BP found its “Company Killer”: Do you know yours?

Time will tell if the Gulf of Mexico oil spill will kill BP or just severely cripple it, but whatever the case I’ll bet they didn’t see it coming!  Will you?

It looks like this spill will be (if it isn’t already) the biggest man-made disaster ever.  The extent of the spill, the scope of damage and the resulting impacts on the environment, marine life, economies, and people remains to be seen, but catastrophic sums it up.  BP and all of the other world’s oil companies plan for spills.  They build complex risk models, examine alternative worst case scenarios, look at maximum probable losses, and they are generally very good at measuring and managing risk.  But what if the worst case scenario that you imagined turns out to be wrong?

In BP’s risk modeling they would have factored in the US government’s cap on environmental clean-up and damages at $75 Million.  Did they predict that the government would significantly raise the cap or remove it all together?   Did they predict that in addition to the significant increase in damages that their ability to earn would be affected by Obama’s restrictions on new drilling; or that taxes and royalties would be increased significantly ; or that people would boycott their products on mass?

The point is, no matter how sophisticated your risk management process, you can be wrong.  Don’t take that to mean that it isn’t worth trying!  What I’m saying is that no matter how much you prepare and plan and execute, things can happen that are worse than you could have imagined.

When it comes to company killers, all companies big or small have them lurking around and if the perfect storm happens you could be next!  So what can we do?  Most company killers are closely related to reputation risk.  Whether it’s an oil spill, a product recall, or a fraud scandal, the resulting damage to the company’s reputation is where the biggest losses are felt.  Incidents such as these rattle customer and shareholder confidence which can often lead to a rapid and irreversible downward spiral.  Reduced sales, increased costs, battered share value, employees leaving the sinking ship and on it goes until there’s nothing left to salvage.

Do not despair!  As with any risk, big or small, there are ways to manage reputation risk.  Here are a few general tips:

• Consider all underlying risks that can lead to damaged reputation, and mitigate them as best you can within your means.  Ask yourself (and your team), what things could happen that would damage our reputation enough that it will cause significant harm to your company?
• In addition to managing the underlying risk, treat reputation risk as one of your company’s biggest risks.
• Develop emergency and contingency plans that deal directly with reputation risk.  How will you respond?  How will you communicate to customers and other stakeholders?  How will you control the damage?
• Look for ways to diversify your operations enough that significant harm to one division or company won’t necessarily damage the others.
• Check with your Insurance Broker to make sure you have the necessary coverages and limits to deal with the fallout from reputation related risks.  For example, coverages such as products recall, environmental impairment and business interruption are often not carried and are seen as unnecessary, but can provide the necessary buffers in the case of major losses, so that reputation can be dealt with effectively.

All organizations need to start to understand reputation risk and realize that it is one of their greatest risks. The following are starting points to consider in managing reputation risk using a hotel chain as an example.  For more information on this and other risks, please visit the free ClearRisk Library.

Tools:

ClearRisk’s Reputation Risk Management Tool

ClearRisk Library

References:

http://www.businessweek.com/news/2010-06-30/senate-panel-moves-to-lift-cap-on-oil-spill-damages.html

http://www.foxnews.com/story/0,2933,521341,00.html

The Downside of Upside

The economic downturn has presented its share of challenges for business around the world. Adjusting to the “new economic normal” hasn’t been an easy task as the broad scope of operational changes, closures and bailouts have shown. It’s been a trying time for business, but positive signs of change are beginning to emerge; strategies are being aimed at making the most of the upturn, investments are leading economic activity and strategists are identifying early increases in consumer confidence.

Edging out of the recession and seeing better economic conditions around the corner, it’s important that businesses be aware of the downside of the upside of risk!

It’s common to view risk negatively, but every entrepreneur knows that there is no reward without risk. Risk brings opportunity and is the balance between the upside and the downside. There are many changes that will come with a global economy that is on the upswing; credit will become more widely available, businesses will begin to prosper and begin hiring, business spending restrictions will ease, investments will be made in infrastructure and companies will look for ambitious growth.

As discussed in one of our blog posts from last year, the downturn has been a time for improving operations, strengthening relationships with customers and preparing to make the most of the recovery. Now that the upswing is upon us, bringing positive change and room for growth, it’s important to plan for the risks that will no doubt accompany the opportunities presented. In the upturn of the economic recession, make sure you don’t become your own worst enemy.

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Social Media Policy: Avoiding a Death-Blow!

A company’s reputation is its biggest asset! Successful companies have always guarded their reputations at all costs. Corporate communications have always been very structured and deliberate and the messaging meticulously controlled by dedicated professional spokespersons. That was before blogging, Twitter, Facebook and all the other new social media that gives all of your employees and customers a soapbox and a bullhorn with a global audience!

You’d be hard pressed to find someone these days who can argue against the impact that social media has had on the way that we conduct business. From customer support and advertising to internal controls and knowledge sharing, social media has changed the way we work and has changed the expectations of customers.

As we try to better understand how to use social media to our advantage, it’s important to consider managing the associated risks. We need to ensure that employees know the Dos and Don’ts and the potential impact on the company and them of going “off script”.
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Blog Opportunities and Risk Management

For the most part, bloggers all want to do the same thing; provide value for, build relationships with, and encourage conversation within a targeted audience. With an estimated 364 million blog readers and 77-percent of all web users reading blogs in 2008, the power, influence, and potential that comes along with blogging is undeniable.

With many deciding to start corporate blogs and employee blogging initiatives, companies are hoping that sending their employees to the front lines to communicate with the public will bring openness and approachability to the organization’s image and to its relationship with customers.

As with any opportunities, there are always related risks and risk management solutions. How do you put that kind of trust in someone to speak openly and freely on behalf of the entire company? What do you do when something goes wrong? What could go wrong?

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Aon Identifies Top Three Risks in the Retail Industry

Aon recently released a report that outlined the top three risks identified by the retail industry. The report found that these top three risks were also in the list of top ten risks that the retail industry was the least prepared to face.

These risks are of concern to the retail industry because of three characteristics; their complexity, their difficulty to control, and their enterprise-wise affect and scope.

What are the top three risks?

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What is your Company’s Reputation Worth?

You’re a company that is occupying all the right places online. You have a website, you blog regularly, you tweet, and you make sure your company controls profiles on all of the major social networking sites. You’re doing what you can to make sure that you are where you need to be to create brand awareness and interest in your products.

But how do you manage all these corporate communications? How closely do you monitor online representations by and of your organization?

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