About Me

My photo
Reputability LLP are pioneers and leaders globally in the field of reputational risk and its root causes, behavioural risk and organisational risk. We help business leaders to find these widespread but hidden risks that regularly cause reputational disasters. We also teach leaders and risk teams about these risks. Here are our thoughts, and the thoughts of our guest bloggers, on some recent stories which have captured our attention. We are always interested to know what you think too.

Wednesday, 8 June 2011

"Roads to Ruin"

Described as "Groundbreaking" by Julian James, CEO of Lockton UK, this study examines the underlying causes of over 20 major corporate crises.  This Cass Business School report was researched on behalf of Airmic.  The team, led by Professor Chris Parsons, included Anthony Fitzsimmons and Professor Derek Atkins, two members of Reputability's own team.

The Executive Briefing, released on 6 June 2011, is based on 18 case studies of high profile crises. They were triggered by events ranging from product contamination, explosions and crashes through derailed projects and IT failures to executive fraud.

Companies studied include AIG, Arthur Andersen, BP, Cadbury's Coca-Cola, Airbus, Enron, Firestone, Independent Insurance, Maclaren, Northern Rock, Shell and the French bank Societé Générale, with aggregate pre-crisis assets of over $6 Trillion.

Most companies involved had their reputations damaged or wrecked.  Only a few avoided immediate reputational damage, but that is to igonore latent damage.  Owners saw the value of their shares destroyed on a massive scale.

After stripping away the immediate triggers for the crises, the Executive Briefing  identifies seven key areas of underlying risk that are not captured systematically even by state-of-the-art risk analysis.  All are risks to reputation - and potentially to the long term survival of the business.  These underlying risks, which all have to do with the behaviour of people individually and in the context of their organisation, arise from:
  1. Inadequate board skills and inability of NED members to exercise control
  2. Blindness to inherent risks, such as risks to the business model or reputation
  3. Inadequate leadership on ethos and culture
  4. Defective internal communication and information flow
  5. Organisational complexity and change
  6. Inappropriate incentives, both implicit and explicit
  7. ‘Glass Ceiling’ effects that prevent risk managers from addressing risks emanating from top echelons 
These findings present three challenges to the risk community:
  1. To develop a systematic approach to finding these 'missing' risks;
  2. To develop the requisite new skills in risk analysts and managers; and
  3. To persuade boards that there is a problem - and to deal with it.

They also present a challenge to boards:
"[T]hese risks will remain unmanaged unless boards - and particularly chairmen and NEDs - recognise the need to deal with them.  Boards will also need risk professionals with enhanced vision and enhanced competencies to help them do so."

The role of the risk manager has evolved over the last 50 years. This report shows that the techniques of risk analysis and management will have to evolve further.  And those in charge of analysis will have to learn how to bring sometimes unpalatable truths to Power.

The full report will be published in July.

For further reading, try this for more on the information disconnect between boards and their companies; and this on changes in incentives in the banking, legal and accounting sectors; and this for ideas on how the role of Chief Risk Officer might develop.


Anthony Fitzsimmons
www.reputability.co.uk

No comments:

Post a Comment