and tactical advice to transform risk into value. Dr. Bonime-Blanc is an extensively published author and editor of several books and numerous articles. She writes The GlobalEthicist column for Ethical Corporation Magazine. She also co-authored and co-edited The Ethics and Compliance Handbook for the ECOA Foundation. While her career and current consulting is wide-ranging, I want to focus on one of her recent book, The Reputation Risk Handbook, which should be read by any compliance practitioner, senior executive or board member.

Why should you read this book? It is because you should recognize that “Reputation risk has become strategic because of the age of hyper-transparency.” The book provides a variety of examples of reputation risk and explains its special nature. The book also provides strategies for management of reputation risk. Bonime-Blanc concludes her book by going into the veiled land of the future to opine on not only risk management techniques but also the “transformation of this risk into an opportunity and value for the organization.” Her book is broken down into three general areas, I. Understanding Reputation Risk, II. Triangulating Reputation Risk, and III. Deploying Reputation Risk.

Understanding Reputation Risk 

You have to love any chapter about reputation risk that begins with Mae West. If there is any one person who not only reveled in a bad reputation but also actively marketed it to her benefit it was Mae West. Bonime-Blanc uses this somewhat salacious introduction of the topic to lead to her formulation of a definition of reputation risk, which she says “is an amplifier risk that layers on or attaches to other risks – especially ESG risks – adding negative or positive implications to materiality, duration or expansion of other risks on the affected organization, person, product or service.” Of course she provides several well-known and prominent examples of the definition including the retail clothing industry and the Rana Plaza building collapse, human rights, Foxconn and Apple, the Sewol Ferry sinking in South Korea and the Target data breach of 2013. She also provides several useful charts and graphs to explain how these intersect.

Triangulating Reputation Risk 

Here Bonime-Blanc walks the reader through the traditional stages of an entity’s approach to risk management and then explains why such an analysis does not work well with reputation risk. Simply put, reputation risk cuts across all types of risk that a company might face but more importantly the type of traditional risk management solutions that a company might try and bring to bear on reputation risk.

However, channeling her inner Kirosawa, Bonime-Blanc points to the greatest anomaly of reputation risk and what separates it from other risk that a corporation might face. She calls it “The Rashamon Effect” because “it is in many ways in the eye of the beholder. Thus within and outside of an organization, what reputation means, whom it means what to, can be multifaceted and diverse.” This leads to the next issue, “as the facts of a reputation event unfold, different stakeholders may have differing interpretations and reactions which only add to the possible negative or positive reputation impact of that event.” Drawing from these insights, Bonime-Blanc says that companies must plan for a multi-faceted response, which should be led by the Board of Directors.

Indeed it is Boards that, in her opinion, have the greatest responsibility. If Boards do not plan for reputation risk, she believes they are being “irresponsible”. She advocates that Boards have four general areas of responsibility around reputation risk: (1) Accountability, requiring tackling of the issue “head-on”: (2) Inclusiveness, insisting that reputation is a strategic risk and not “just a post-crisis afterthought”; (3) Cross-functionality, to ensure the entire organization undertakes a cross-functional approach to reputation risk; and (4) Preparation, for the Board to not only be prepared but insist that management be prepared and kept up to date on the latest “risk trends, tools and developments.”

Deploying Reputation Risk 

In Part III, Bonime-Blanc explores reputation risk management strategies for her audience. In addition she discusses “fifteen tactical tools for effective risk management.” In other words, when you finish this book you should be in a good position to not only understand the problem that your company may face but also how to manage the issue going forward. After discussing how to optimize these tools for your business, she concludes with “the way forward” for companies.

Bonime-Blanc begins with a structure that she calls “Reputation Risk Management Architecture” which should allow you the mechanism to think through an issue and then apply the appropriate tool(s) she details. It is because “only when we reach the combination of deep risk know-how with an organization, including how to tackle reputation risk, and the existence of a framework and infrastructure to enable optimal use” of any reputation risk management system can a company have an effective reputation risk management approach. While I will not list out everything Bonime-Blanc lays out in her took-kit; I will say that she does so in a coherent, user-friendly approach which allows all organization actors to effectively utilize them going forward.

She concludes with some thoughts on how to optimize reputation risk management. As you might expect it all begins with the tone at the top, which Bonime-Blanc calls, “integrity leadership.” Dispelling the Myth of the Rogue Employee, she writes, “sizable scandals begin and end at the top”. The second criteria is a culture of integrity throughout an organization, which consists of communicating that message to the troops and enforcing such “integrity-related actions and behaviors” throughout the organization. Next she maps the type of reputation risk management you should employ all the while focusing on “the big picture”.

For any senior manager, Board member, C-Suite executive or compliance practitioner this book should be mandatory reading. In this age of instant viral news, you do not want to be responding in an after-crisis mode. As the Wal-Mart and Avon Foreign Corrupt Practices Act (FCPA) scandals amply demonstrated, once bribes are paid, no amount of corporate cover-up or even burying negative reports will save a reputation. I heartily recommend this book for your bookshelf.

You can purchase of copy of the book by clicking here.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2015


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