Risk Management, PRMIA

In the light of what is happening now, it is very clear that if reputational risk management is left to the hunches of top management, fiascos like this will happen again and again. Risk management, arising out of reputational losses, must be assessed early and managed swiftly. No point managing operational risks such as loss of a key or of documents, without addressing reputational risks in detail. The problem is , there is no proven model of reputational risk management and hardly any guidance from Basel or regulators. One is not sure what needs to be managed and how. But the need to manage reputation is paramount, and one needs to start , even with limited guidance.Let me put forward some pointers in this direction. As is the case with individuals, reputation of an institution can be damaged by a wide range of factors, and not honouring commitments is one of them. Possible sources may include, among many things ,poor financial performance, lack of strong governance and leadership; inadequate regulatory compliance;failure to deliver customer promises;ineffective monitoring of outsourcing arrangements ;poor workplace culture;adverse changes in geopolitical factors; poor external and internal communications; and, unplanned and slow crisis management. In a market where everyone is sensitive to rumours and bad news, there can be many more things that can affect the reputation. During the Great Depression of 1930s, a well known Bank faced a run when a popular pastry shop in its premises had a huge queue of hungry customers. This implies that there is a need to be extra cautious in difficult times with reputation risk management.

Managing reputational risk would mean establishing guidelines provide a framework for effective implementation of the reputational risk management process; establish the role of various functions in the reputational risk management process; and,establish the requisite mechanism for mitigation in the case of a reputational risk event. This broadly translates to a series of steps. First, one needs to find out possible sources of reputational risk . Second, such risks need to ba assessed ( may be by looking at severity of impact and likelihood of occurrence). Next, a collective assessment coupled with an evaluation of potential damages will be useful. Finally, effective design the controls and planning the mitigation measures may facilitate avoidance of risk. Often, you find a Bank faced with a crisis has no predesigned plan to tackle. The resultant slow response increases reputational losses. This is exactly what is happening now in Dubai, poor or contingency planning in the event of the reputational risk event.
Let’s face the reality- losing reputation is costly and one needs to take decisions with an awareness of their impact on the reputation of the organisation.