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01/28/2004

Perception is reality

The Economist has a nice little piece on reputational risk in this week's survey on risk (subscribers only, JKLers can look up the password on the intranet).

The biggest risk any company faces is the loss of its good name, and you cannot insure against that. Most boards are now paying much more attention to “reputational risk”—anything that could harm the image of their firm, from accounting irregularities to product recalls. The corporate scandals of the past few years have brought calls for greater transparency, and more corporate dirty laundry is now being aired. Aon, an American insurance company, recently surveyed 2,000 public and private companies and found that they viewed reputational risk as their single biggest business hazard.

It is not hard to see why. If a company suffers a blow to its reputation, it can collapse with astonishing speed. Arthur Andersen's clients deserted it long before the accounting firm had its day in court. When Putnam Investments, a mutual-fund company, came under scrutiny by Eliot Spitzer, New York state's attorney-general, its clients began to pull their money out of its funds literally overnight. Even if a company survives damage to its reputation, the loss of business can be devastating. Leslie Gaines-Ross, of Burson-Marsteller, a public-relations firm, has been advising companies on building their reputations for 20 years, but only in the past few years have companies started showing much interest in reputational risk, she says: “The entire subject is radioactive.” Billy McCormac

January 28, 2004 in Posts in English | Permalink