Reputational risk
The possibility that an event, decision or behaviour will undermine key stakeholders' trust in the company and translate into business costs.
Reputational risk rarely stands alone. It is usually the consequence of other risks: product quality problems, employment disputes, safety incidents, suppliers' conduct or statements by board members. It should therefore form part of the company's risk management system rather than being a separate matter for the communications team.
In practice, this means regularly reviewing events that could undermine stakeholder trust and giving each an assessment, an owner and a mitigation plan. Equally important is a question asked at every significant strategic decision: how will those whose trust we depend on judge it?
- reputational risk on the risk register,
- an owner on the board, most often the CEO,
- a review at least once a quarter.
For the board, reputational risk is hard to put a value on, but its effects are real: costlier financing, slower negotiations, harder recruitment. Companies that manage it spot warning signs earlier.
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