Paul Merrey, Strategy Partner, KPMG
Arturs Kokins, Associate Director, KPMG
It's certainly the case that no sector has been immune to public scrutiny in this crisis - as the pandemic has inspired consumers, and employers, to think more about their social impact than, possibly, ever before. Businesses that initially tried to remain open, despite non-essential businesses being ordered by the government to shut, or big corporations seemingly abusing the government furlough scheme, for example, have faced waves of public criticism. Organisations that failed to determine what 'responsible behaviour' meant in the context of their business, and act upon that quickly, faced losing the trust of their customers and damaging their reputation in the long-term.
Intangible assets & reputation risks: Two principles for risk managers
The growing importance placed by businesses and their customers on reputation comes in the context of the rising importance of intangible assets. Intangible assets represent as much as 80% of the value of S&P 500 companies, and even higher for companies in sectors such as IT and healthcare.
Traditional shareholder value, such as that pertaining to physical assets, is increasingly being replaced by broader stakeholder value. This means that organisations are required to manage broader critical trade-offs and critical risks, which makes the reputation risk landscape increasingly complex.
There are two key principles that can allow risk professionals to be more effective at addressing reputational perils.
The first principle is proactivity. The most successful businesses undertake horizon-scanning regularly, to pick up any looming threats before they hit the organisation. Monitoring changing consumer sentiments or significant social movements outside their businesses can allow them to adjust before things potentially go terribly wrong.
The second principle is to find ways of working closely with risk owners. It could be a Chief Financial Officer, a Chief Marketing Officer, a Product Manager, a Communication Manager, or any other employee in charge of looking after reputation. We have seen many counterproductive cases of risk managers trying to minimise exposures without balancing them with the general business strategy and operational practices led by risk owners.
The link between trust and operational resilience
One thing we have heard loud and clear in this post COVID-19 world is that reputation matters more than ever. Any trust related challenges should be addressed swiftly, with detailed and causal explanations, rather than issuing delayed statements to refute claims when it is already too late. This means that their operational resilience will become paramount.
Until now, operational resilience was arguably seen by many firms as a theoretical planning exercise in response to the requirements set out by the PRA, FCA and Bank of England. In a matter of weeks, COVID-19 demonstrated the intrinsic link between operational resilience in theory and crisis management in real-time.
Whilst the most obvious battle was the maintenance of operational continuity, over the course of this pandemic an increasing amount of pressure has been placed on firms to finely balance how they prioritise this against supporting and protecting their employees. Now more than ever, the journey to and outcomes of this prioritisation have come under an unprecedented level of public scrutiny.
Maintaining a positive reputation in a post COVID-19 world not only rides on a firm's ability to effectively manage risk from an operational perspective, but to do so in a way that demonstrates social purpose.
Whether public trust is won or lost by how organisations protect staff on the front-line, it is clear that the future of businesses will be determined not only by whether they maintained operational resilience during this crisis, but whether their achievements were made with social responsibility in mind.
The full Airmic survey report, Top risks and megatrends 2020, can be downloaded here.