In a world full of Business Risks, one Risk is now more critical than any other.
The world has never been more challenging for Business.
The IMF’s latest report maintains its forecast of a moderate 3% growth in world output for 2017. But it clearly emphasises that “the balance of risks is viewed as being to the downside”.
The “Global Risks Report, 2017” published by the World Economic Forum illustrates the enormous complexity of risks facing the world – and the enormous breadth of risks that confront the world of Business today.
Global politics have become unpredictable. Protectionism has become a potential threat once again. The global environment continues to deteriorate. The regulatory environment has never been more challenging. Competition intensifies in every industry. The war for talent has become more competitive than ever. And cyber-crime is an increasing danger for every business and government.
At the same time, we are witnessing a breakdown of public trust in politics, business and the media.
The world of business is genuinely facing more risks than ever before.
Yet all these risks have combined to create the biggest risk of all.
The World’s Biggest Business Risk
The world’s biggest business risk is consistently identified in four of the most authoritative International Research Surveys in the world, carried out by some of the world’s most respected experts in Business Risk:
Aon is the largest insurance broker in the world, and last year they published the results of their latest biannual Global Risk Management Survey.
The Survey summarised research among over 1,400 Risk decision-makers from 28 industries in 60 countries, and the results are startling.
Respondents identified no less than 53 significant risks to their business – but the No.1 Risk to business worldwide might surprise you.
It was the Risk of “Damage to Reputation/Brand”.
Reputation Risk was the most important Business Risk across Asia Pacific, North and South America, the Middle East and Africa.
It was the most important Business Risk in Aviation; Banking; Education; Food Processing & Distribution; Government; Insurance; Investment & Finance; Professional & Personal Services; Real Estate; Retail; Telecommunications & Broadcasting; and Non-Profits.
It was the most significant Business Risk across the World and throughout Business Sectors.
Yet these findings merely confirm what previous surveys had already identified:
- Clifford Chance/EIU
An earlier Survey commissioned by Clifford Chance – one of the world’s top ten law firms – was carried out by the Economist Intelligence Unit among 320 Board Level Executives around the world. (“View from the Top”)
They were asked ‘Which Risk Categories is your Board currently focussing on?’
The top two answers were:
Financial Risk and Reputation Risk.
These came well ahead of their other Business Risks – Legal, Political, Health & Safety, Environmental, Cyber, Human Rights and Societal/Consumer Activism.
In Deloitte’s earlier “Exploring Strategic Risk” research among 300 C-level executives found that Reputation Risk was cited as the #1 Risk in Business.
A year later, the “Deloitte 2014 Global Survey on Reputation Risk” found that Reputation Risk had become even more important:
In fact, 87% of Executives surveyed rated Reputation Risk as “more important” or “much more important”.
ACE, the owner of Chubb Insurance and one of the world’s largest Insurance Companies, carried out a survey of 650 EMEA Risk Managers and summarised their findings in their “Reputation at Risk” Report.
The conclusion from these Risk Managers was irrefutable:
81% said that “Reputation is our Company’s most significant Asset” – yet ACE also found that their respondents believed that “they are facing a rise in the Risks associated with Reputation”.
The Most Difficult Risk to Prevent
The primary reasons for the rise in Reputation Risk were generally consistent across all the surveys:
- Digital and Social Media now enables news of the slightest Reputational issue to travel around the world at destructive speed.
- Reputation Risk is “The Risk of Risks”. Every single other Business Risk can quickly spread to damage a Corporation’s Reputation. As a result, Reputation Risk can come from anywhere in any Corporation, at any time.
- Corporate Distrust is leading to relentless Business Scrutiny – from the Public, from Governments, from Regulators, from the Media, from everywhere.
- The Breadth of Stakeholders that a Corporation must attend to has never been greater – making it increasingly challenging to provide total satisfaction across all Stakeholder Groups.
For these four reasons – and many others that we shall discuss in later Blogs – it seems for many Businesses that Reputational Damage is a perpetual threat and the most challenging Business Risk to prevent.
The Most Difficult Risk to Manage
Similarly, it is the most challenging Business Risk for most Businesses to manage.
This is for several, interconnected reasons – of which these four are the most obvious and frequently cited:
Unlike most Business Risks, Reputation Risk is difficult to define and categorise. Because it is seen as ‘The Risk of Risks’, it spreads across all components of a Corporation’s business.
Because Reputation Risk has emerged as the world’s leading Business Risk only recently, the tools and methods to measure, monitor and manage it are still evolving.
Most Corporations, therefore, do not have well-established, proven Reputational Risk Management Systems in place. As a result, there is a sense of insecurity in Reputation Risk preparedness.
Reputational Risk remains difficult to insure, compared to other Business Risks. Two-thirds of companies in ACE’s sample, for example, said that they “feel inadequately covered for reputational risk”.
Managing Reputation Risk may be challenging, but it’s never, ever been more important.
Reputation is a Research and Strategy Consulting Firm that advises CEOs and Boards of Public Companies how to achieve Fair Valuation for their Company’s Stock.