In a sustainability context, protecting the reputation of the firm must be one of the biggest drivers ensuring that a business is managed ethically. Some have even suggested that the impact of a negative event on reputation, and therefore on brand equity, far outweighs any legal costs incurred in terms of non-compliance, demonstrating why reputation risk management is so high on the agenda of the Board of Directors.
Warren Buffett, speaking in the wake of the Berkshire Hathaway scandal, said “It takes 20 years to build a reputation and 5 minutes to ruin it and if you understand this you will do things differently.” The critical nature of reputation risk becomes clearer when we realise that every other risk managed by the supervisory board such as market-, succession-, compliance-, financial-, credit- and operations risk, as examples, has a direct impact on the reputation risk of the entire business. This is clearly why reputation risk management must surely rate as being the ultimate responsibility of the Board!
It is so important that there have been very few Audit, Credit and Risk Committee (ACRC) or Board meetings (supervisory and executive) that I attended as a director, where reputation risk was not raised in some way. However, in spite of its importance, the systematic identification, management and measurement of reputation risk is still very much in its infancy worldwide.
Indeed, as reputation risk seemingly tends to be managed on a case by case basis, both in terms of its identification and in terms of the response of the Board to it when it materialises, there is certainly room for improvement here in line with director's increasing fiduciary responsibilities.
Warren Buffett, speaking in the wake of the Berkshire Hathaway scandal, said “It takes 20 years to build a reputation and 5 minutes to ruin it and if you understand this you will do things differently.” The critical nature of reputation risk becomes clearer when we realise that every other risk managed by the supervisory board such as market-, succession-, compliance-, financial-, credit- and operations risk, as examples, has a direct impact on the reputation risk of the entire business. This is clearly why reputation risk management must surely rate as being the ultimate responsibility of the Board!
It is so important that there have been very few Audit, Credit and Risk Committee (ACRC) or Board meetings (supervisory and executive) that I attended as a director, where reputation risk was not raised in some way. However, in spite of its importance, the systematic identification, management and measurement of reputation risk is still very much in its infancy worldwide.
Indeed, as reputation risk seemingly tends to be managed on a case by case basis, both in terms of its identification and in terms of the response of the Board to it when it materialises, there is certainly room for improvement here in line with director's increasing fiduciary responsibilities.
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