reputation risk

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Reputational risk, often called reputation risk, is a type of risk related to the trustworthiness of business. Damage to a firm's reputation can result in lost revenue or destruction of shareholder value, even if the company is not found guilty of a crime. Reputational risk can be a matter of corporate trust, but serves also as a tool in crisis prevention.[1]
This type of risk can be informational in nature or even financial. Extreme cases may even lead to bankruptcy (as in the case of Arthur Andersen). Recent examples of companies include: Toyota, Goldman Sachs, Oracle Corporation and BP. The reputational risk may not always be the company's fault as per the case of the Tylenol cyanide panic in 1982.
Reputational risk can be defined as the risk arising from negative perception on the part of customers, counterparties, shareholders, investors or regulators that can adversely affect a bank's ability to maintain existing, or establish new, business relationships and continued access to sources of funding (eg through the interbank or securitisation markets).

Reputational risk is multidimensional and reflects the perception of other market participants.

Furthermore, it exists throughout the organisation and exposure to reputational risk is essentially a function of the adequacy of the bank's internal risk management processes, as well as the manner and efficiency with which management responds to external influences on bank-related transactions.

Reputational risk, typically through the provision of implicit support, may give rise to credit, liquidity, market and legal risk -- all of which can have a negative impact on a bank's earnings, liquidity and capital position.

A bank should identify potential sources of reputational risk to which it is exposed.

Oscar Wilde once famously proclaimed, "One can survive everything, nowadays, except death, and live down everything except a good reputation."

It goes without saying that at least once, if not several times in our lives, we have all experienced the negative backlash a spiteful rumor or an embarrassing truth can have, but it is often how we handle these imbroglios that truly define our reputations.

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[TheReputationonline]

At a time when the world was fairly stable and the economy based on scarce physical goods, purchasing insurance cover seemed the right answer to risk management: most of the perils were insurable, and t he insurers acted as guardians of the mutualisation process.

[TheReputationonline]

When a crisis threatens, it is a time of exacerbated reputation volatility. Preparing a strategic redeployment plan is therefore the best way for management to be prepared to cope positively with the surprises of the future.

[TheReputationonline]

Risks or uncertainties, both positive and negative, must be managed in a holistic systemic approach, as there is no such thing as reputation risks – rather, all risks may impact on reputation. Thus the best management of risks to reputation is sound enterprise-wide risk management and governance, where all insiders are involved and outsiders’ interests are taken into account.

[TheReputationonline]

Managing reputation is therefore an essential part of the strategic role of the board of directors, who must take into account all stakeholders, whose perception of the organisation will determine its reputation.

[TheReputationonline]

However, drivers impact the long-term reputational standing of any organisation, and these apply to not-for-profit entities as well as to local authorities and public or private healthcare providers.

[TheReputationonline]

In a world economy that is both global and volatile, intangible assets have become the essential wealth of many companies. Whereas some assets, like copyrights and licences, brands and leases, may be assessed, the composite ‘reputation’– defined here as the excess value over the total physical assets – can only be derived from the financial market’s evaluation of the company’s shares.

[TheReputationonline]

As risk management continues its evolution, reputation management is emerging as a key issue for all enterprises. Professor Jean-Paul Louisot investigates what defines reputation and outlines techniques for managing this critical non-asset risk