The fortunes of sectors like banking, financial and insurance services hinge on their ability to mitigate risk, in all its forms.

Australian banks, for example, stand as a shining example of how a strong risk management culture can protect against events like the GFC of 2008 which resigned to history a raft of their international peers. And, more recently, the ability to effectively underwrite mortgage-holders and small business customers through the worst of COVID-19 has demonstrated the fundamental strength of Australia’s banking system.

Yet, for all its complex risk modelling and scenario planning, the industry’s interpretation of reputation risk can be decidedly unsophisticated. For many, it is no more complicated than… “how do we avoid the headlines when thingsgo wrong?” It’s a sentiment that finds its way into many a risk committee meeting and, by virtue of its one-dimensional perspective, it essentially misses the point.

At its best, effective reputation risk management is no different to other elements of the risk management matrix. It’s about anticipation, preparation, and weighing up the pros and cons. What it shouldn’t be is a focus on the tabloid headline. How often are the pertinent questions asked up front… ‘How could our actions today impact the reputation of the business down the track? ‘Will the long-term cost offset the short-term gain?”

The most successful organisations are so because the majority of their people ask the right questions, of themselves and of their colleagues. Yet, it takes only a handful to spoil the party. We’ve seen countless examples of individual misconduct or widespread malpractice tainting the strongest of corporate brands, in some cases irrevocably.

And, as these types of issues have had a material impact on company share prices, it’s served to reinforce a simple fact: that, ultimately, all roads to reputation.

It’s why matters of trust and reputation now sit increasingly atop the agenda of an increasing number of Board meetings. And, it means risk professionals needing to assess reputation risk on a footing equal to the more ‘traditional’ elements of the risk matrix – from regulatory and operational, to financial, corporate and environmental.

Effective reputation management is about being risk-attuned, not risk averse.

It means bringing a considered approach to risk assessment which balances the potential upside of a key decision or course of action – even inaction – versus the possible downside. Commercially and reputationally.

It also means looking beyond the ‘news headline’ test, and assessing reputation risk in a way that makes sense to the organisation in question. It’s about saying ‘stop’ or ‘go’ with eyes wide open, backed by a comprehensive reputation management plan that anticipates the full scope of probable scenarios and impacts, and includes the tool and strategies to mitigate the potential implications of an agreed course of action.

Jim Stiliadis is a co-director of Six O’Clock Advisory, specialising in brand reputation, strategic communication and stakeholder engagement.