Difference between revisions of "Reputation Risk"
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== Definition == | == Definition == | ||
| − | '''Reputation Risk''' (also Reputational Risk) is the [[Risk]] of immediate financial loss and/or future value loss ([[Franchise Risk]]) as a result of changing perceptions towards the firm by its clients and/or other stakeholders | + | '''Reputation Risk''' (also ''Reputational Risk'') is the [[Risk]] of immediate financial loss and/or future value loss ([[Franchise Risk]]) as a result of changing perceptions towards the firm by its clients and/or other stakeholders |
== Nature of the risk == | == Nature of the risk == | ||
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Reputation risk arises as a secondary effect from a variety of other [[Risk Event]] realisations: | Reputation risk arises as a secondary effect from a variety of other [[Risk Event]] realisations: | ||
* major market, credit or insurance losses that question the firm's ability to manage risks | * major market, credit or insurance losses that question the firm's ability to manage risks | ||
| − | * legal or | + | * legal or [[Compliance]] related fines and losses that question the firm's integrity and values |
* accounting scandals | * accounting scandals | ||
* failed strategic initiatives (acquisitions, business strategies) that question the firm's ability to exercise its options | * failed strategic initiatives (acquisitions, business strategies) that question the firm's ability to exercise its options | ||
Revision as of 14:14, 4 October 2021
Definition
Reputation Risk (also Reputational Risk) is the Risk of immediate financial loss and/or future value loss (Franchise Risk) as a result of changing perceptions towards the firm by its clients and/or other stakeholders
Nature of the risk
Reputation Risk is part of the overall Business Risk category which captures risks that are less tangible than risks associated with firm's Balance Sheet. It is more specifically part of Franchise Risk, that is, risks affecting the perception of a Business as an ongoing franchise
Examples
Reputation risk arises as a secondary effect from a variety of other Risk Event realisations:
- major market, credit or insurance losses that question the firm's ability to manage risks
- legal or Compliance related fines and losses that question the firm's integrity and values
- accounting scandals
- failed strategic initiatives (acquisitions, business strategies) that question the firm's ability to exercise its options
- key person risks (departure of respected individuals)
- ESG Risks
Issues and Challenges
- There are no obvious ways to measure reputation risk
- Frameworks aiming to manage reputation risk invariably raise the awkward question of a firm's Risk Appetite for reputation loss
