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New Age Reputational Risk: How to Survive and Thrive in the See-through Economy

Even if regulators are struggling to keep up with the times, consumers can. We’re in the age of the see through economy, a fast-paced age of ultra transparency where consumers and investors are empowered with innovative technologies like social media to impact a company’s reputation.
In today’s world, consumers and investors may be willing to forgive a one-off mistake, but the see-through economy reveals patterns of pervasive negligence that are often very hard to overlook. Why does this matter? The first thing to suffer in a corporate scandal is a company’s reputation. This reputational damage negatively affects consumer demand for their products and, if the company is publicly traded, also directly, and often immediately, impacts the company’s market value.
According to a report published by Forrester Research, “Intangible assets—such as intellectual property, brand, and reputation—account for 87% of the net worth of the S&P 500.” This is where risk management comes in. Companies manage risk to achieve their business goals, which either explicitly or implicitly includes building a sustainable reputation. Reputational risk doesn’t exist in its silo.
If a diminished reputation equals diminished market value, then companies today are more vulnerable than ever to risk events that damage investor sentiment.
Risk Management Protects Companies in the See- Through Economy 
In the see-through economy, consumers and investors have become the new regulators. They are leveraging ever increasing interconnectivity and organizing through digital forums like social media platforms to respond to repeated corporate missteps with near-immediacy after encountering them. Companies have nowhere to hide. When their actions rub a customer or an investor the wrong way, be it through poor customer experience, a poorly thought out decision, or a massive data breach, there are consequences. Take, for instance, the scandal that enveloped Facebook after reports emerged that Cambridge Analytica obtained access to the data of Facebook users without their consent. This is only the latest in a series of risk management failures that have plagued the social networking company.
If you’re a company like Facebook with countless third party apps and partners that are using your data, there’s no way to manage all of those relationships effectively without enterprise risk management. In vendor management, the primary concern is prioritizing high-risk vendors, while ensuring that all vendors are held to the same standards.
Implementing an enterprise risk management program is a complementary cost-effective and efficient means of prioritizing and managing all types of risks, including third party relationship risk, something Facebook failed to do with Cambridge Analytica. This risk-based approach decentralizes the risk identification and monitoring process, allowing front-line employees to bring attention to the vendors and partners they know their company relies on most, and score relationship risks objectively. ERM systems then find the connections between risks, controls, policies, and outcomes and escalate the gaps to the right level.
Facebook has lost tens of billions of dollars in market value, and is facing a significant backlash from its users, who are mobilizing around the #deleteFacebook hashtag. While, at this point, no laws have been determined to have been broken by Facebook, the company’s reputational damage has directly impacted its stock market performance. Enterprise risk management is not only about preventing corporate scandals but will help organizations to build an operational culture designed around making processes and operations better; it gives all employees a voice and empowers them to initiate change at the right level with the right priority.
Investment Trends Shift in the See-Through Economy 
The see-through economy is creating fundamental shifts in how investors think about the relationship between corporate behavior and investing. Environmental, Social, and Governance (ESG) investing is a term that is often synonymous with the growing consideration of a company’s impact, partners, and vendors alongside financial factors when deciding whether or not to invest in a given business.
This dramatic and recent change is evidenced by the fact that nearly one of out five dollars under professional management in the United States is involved in some form of ESG investing. These shifts require companies to move proactively to stay ahead of the inherent risks of the see-through economy. Companies will need to integrate risk management into the decisions they make between all levels of the business, across all departments.
LogicManager helps companies thrive in the see-through economy. LogicManager is at the forefront of a movement to empower businesses to innovate and manage risk in the see-through economy. We’ve pioneered an innovative enterprise risk management platform that empowers companies and organizations to be proactive in mitigating risk, not reactive. Things every company should be doing in the see-through economy 

  1. Standardize risk assessments: 60% of all employees are in governance roles in a company. Risk assessments are already happening but they are not using a standard set of evaluation criteria. Just doing this will make this existing work more valuable.
  2. Connect the dots: A standardized risk register will help connect the dots where a common risk is showing up in multiple departments. If different process areas in different silos and at different levels are experiencing the same risk, it is likely they are either collateral damage to each other or reacting to the same external cause.
  3. Task Management: Connect mitigation actions with risk assessment scores to prioritize follow-up activity. Use technology with workflow so that tasks can be passed along and monitored for completion while maintaining their risk score from the assessment
  4. Reporting to the board the gap between higher than average risks assessed and missing controls or existing controls that are not connected. The effectiveness of a control can not be evaluated and monitored if it is not directly connected to the risk it is supposed to manage.

We say it’s time to be proactive, not be defensive. Enterprise risk management provides companies with the foundation and processes needed to connect departments, remove barriers, and prevent actions that cause customer and investor outrage