CorpComms Magazine

The last thing corporate communications professionals want is a management accountant breathing down their neck telling them how to organise their affairs, but that's the way accountants' thinking on matters of reputation management is going.

The Chartered Institute of Management Accountants (CIMA) has just produced an excellent paper, 'Corporate reputation: perspectives of measuring and managing a principal risk', written by reputation gurus Garry Honey and Dr Arlo Brady. It sets out to show accountants - not corporate communications directors - how reputation might be meaningfully identified and reported for the purposes of compliance with the enhanced business review required by the new Companies Act.

If all this sets your alarm bells ringing, then so it should - because the paper provides a sober analysis of the reputational risk management role by explaining to accountants the complexities of reporting matters that can't be controlled or managed but for which the company is held very much accountable.

So should we corporate communications people be scared, or just very scared? Given the level of internal sophistication of most companies on matters of reputational risk, the answer is: not really. However, the paper does start to move forward the argument for better processes and procedures and, importantly from our perspective, provides a real exposition of where the best corporate communications professionals (and their accountancy colleagues) need to be, particularly those within FTSE companies.

Managing reputation as a principal risk means treating reputational issues as seriously as all the other risks facing your company. In my stomping ground of financial services, the risk regimes imposed at the behest of the regulators are onerous. However, the concepts of reputational risk being attached to these structures is far less understood, not just within those companies, but also - and more so - outside the financial services sector.

And this is where our experts Honey and Brady step in. Interestingly, they do not necessarily see corporate communications specialists as being central to managing reputational risk. 'Heresy!' I hear you shout, but let's look at it from their point of view. The risk boys start by asking the simple question: who owns the stakeholders when things go wrong? In other words, who takes the bullet?

Taking care of your own

After all, the board looks after shareholders and investors, while investor relations 'owns' the fund managers, and often reports to the finance director. Failure to conform to ethical or health and safety standards or employment law usually ends up in the human resources director's in-tray, while failure to meet best practice standards usually affects the company secretary or compliance director. So where does the corporate communications professional fit in?

It's clear from the authors' research that proper identification of reputational risk across all stakeholder groups is virtually non-existent throughout the FTSE. They argue that reputational risk tends to be seen as an outcome of operational risk and, as such, isn't singled out for attention. The reason for such lack of concern is that risk management relies on quantifying risk in pounds, shillings and pence, and is therefore regarded by the number crunchers and corporate communications people as being impossible to achieve.

Narrative reporting does provide a short cut through this monetising issue and helps overcome the shortcomings corporate communications professionals have when pulling together the various reputational measures across all stakeholder groups in order to report to the board.

As the report points out, the business review in the new Companies Act places more emphasis on narrative reporting with the requirement of a 'description of principal risks and uncertainties facing the company'.

Current practice in narrative reporting, however, has some way to go, with the authors suggesting that risk reporting is generally poor, given that auditors are used to dealing with operational rather than external or cultural risks.

From the corporate communications perspective, the paper offers some insights into how our profession, particularly within major corporations, needs to move forward. A good starting point is to work with risk managers in order to identify reputational risks, and to do this beyond planning to fight potential control failures within your firm's operations.

You will need to rely on colleagues as they rely on you in times of reputational difficulty. Nevertheless, well-thought-through policies, processes and procedures placed throughout your organisation all help to avoid or mitigate problems when they arise.

Apart from anything else, communicating such a systematic approach to stakeholder-owning colleagues also helps facilitate cultural change within an organisation that, in turn, creates the perfect storm in terms of helping to reduce downside risk.

Of course, the bottom line is the bottom line, and the authors suggest that it is about time reputation was regarded as a principal risk given that it directly influences value through share price and market capitalisation. Not surprisingly, then, the authors argue that reputational risk should not be omitted from a full and frank explanation of principal risks. And given that accountants have to report on principal risk, the opportunity is there for corporate communications people to help them do so in a succinct and clear way.

From the corporate communications perspective, then, it seems every cloud has a silver lining.

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