Is Reputation Risk Overstated?

Ariane Chapelle

Since the financial crisis that knocked bankers off their pedestal and severely tarnished the entire industry, reputation has become a major concern for many managers. It attracts considerable attention in the professional literature, such as the recently published KPMG survey which concludes that “there are different points of view concerning governance, methods and process [regarding reputation management]" and “setting up a reputation risk management framework is difficult when questions remain over its definition". Indeed.

RISK OR IMPACT?

Reputation can be a risk or an impact, depending on the circumstances. Reputation is a risk if the image of the corporation is intentionally put at risk when the management decides to enter a new market, to operate in certain countries or to sell certain types of product that could impact the brand negatively. In this case, it is – or should be – a conscious risk appetite decision, where more risk is taken in exchange for expected higher returns.

In the context of operational risk, socalled reputation risk actually refers to the damage to reputation that follows a large operational incident. In this case it is an impact, rather than a