Heating up risk Article icon

Heating

It is the perennial question that now focuses the minds of in-house corporate communicators.

How is it possible to demonstrate the value of their role to the executive board (and, in turn, highlight their performance) when, as guardians of an organisation’s reputation, much of their work is hard to define, much less measure?

The answer for Alan Oliver, head of external affairs at Nationwide Building Society, has been to talk the language of his counterparts in other departments.

‘Business is used to talking the language of risk, and risk represents a significant part of what communications teams are asked to manage,’ he explains. ‘We need to find a way to show boards what we do.’

For more than a year, Oliver has been using a ‘risk heat map’ that sets out the top ten reputational risks on Nationwide’s horizon, allocating both a degree of severity, with ‘extremely serious’ being the highest, and the likelihood of the risk materialising, ranging from very, maybe to extremely unlikely.

The map effectively highlights the risks that are likely but could prove difficult to manage should they arise. ‘Each risk is allocated a number,’ says Oliver. ‘In the text that accompanies the map, I set out the risk, and in the next columns, I highlight the impact it might have were it to materialise and, finally, the steps that my team and the business can take to mitigate such risks.’

Risks may be market-related issues or entirely Nationwide-focused. Some risks, such as problems with computer systems, would be deemed generic, and may not feature on the external affairs’ risk map. ‘There are risks that regularly appear on a bank’s horizon, but the map might illustrate what it might mean if the system was down for an extended period,’ he explains. ‘On another occasion, we may see that there is a risk that the housing market could become over-heated. There is then a risk that all lenders are identified as fuelling that. We would strive to mitigate that risk by working with our lending teams to ensure that all mortgages we offer are fair and reasonable.’ An irate customer on Twitter is, however, unlikely to feature unless there was a risk that their complaint was to escalate and prompt others to air their views publicly.

The risk heat map is updated monthly and focuses on the top ten risks at that time. ‘Some risks are cyclical, such as our financial results,’ says Oliver. However, there is no guarantee that ‘financial results’ will feature on the risk heat map each quarter. ‘It is a practical analysis,’ he adds. ‘Sometimes we will be reporting fantastic results, and we know they are very good and cannot think of any issues that might arise. At other times, the results might be difficult in some way, say profits from loans are down, and we need to consider that. In a way, this is a dynamic risk model that reflects the risk at that very moment. For example, one month I might highlight a potential risk then the following month it moves off the map because it didn’t materialise and didn’t become a problem.’ And because the map also includes the steps taken by Oliver’s team to mitigate potential risks, it can also serve as a record of its performance in managing Nationwide’s reputation.

Every month, Oliver presents the latest risk heat map to the executive committee. ‘It forms part of my report, which covers a whole range of issues. The map speaks to a framework they recognise,’ he says. ‘I go into the meeting and talk about the map every month. I can provide a narrative or articulate the risks better – so much of what we as communicators do is about providing context. It is no longer than two or three sides of A4; I try to keep it nice and brief and to the point.’ But the map is also structured in such a way that ‘it is capable of being used in its own right with no conversation around it’.

He adds: ‘By using vertical and horizontal axes on the map, I can highlight how likely a risk is and what impact it might have. Some risks might be very likely but have no impact, while other risks would be very difficult were they to happen but are unlikely to occur.

Boards are always looking at risk appetite, so reputation becomes another metric that can sit alongside that. They can decide whether they have a risk appetite that matches the potential impact.’

For reasons of business confidentiality, Oliver is reluctant to detail actual potential risks that have featured on his risk heat map. With the financial services sector currently paying billions in compensation for the mis-selling of payment protection insurance, many in-house communications departments are paying renewed attention to any potential new products that might be offered to customers. Oliver believes that some potential risks could stem from circumstances rather than product design. ‘For example, we might look to release a limited issue bond with a very good interest rate, which we foresee will quickly sell out. But I might want to highlight that, while this is a good thing for our customers, there is a risk that it could impact on our reputation.

‘The media might reflect that customers were unable to buy the bonds, and write that the offer was unfair and did not give customers long enough to apply.’ Oliver can then suggest steps the business might take to mitigate this potential backlash, while highlighting the work done by his team to do so.

He adds: ‘Our job is to identify reputational risk. I have flagged a means of doing things in a different way. It means that the risks to our business are clearly understood.’ However, he concedes that there could, potentially, be more than ten risks on the horizon at any time. ‘I have to take a collective view. It is really focusing on the issues that could be damaging to the underlying business. It allows us to show to the board how mitigation worked and how the steps we took helped us to avoid that particular risk.

‘We are not talking about earth shattering risks, but nevertheless it is important to everybody that we can put our work into the language that they understand.’