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Business Risk 2019

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Ever changing, never changing Business insurance solutions for an unpredictable world Liberty Specialty Markets. For Mutual Advantage. www.libertyspecialtymarkets.com Josie Cox Freelance business reporter, commentator and broadcaster, she worked at Reuters and The Wall Street Journal, and was business editor of The Independent. Nick Easen Award-winning freelance journalist and broadcaster, he produces for BBC World News, and writes on business, economics, science, technology and travel. Karam Filfilan Business editor and writer specialising in human resources, future of work and innovation, he was previously deputy editor of Changeboard. Jim McClelland Sustainable futurist, his specialisms include built environment, corporate social responsibility and ecosystem services. Kate O'Flaherty Specialist writer on business and government technology, her work appears regularly in national, trade and business publications. Michelle Perry Freelance business journalist, she is editor of UK Landlord magazine and PropertyEU correspondent. Distributed in Publishing manager Reuben Howard Digital content executive Fran Cassidy Head of production Justyna O'Connell Design Grant Chapman Sara Gelfgren Kellie Jerrard Samuele Motta Head of design Tim Whitlock Managing editor Peter Archer Published in association with Although this publication is funded through advertising and sponsorship, all editorial is without bias and sponsored features are clearly labelled. For an upcoming schedule, partnership inquiries or feedback, please call +44 (0)20 8616 7400 or e-mail info@raconteur.net. Raconteur is a leading publisher of special-interest content and research. Its pub- lications and articles cover a wide range of topics, including business, finance, sustainability, healthcare, lifestyle and technology. Raconteur special reports are published exclu- sively in The Times and The Sunday Times as well as online at raconteur.net. The information contained in this publication has been obtained from sources the Proprietors believe to be correct. However, no legal liability can be accepted for any errors. No part of this publication may be reproduced with- out the prior consent of the Publisher. © Raconteur Media /business-risk-2019 @raconteur /raconteur.net @raconteur_london BUSINESS RISK raconteur.net Contributors I N D E P E N D E N T P U B L I C A T I O N B Y 2 8 / 0 4 / 2 0 1 9 # 0 5 8 3 R A C O N T E U R . N E T M A N A G I N G A N E X P L O S I V E C R I S I S R I S E O F T H E C H I E F C U L T U R E O F F I C E R R O U N D T A B L E : W H A T T H E L E A D E R S S A Y Leaders must communicate with speed, honesty and compassion Chief executives must be flag bearers of brand reputation Risk management and resilience in a fast-moving digital age 04 06 08 Why reputation could be your biggest future risk As clients and consumers become more aware of social and corporate injustice, damage to company reputation, which could sink a business in an instant, is rising up the boardroom agenda R E P U T A T I O N A L R I S K ing on change as quickly as the public want, and therefore still haven't understood how quickly reputation can be affected in a high- speed world of global communications. "Traditionally, risk officers have seen reputational risk as a consequence of other things happening. Is it a risk of risks or a risk in its own right?" asks Mark Hutcheon, director of risk advisory at Deloitte. Mr Hutcheon says that most companies still see reputation as a risk of risk. In fact, he says, if that question had been asked five years ago, no one would have seen reputa - tional risk as a standalone risk. Another core reason why reputational risk is more vital is because the balance between tangible and intangible assets has tipped towards intangible value, such as trust, reputation and goodwill, elements that are not as easy to manage as physical machinery. Therefore, the valuation of a business can be increasingly found in its intangible assets. "Companies are good at managing humans and physical assets, but they aren't good at managing intangible assets. We haven't got our heads around the idea that we have a whole new class of assets. We have to learn how to manage them, understand the risk and put strategies in place," says John Ludlow, chief executive of risk managers Airmic. This shif t, coupled with the rapid rise in socia l media usage, has made reputa - ince the global financial crash, public companies have faced what must feel like a barrage of new reporting requirements. Regulators have pushed for greater corporate trans- parency in the wake of the 2008 economic carnage in an attempt to regain trust and rebuild reputations. But during the ensuing decade, new global media channels grew, evolved and spread, which enlarged the public's access to information and the speed at which they receive it, refocusing the spotlight on cor- porate actions. The risk to reputation has traditionally been seen as an outcome of other risks and not necessarily a standalone risk. This view has been gradually changing because it is increasingly clear that reputation is critical to the viability of a company. With this greater knowledge and means of communicating, societal norms and pub - lic expectations of companies have evolved too. People's voices are louder and opinions, valid or otherwise, can spread around the world in nanoseconds. Nevertheless, trust in companies has recovered somewhat, accord- ing to the Edelman 2019 Trust Barometer. Trust has rallied so much so that 76 per cent of those surveyed by Edelman say chief executives should take the lead on change rather than waiting for governments to impose it. This suggests that despite the consistent demands for greater corporate disclosure, management are still not lead- tiona l risk much trickier to handle and therefore more impor tant to manage. Suddenly, the incidents that can damage reputation are a lot more volatile, quicker acting and, in some cases, can become systemic risks to organisations. Uber's decision not to report to police sexual attacks and other crimes by its driv- ers for fear of damaging its reputation mas- sively backfired for the taxi-hailing giant when in September 2017 Transport for Lon- don revoked its licence. Uber claims to have turned over a new leaf by bringing in chief executive in Dara Khosrowshahi. Its repu- tation, however, remains tarnished in one of the most important markets for Uber out- side America. Companies that try to hide wrongdoing, such as German car manufacturer Volkswa- gen when its emissions scandal was uncov- ered in September 2015, are suffering for longer and deeper because news travels fast and you can't fix a brand like you can fix a misfiring machine. "How you are viewed in all manner of different aspects, not just products and services, but your impact on society as an employer is right at the top of the agenda now. This is a new phenomenon in its importance," says Jon Terry, diversity and inclusion consulting leader at PwC UK. Although it's high on the board's agenda, change seems to be slow. Traditional com - pany structures aren't designed to manage the new risks to reputation, says Mr Hutch- eon. They need to restructure their think- ing and teams to build early-warning sys- tems that detect reputational risk. "Companies are getting there, but it's just not joined up enough yet," says Air- mic's Mr Ludlow. Traditionally, risk is dealt with by risk experts, while reputation tends to be man- aged by the corporate affairs or communica- tions teams. When those two teams work in silos, lacking any meaningful collabora- tion, risks can rise up undetected. "That's where it falls down," Mr Hutcheon says, "when the gap widens between the comms team, who are the antennae for the business, and the professional risk experts. That's when companies face real risk exposure." Some evidence of this can be seen by the fact that with one week to the deadline of April 4, fewer than 4,000 of the 10,000 large UK companies required to report on their gender pay gap had still not disclosed the average difference between men and women's pay per hour. Increasingly, the gender pay gap is a focus not just for female employees, but for inves - tors and other stakeholders too. In contrast, FTSE 100 drinks giant Dia- geo, which has seen its share price rise expo- nentially over the past decade, is repeatedly held up as a company to be admired because of its progressive policies, such as its latest one on full pay for parental leave for the first 26 weeks for all its 4,500 employees. "It's a new era for business. Large busi- nesses enjoy much less control and ulti- mately that's an empowering thing. A lot of control is moving out of the business to society. And that will align how business puts back things into society when they are constantly under scrutiny. It's going to feel hard for businesses, but that's the way things are going," Mr Hutcheon says. Research consistently shows that more diverse companies are more profitable and current thinking suggests more open and transparent companies reap the rewards. As counterintuitive, and perhaps as pain - ful, as it may be to meet the public's new demands, management need to disclose more, more frequently. Understanding and managing reputa- tional risk is all part of societal change. Aligning commercial interests with social ones shouldn't be such a hard place to start. More importantly, it's not a question of unlimited disclosure, but relevant disclo- sure. Whether we've reached a tipping point in disclosure terms will be determined per- haps by how corporates handle the next financial crisis. Michelle Perry S Deloitte 2018 REPU TATIONAL RISK REP ORTING Percentage of chief executives How you are viewed in all manner of different aspects, not just products and services, but your impact on society as an employer is right at the top of the agenda now 35% plan to invest in processes that could help identify reputation-impacting events and signals in the next 12 months 40% view reputation impacts merely as a byproduct of breaches and other security threats 42% have discussed risks to the organisation's reputation in the past year 53% lack the process to identify events and market signals that can damage the organisation's reputation 70% acknowledge that their organisations do not regularly report to executive management on culture and conduct risks Edelman 2019 Trust Barometer 76% of employees say chief executives should take the lead on change rather than waiting for governments to impose it Data editor Tom Watts

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