Reputational Risks: A Practical Perspective

Abstract

This article discusses reputational risk from the perspective of what companies actually experience reputationally. As well, the concept of what is reputational risk is canvassed – is it risk to stock price, risk of lower profits, or merely risk of bad publicity that affects neither. When does reputational risk affect profits or stock price.

The article also differentiates between reputational risk arising from defective products which directly affect the consumer, or perceived financial risk to the company which may result in their inability to complete a project, which directly affects the customer, and risks that are not direct to the customer or consumers.

Thus, reputational risks resulting from human rights issues in the supply chain, or from the opprobrium of engaging in corruption (not the potential financial penalties that may be imposed on the company for corruption)

Similarly, reputational risk as it relates to investors is analyzed, differentiating between financial risks which may materialize that will reduce profits (eg fines for corruption) in the same way that a drop in sales will reduce profits, and risks to the company which do not have an immediate or short term financial risk.