stakeholder expectations, you avoid
long-term reputational damage.”
Wells Fargo’s scandal involved
a violation of ethics, sparked an
SEC investigation and forced the
resignation of its CEO, John Stumpf.
It’s safe to say stakeholders were
That’s not to say, however, that a
tarnished brand name doesn’t also
impact the bottom line.
“Even if a bad event is short-lived,
the equity markets react quickly, so
there may be sharp equity dips. There
may be some economic impact even
over the short term,” Kossovsky said,
“because sharp dips are dog whistles
for activists, litigators and corporate
SOCIAL MEDIA MACHINE
The root of reputation risk’s
tightening grip lies in the politicizing
of business, and consumers’ increased
desire to buy from companies that
share their values. Social media may
not be driving that trend, but it acts as
a vehicle for it.
“Social media has really changed
the game in terms of brand equity,
and has given people another way to
choose who they give their money to,”
Howard of Willis Towers Watson said.
Platforms like Twitter make it easier
for consumers to directly reach out to
big companies and allow news to travel
at warp speed.
“Social media are communication
channels that can take a story and
make it widely available. In that regard,
the media risk is no different than
that posed by a newspaper or radio
channel,” Kossovsky said.
“The difference today that changes
the strategy for risk managers and
boards is that social media has been
weaponized: Stories shared on social
media don’t necessarily have to contain
truthful content, and there’s not always
an obvious difference between what’s
true and what’s not.”
Helen Chue, Facebook’s global risk
“More influential than social media
communications should clearly
convey what a company believes and
what it does not believe; what it can
do and what it can’t do. And those
stated values need to align with the
operational reality. It comes down to
creating credibility and legitimacy.
“If you let a gap form between what
you say and what you do, that gap is
the definition of reputation risk,” he
said. A strong communication strategy
can prevent adverse events from
turning into reputational threats.
Willis Towers Watson helps clients
test their strategies through a table-top
exercise in which they have to respond
to a social media-driven reputation
“We’ll say, ‘Something happened
with X product, and now everyone’s on
Twitter lambasting you and calling for
resignations, etc.’ What do you do on
day one? What do you do a week out?
How long do you continue to monitor
it and keep it on your radar?” Howard
“If you have that plan in place,
you can fine-tune it going forward as
Sometimes, though, the
communication strategy fails, and
a company falls short of meeting
stakeholders’ expectations. Now it’s
time for crisis management.
“Volatility creates vulnerability.
If you stumble on your corporate
message, it creates an opportunity
for activists, litigators and corporate
raiders to exploit. So you need to have
authoritative third parties who can
attest to your credibility and affirm the
truth of the situation to open-minded
stakeholders,” Kossovsky said.
Owning up to any mistakes,
reaffirming the truth and being as
transparent as possible will be key in
any response plan.
INSURING THE RISK
Recouping dollars lost from
reputation damage requires a blend of
mathematics with a little magic. While
some traditional products are available,
reputation risk is, for the most part, an
intangible and uninsurable risk.
“Many companies have leveraged
their captive insurance companies in
the absence of traditional reputation
products in the marketplace,” said
Derrick Easton, managing director,
alternative risk transfer solutions
practice, Willis Towers Watson.
“It goes back to measuring a loss
that can include lost revenue, or
increased costs. Some companies build
indexes in the same way we might
create an index for a weather product,
using rainfall or wind speed. For
reputation, we might use stock price or
a more refined index,” he said.
“If we can measure a potential loss,
we can build a financing structure.”
While there’s no clear-cut way
to measure losses from reputation
damage, “stock performance and
reported sales changes are some of the
best tools we have,” Howard said.
Some insurers, including Allianz
and Tokiomarine Kiln, and Steel City
Re, an MGA, do offer reputation
policies. When these fit a company’s
needs, they have the ancillary benefit
of affirming quality of governance and
sending a signal that the insured is
prepared to defend itself.
“Because reputation assurance is
only available to companies that have
demonstrated sound governance
processes, it helps to convince people
that if a bad piece of news happens, it’s
idiosyncratic; it doesn’t reflect what the
company really stands for,” Kossovsky
of Steel City Re said.
“And it tells activists, broadly
defined, not to look for low-hanging
In a volatile political environment,
companies fare best when they simply
tell the truth.
“The American public will accept
an apology if delivered quickly and
if it’s sincere,” said Stephen Greyser,
Richard P. Chapman professor
of the Harvard Business School.
“Tell the truth. Don’t stonewall. A
bad social media campaign can be an
embarrassment, but if you stick to the
facts and apologize when you need to,
people forget about the bad quickly.”
“Reputation is the crown jewel,”
Chue said. “Given the power of social
media’s reach, one individual can
have a tsunami-like influence. And
it can happen when you least expect
it, and it will probably be something
you thought was innocuous or even
positive that sets off a maelstrom.
“Plan for the worst-case scenario.
Be proactive in your plans to
mitigate the aftermath and how to
communicate. Own up to error. Be
transparent. Salvage your crown
KATIE SIEGEL is an associate editor with
Risk & Insurance®. She can be reached at
platforms is today’s culture of immediacy
and headlines. Because we are inundated
with information from so many sources,
we scan the headlines, form our opinions
and go from there,” she said.
“It’s dangerous to draw conclusions
without taking a balanced approach,
but who has the time and patience
to sift through all the different
An environment of political
divisiveness, driven by speed and
creates the risk
that false or
have a chance to
clarify. This is
to Uber and
to turn a non-
“That’s how social media changes
the calculus of risk management.”
The best way to battle both political
pressure and social media’s speed is
through an ironclad communication
strategy; a process that risk managers
“Risk managers play a crucial role
in mitigating reputation risk,” Howard
“They bring with them the discipline
of managing and monitoring a risk,
having a plan and responding to crisis.
Now they really have to partner with
communications, marketing and PR.”
They also have to get the attention
of their board of directors.
“This is both a company-wide risk
and personal leadership risk, so the
board needs to drive a company-wide
policy that protects the board as well,”
The art of mitigating reputation
risk, he said, comes down to
managing expectations. Corporate
“Be proactive in your plans
to mitigate the aftermath
and how to communicate.
Own up to error. Be
transparent. Salvage your
—Helen Chue, global risk manager, Facebook
Bank of America
Bank of America
Net Favorablility Pre-Scandal
(% Favorable - %Unfavorable //Aug 2016)
Net Favorablility Post-Scandal
(% Favorable - %Unfavorable //Jan 2017)
Source: Morning Consult Intelligence
Public Scandal: Before and After