Businesses struggle to manage reputational risk

More than 90% of businesses believe that reputational risk is the most difficult category of risk to manage, according to new research from ACE Group in collaboration with Longitude Research.

Companies regard reputation as their most important asset but the majority struggle to protect it, according to 81% of respondents.

At the launch of its report, Reputation at Risk, ACE European Group President Andrew Kendrick warned that the risk is becoming more “pervasive” and “immediate”.

He said: “There’s no question that reputation is critical to the long-term health of any company and that it is now a key issue for every boardroom.”

However he added: “Despite widespread understanding of the importance of reputation, many admit that they have trouble getting their heads around the often intangible nature of reputational risk. In fact, 92% of our respondents said that it was the most difficult risk category to manage.”

The insurer surveyed 650 risk managers including 159 chief risk officers, 162 chief financial officers and 162 chief operating officers across 15 countries within the Europe, Middle East and Africa region.

It indicates that 77% find it difficult to quantify the financial impact of reputational risk on their business, making it harder to measure than traditional and more tangible risks.

More than half (56%) of companies say social media has greatly exacerbated the potential for reputational risk to affect their business, and 66% feel they don’t have adequate insurance to cover the risk. Interestingly, 68% say information and advice on how best to manage this type of risk is hard to find.

Kendrick added: “Reputational risk can be difficult to predict. However, some clear pointers emerge from our research as to the source of companies’ key worries. One of these is the globalisation of business, with complex supply chains, expansion into new markets and the challenge of maintaining consistent standards across multiple borders all giving cause for concern. The other noticeable theme is regulation. Post-crisis, compliance has taken on a new importance and businesses of all shapes and sizes are more keenly aware of its relationship to their corporate reputation.”