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A

PROJECT REPORT

ON

REPUTATION RISK

MANAGEMENT IN

INDIA

Submitted by:-

Mercy

[Risk-Pro Professionals] [REPUTATION RISK MANAGEMENT IN INDIA]

TABLE OF CONTENT

1. Research

2. Executive Summary.

3. Introduction

4. Objective of study.

5. Research Methodology.

6. Analysis.

7. Conclusions.

8. Annexure

9. Bibliography.


ABOUT TH RESEARCH

The Reputation Risk Management in India is a research Project to take an insight,

How companies are managing reputation risk and the research of this project is

based on online survey of various companies and corporate indulging in reputation

related activities and interviews with executives and management persons.

Our thanks to everyone who shared their time and insight in this report.

June 2010.


EXECUTIVE SUMMARY

Protecting a firm’s reputation is the most important and difficult task facing senior

risk managers. In a survey of 20 Companies, reputational risk emerged as the most

significant threat to business out of various choices of categories of risk.

Corporate leadership teams are the guardians of an organization’s stability and

financial well-being. The growth of profits and protection of assets are always

prominent concerns. Yet, while numerous factors posing a potential risk to a

Company’s equilibrium are routinely evaluated and addressed accordingly, one

Critical threat is too often overlooked: the company’s reputation. Unless the

Key elements of reputational risk are identified, prioritized and monitored, an

Enterprise is not fully protected against the impact of potential negative events

and issues. Reputational distress can be the result.

The report’s findings include:

Reputation ins prized, and highly vulnerable, corporate asset.

Reputation is one of the most important corporate assets, and also one of the most

difficult to protect, according to executives in the survey.

Companies struggle to categorize- let alone quantify- reputational risk.

Risk managers are divided on whether reputational risk is an issue in its own

right or simply a consequence of other risks.

Compliance failures are the big source of reputational risk. Failure to comply with regulatory or legal obligations is a reason behind

reputation risk. Failure to deliver minimum standards is another reason.

The CEO, CFO and higher management is the principle guardian of

Reputation.

The good communication is very vital in managing reputation risk.


INTRODUCTION

“Reputation risk is risk of indirect loss (current or prospective) arising from one or

multiple stake holder's adverse experience while dealing with the institution or

which resulted in an adverse perception of the institution (as a standalone entity or as

a part of major corporate group).” Also

“Reputation is public information regarding a players’

trustworthiness. A players’ reputation reflects the information that third parties have

on how trustworthy his behavior has been in the past”. (Ripperger 1998)

Although shortage of cash or finance can bring a company to its knees, it is more

frequently a loss of reputation that deals the final blow. It is curious, then, that while

tools and techniques proliferate for managing monetary risks, the art of protecting

reputations is poorly developed and understood. Most respondents to our survey

agree that reputation is a primary asset of their organization, and that the risks facing

reputation have grown in recent years. However, they also acknowledge that

reputational risk is harder to manage than other sorts of risk, largely because of a

lack of established tools and techniques and confusion about who is responsible.

An organization’s reputation resides with a wide range of interested

parties. Most important are the customers and investors, who between them provide

the wherewithal that allows the organization to function.

SOME QUOTATIONS:

“It takes twenty years to build a reputation and five minutes to destroy it.”

(W. Buffet)

“If you lose dollars for the firm, I will understand. If you lose reputation, I will be

ruthless.” (W. Buffet)

“Our assets are our people, capital and reputation. If any of these are ever

diminished, the last is the most difficult to restore.”

(Goldman Sachs Business Principles).


IMPORTANCE OF REPUTATION:

Information asymmetry: Outsiders don’t know as much about a company as

insiders, so a good reputation alleviates and allow customers to make a choice.

Important for all companies but crucial and vital to insurers as they sell distant

promises: Insurers exchange money for future and unknown promises

Employees: Are more loyal to a company with good reputation. Help with

recruiting.

Investors and business partners: Will take risk in a company that they can

thrust based upon its reputation.

Lawmakers and regulators: Reputation can help lessen the legal burden on a

company.

Public at large: Preserve “social license” to operate Customers and suppliers:

Support loyalty to company.

Competition: Barrier to entry.

OBJECTIVE OF STUDY:

To study The Reputation risk management covering how reputation risk is

identified, measured, managed and resolved if any events take place.

Reputation risk in today's world is a very important risk factors and the

larger and more complex the organization, the greater the reputational

risks.

Insight on what is the different risk management practices that

companies are using. How companies manage risks arising out of

damage to reputation?

RESEARCH METHODOLOGY:

PRIMARY DATA: To collect primary data best way is to interact with people

directly it can be through direct interviews and questionnaires. Both these methods

have used for collection of primary data. With the help of articles and understanding a

questionnaire was designed online and gets filled from corporate and telephonic

interviews and personal visits were also taken.

SECONDARY DATA: Secondary data is collected from article on reputation risk on

websites and various Literature reviews.


ANALYSIS

1. Respondents filled the questionnaire online.

2. Among the Respondents mostly were from Finance and I.T departments

(27% each). Others include public relations, Hr, Marketing/sales and

others.

3. Among the industries surveyed Most were from I.T and Manufacturing,

others include Service and Software.


4. Max. ie., 78% of the companies think that reputation risk is the most

imp. Risk as compared to regulatory, credit, finance etc.

5. 60% of the companies think reputation risk is a separate risk, while

others say it is a consequence of other risks.

6. Most of the companies think reputation as a source of competitive

advantage and Bad news of their cos. in media has a major impact on

organization.


7. According to the companies the Loss of HR, IT failure, Employee fraud

and reputation loss are the reasons for their failure in recent past.

8. In response to what can damage reputation of their cos., they say

9. In response to practices followed at the organizations to manage

reputation risk companies answers were


10. In response to how many times they check perception of their company

among stakeholders and customers, most cos. Said regularly.

11. In response to who has contributed max. in managing reputation risks,

corporate were confused and their answers were scattered. Some said

CEo, others Said marketing managers, CFos etc.


12. In response to “How good their company in different areas”, the

responses were

13. In response to “Are they agree or disagree” with various things their

response were

14. In response to an obstacle in managing reputation risk, most companies

said there is lack of established tool and technique to tackle this.


15. In response to whether the Reputation Risk well described in the

ICAAP Document (Pillar II of Basel II), most respondents said they are

unaware and others as

16. In response to “Do you think that your organization should more to

manage reputation” most said maybe and others as.

17. In response to “Does your company have media monitoring aspects in

place”, most said they do have to some extent.

18. About their valuable thoughts they said:

Reputation has always been important. However, it may have been

looked at in isolation thus far. Organizations have now begun to realize

that reputation risk can be a consequence of various other risks and

activities. Reputation risk management programs cannot be 'one size

fits all'. They are unique and dependent on the respective objectives,

industry, nature of business and other socio-economic-political growth

factors. And it’s necessary.


CONCLUSION:

Opinion is divided as to whether reputational risk is a category of risk in its

own right, or merely the Consequence of a failure to manage others. Whatever

position companies take on this, almost all executives agree that corporate

reputation is a hugely valuable asset that needs to be protected. It is also clear

that serious reputational damage can occur simply as a result of perceived

failures, even if those Perceptions are not grounded in fact. Understanding

how different aspects of an organization’s activities impinge on stakeholder

perceptions is therefore a vital aspect of protecting a company’s reputation.

There are three distinct tasks to managing reputational risk: establishing

reputation to begin with, maintaining it through the rough and tumble of

business operations, and restoring it when it has been damaged. The latter

two, especially, call for very different actions (and actors). Whereas

establishing and maintaining reputation may be considered a matter of

successful risk control in other areas, reputational repair clearly cannot.

The CEO plays the vital co-coordinating role, but must also personify the

values and conduct that ensure a company’s good standing. Other members of

the reputational risk team include the chief risk officer, who tends to be more

focused on the more technical task of monitoring, mitigating and, where

possible, quantifying reputational threats. Communications, service and sales

staff are involved in mitigating the reputational fallout of everything from a

negative news story to a break down in customer service. Above all, good

companies create a culture where employees take responsibility for enhancing

corporate reputation through their everyday activities, like for e.g. Filling

time-sheets daily to avoid any confusion and stick to deadlines to fulfill the

orders, etc. Responsibility for corporate reputation, and the threats that can

undermine it, extend from top to bottom in today’s organizations.

Currently, many companies feel that their capabilities in managing

reputational risk leave much room for improvement, but the high rewards of

success should provide strong motivation for progress in this area. Incurring

reputational damage can be fatal, but establishing a robust reputation can

provide a strong competitive advantage.


A good reputation strengthens market position, reduces the price of capital

and increases shareholder value. It insulates the brand, permits higher prices

and helps to attract top talent. It protects public companies from unwelcome

takeover bids, and raises the potential returns from share offerings. In times

when the issue of trust is under particular scrutiny, these are prizes well worth

attaining.

ROOM FOR IMPROVEMENT: The lack of consensus regarding reputational

risk management strategies and the shortage of established tools for the job

are reflected in the patchy levels of satisfaction expressed by managers in their

efforts in this area.

Some of the practices which help in enhancing the reputation of an

organization are

Good Corporate Governance.

Effective Board of Directors.

Dept to address customer complaints.

Fraud risk management policy.

Shareholder surveys.

Customer feedback.

Legal dept handling legal cases to avoid litigation.

Media Communication Policy to control releasing news to press Crisis

Management committees.

Internal communication with employees to keep them satisfied.

Corporate Social Responsibilities activities – Donations, social cause

activities, viz. save tiger campaign, save tree campaigns, save girl child

campaign etc.


ANNEXURE: Questionnaire

Q.1 Please enter your name and email address:

Q.2 Please select your role/dept. in the organization.

Finance dept.

PR/media communication.

Risk dept.

Compliance dept.

Legal.

HR.

IT.

Marketing/Sales.

Others. Q.3 Please select the industry of your company.

Manufacturing.

Banking.

Retail.

Hospitality.

Service.

Software.

Telecommunications.

IT.

BPO.

Others. Q.4 Keeping in view your company rate the following risk as Major Minor or negligible.

MAJOR MINOR NEGLIGIBLE 1. Reputational risk 2. Regulatory Risk 3. Credit Risk 4. Financing Risk 5. Market risk 6. Human Capital 7. IT Network 8. Political Risk

ANY COMMENTS…


Q.5 Reputation risk in view of your company is:

1. A separate risk 2. Consequence of other risks

ANY COMMENTS… Q.6 Rate the following according to the impact they have on your organization. Major Minor Negligible.

1. Reputation as a source of competitive advantage 2. Bad news in media about the organization 3. Consumer: brand switching 4. Government Intervention 5. Compliance with ethics

ANY COMMENTS…

Q.7 which of the following by any way caused loss to your company in recent past? YES No

1. Loss of reputation 2. Loss of skilled HR 3. Employee Fraud 4. IT Failure/electronic security breach 5. Damage to Infrastructure 6. Loss or theft of Intellectual Property

ANY COMMENTS… Q.8 which of the following you consider can damage reputation of your company YES NO

1. Non compliance with regulatory and legal obligations 2. Unethical practices 3. Security Breach 4. Failure to deliver 5. Poor crisis management 6. Failure to achieve targets 7. Association with people or organization of poor repute 8. Failure to hold social responsibility ANY COMMENTS… Q.9 which of the following activities are being followed at your company to manage Reputational Risk?

YES NO 1. Crisis management process is planned and documented 2. External news n perceptions about the organization are measured on regular basis 3. A broad program for corporate social responsibility to address possible

Sources of reputational risk is developed 4. Reputational threats are symmetrically tracked 5. Employees are trained to identify and manage reputational risk 6. A separate department or team handles reputational risk 7. Relationships and trust with pressure groups and other potential crisis of your firm are established.


Q.10 How often do you check perceptions about your company with corporate stake holders?

1. Regularly 2. Once in a month 3. Four times a year 4. Once in a year 5. Occasionally very rare 6. Never

ANY COMMENTS… Q.11 which of the following has contributed to managing reputation risk in your company?

1. CEO/President/Chairman 2. Board of Directors 3. Chief risk Officer 4. Head of Business units 5. PR Person 6. CFO 7. Compliance officer 8. Marketing manager 9. Head of country operations 10. Brand manager 11. Media

ANY COMMENTS…

Q.12 How good your company is in following area Above avg. Avg. Below avg. No efforts

1. Communication with customers 2. Enforcing strong controls on governance and compliance 3. Monitoring threats to reputation 4. Ensuring ethical practices 5. Communicating with external stakeholders

ANY COMMENTS… Q. 13 Do you agree or disagree with the following statements? Agree Disagree Neutral

1. Corporate reputation is one of the primary assets of my firm 2. The risks involving an organization’s reputation have increased Significantly over the past five years Reputational risk is harder

to manage than other forms of risk 3. My firm is proactive in enhancing and protecting its reputation 4. It is impossible to quantify the impact of reputational risks 5. Our program for corporate social responsibility is reputational Risk management by another name 6. My firm usually thinks about its reputation only when things go wrong 7. A well-run business doesn’t t need to invest extra resources into guarding

Against reputational risk ANY COMMNTS...


Q. 14 Rate each of the following as an obstacle to Managing reputational risk in your organization? Major Minor Negligible

1. Lack of established tools and techniques to manage reputational risk 2. No one has taken formal responsibility for reputational risk 3. Poor co-ordination between the board, risk function, corporate

Communications, etc 4. Poor communications with external stakeholders 5. Too many reputational threats to manage 6. Management is too internally focused/unaware of external perceptions 7. Weak governance/internal controls

ANY COMMENTS... Q.15 If you are into banking is Reputation Risk well described in the ICAAP Document (Pillar II of Basel II)?

YES NO I don’t know Others (please specify).

Q.16Do you think that your organization should more to manage reputation?

Yes

May be

No

Others (please specify). Q.17 Media monitoring is a means by which the impact of the media coverage is assessed as positive, negative or neutral. Appropriate action can be taken if it is negative. Does your company have media monitoring aspects in place?

Yes.

No.

Somewhat.

Others (please specify). Q.18 your valuable opinion/thoughts/suggestions regarding reputation risk.


BIBLIOGRAPHY:

http://en.wikipedia.org/wiki/Reputational_risk

http://www.soa.org/files/pdf/lsprng07-001-rochette.pdf

http://findarticles.com/p/articles/mi_m0ITW/is_1_85/ai_n14897163/

Reputational_Risk_White_Paper.pdf

Various companies websites viz.

www.hul.co.in

www.havells.com

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