Safeguarding reputation Are you prepared to protect your reputation? 25 November 2020 Safeguarding Reputation: Are you prepared to protect your reputation? Foreword Protecting reputation in the time of uncertainty As the second wave of COVID-19 unravels, many We have identified five key actions that risk owners in organisations find themselves living William organisations need to think about to advance their Shakespeare’s quote from Othello – “Reputation, preparedness to safeguard their reputation. These reputation, reputation! O, I ha' lost my reputation, I ha' include: lost the immortal part of myself, and what remains is - Proactive signal sensing to identify changing bestial!”. Many businesses have gone dark, being social norms or changing narratives among your afraid to say the wrong thing to the media, many others stakeholders have communicated the ‘right thing’ but have not - Building resilience across the whole organisation followed up with the ‘right actions’. As activism to prevent the occurrence of the consequential risk movements become more widespread, this means that of reputation customers and other stakeholders are becoming less - Creating a culture of responsibility throughout forgiving of any corporate missteps. the organisation (reputation can’t be effectively Reputation is a risk of risks. That means that any major managed in a single risk management team) adverse events impacting an organisation can lead to - Training at all levels, including senior executives potential reputational damage. Considering global - Minding your business model to make sure you corporate reputational value is estimated to be trillions understand how each stakeholder group influences of US dollars, a colossal amount of corporate value is your business success at stake. The good news is that not every accident will An interesting part of these safeguarding efforts is necessarily lead to actual damage – it will often depend insurance. There are multiple existing reputational risk on how the organisation acts in the aftermath of the transfer solutions already available, and the insurance crisis. market is pursuing a range of activities to continuously In this report, we explore how organisations can keep increase its relevance. There could be fascinating their reputation safe throughout the reputation lifecycle growth opportunities for insurers and brokers in helping – from proactively enhancing brands and preventing organisations transform their reputation management. adverse events as part of business as usual activities, to building a ‘bank’ of positive sentiment, through to limiting the damage after an incident, and finally rebuilding a reputation in the aftermath of the incident. 2 Safeguarding Reputation: Are you prepared to protect your reputation? Contents 04 Executive summary 11 The growing importance of reputation 19 Determining the value of your reputation 25 Safeguarding reputation 37 The role of insurance 44 The way forward 3 Executive summary 4 Safeguarding Reputation: Are you prepared to protect your reputation? Reputation is about what others see the organisation as, instead of what it is or aspires to become Reputation is not the same as ‘identity’ or Identity Brand ‘brand’. Rather than looking at “who your organisation is”, reputation looks at “what What you hope to be and be Who you are others actually see you as”. seen as There are two types of reputation. The first one is the perception of an organisation’s Reputation capability or its products and services – this type of reputation tends to sustain for What others actually see you as a long period of time and is especially important for customers. The second type is the perception of an organisation’s Capability Character character or the way it acts – this type of reputation is typically more volatile, Perception of organisation’s Perception of organisation’s changing frequently, and is especially capability character important for counterparties who work with the organisation. (what you are able to do – e.g. (how you go about what you do – quality and safety of your products) e.g. your social responsibility) Traditional shareholder value (physical assets, cash flow, etc.) is increasingly being replaced by broader stakeholder Stakeholder value value which means that organisations are required to manage broader critical trade- offs and key risks, which makes the reputation risk landscape increasingly Customers Employees Business Politicians Journalists complex. partners Source: KPMG analysis and expert interviews 5 Safeguarding Reputation: Are you prepared to protect your reputation? Reputation can be extremely valuable – 35% of the market capitalisation of leading equity market indices The total value of reputation is difficult to quantify. One reason is the inconsistencies in defining it – e.g. are you supposed to Average brand and reputation contribution measure reputation only or the sum total (market cap weighted) of reputation and brand? Another reason is the fact that reputation is often hidden Technology 43% from the management accounts and, therefore, only visible through other proxy Telecommunications 39% indicators – for example, an investor might $16.77 be willing to overpay for organisation’s trillion Healthcare 39% High future shares due to its strong reputation. growth potential Consumer goods 38% sectors We have discussed the typical methods of determining reputation value in section 2 Consumer services 36% of this report but whichever method you Corporate brand and Financials 33% use, there is strong evidence that reputation accounts for reputation can be extremely valuable - 35.3% of the market according to some estimates, it can reach Oil & gas 33% trillions of US dollars worldwide. capitalisation of the world’s 15 leading equity Basic materials 29% Lower future However, many executives overestimate market indices. That growth potential their current performance when it comes equated to $16.77 trillion of Industrials 28% sectors to reputation management. For example, value for shareholders in Utilities 25% 58% of executives believe that online Q1 2019. reputation management should be addressed, but only 15% actually do anything about it. Source: AMO Strategic Advisors; Status Labs 6 Safeguarding Reputation: Are you prepared to protect your reputation? Enhancing reputational value and safeguarding it requires a concentrated effort across the life-cycle of reputation development Proactive reputation management often decides which organisations will survive adverse events with their reputation largely intact and which ones will end up in serious financial difficulties. Organisations that work relentlessly on putting customers Media / Change in Reputation Business as Adverse Financial first and building their brand every day will social media stakeholder life-cycle usual event impact fair much better when (and if) a crisis hits. reaction perception There is evidence to suggest that such organisations will be forgiven more easily, and will suffer less reputational damage. 1 2 3 4 5 The most advanced organisations will Reputation Prevent make sure their reputation is properly adverse events Try to limit Try to limit Manage Re-build management safeguarded throughout the reputation and enhance the damage the damage stakeholders reputation activities lifecycle – starting from building resilience reputation and performing active signal sensing during ‘business as usual’ and being • Monitor • Fast internal • Rapid • Respond to • Strengthen changing communication communication negative corporate brand effective at limiting potential damage and stakeholder • Setting up a with the media sentiment • Enhance internal managing stakeholders after an event. sentiment rapid response (and on social (including micro culture Effective reputation management during a • Build resilience to the media media) targeting) • Analyse and crisis will also act as a trampoline for • Mind your • Pinpoint and • Take ownership • Listen and take learn from the rebuilding reputation after the crisis. communication contain the • Counter on board event • Enhance your problem inaccuracies • Cover all bases brand • Set the tone Source: KPMG analysis and expert interviews 7 Safeguarding Reputation: Are you prepared to protect your reputation? Insurance as an ever evolving tool to support reputation management The reputation landscape has changed significantly over the last few decades. As 1980s 1990s 2000s 2010s 2020 2025? organisations have increasingly switched Growth of First The rise of social Sophistication of Rethinking the Evolution of towards digitising their operations and personal webpages media and climate tech and rise of content content and customer engagement, more and more computers consciousness social activism technology adverse reputational events have been (1981 – (1991 – the first (2003 – LinkedIn (2010 – Instagram (Video content booms; (Rise of AR/VR caused by digital risks and have been stmen TIME magazine website goes live; launched; launched; Rise of ephemeral technology; Advanced amplified through digital channels (e.g. names the personal 1995 – Amazon 2004 – Facebook 2011 – The mobile content (e.g. Snapchat mobile assistants; social media). computer its "Machine launched; launched; assistant Siri stories); Rise of LIVE content; Key Key elopevd of the Year.“) 1997 – Google 2006 – Twitter launched; Rise of new niche Continuous rise of This landscape will continue evolving in launched) launched) 2016 – TikTok platforms (e.g. Twitch)) influencers) the future