April 18, 2018

Risk and Reputation in the Financial World: 10 ways you can Mitigate Risks

Ask any business owner what is the hardest thing to recover and they will without a doubt tell you that it’s your reputation. Reputation says a lot about a company and it can be difficult to earn and quick to be lost.
The risk of losing a good reputation is something that business naturally involves, but there are ways to mitigate that risk. Imagine that your reputation is a bank – you can earn more or lose what’s in your account already based on how your business acts. Losses can be perceived or real but the damage is still the same whether the event happens or not.
A prime example of this is the many businesses which have been ruined by false allegations on social media because of the grapevine effect.
Most companies are very capable of managing their reputational risk and they focus on dealing with any threats as they arise. The issue with this is that it’s not actually risk management they’re doing but crisis management – the issue has already happened and they are simply reacting to it.
Financial risk and business risk are entirely different because a business has to determine viability and sufficient sales while financial risk relates to the soundness of a company’s finances and its ability to stay solvent.
Potential Risk Areas
Finance can have many risks – compliance, accreditation, climate, but when it comes to reputation the biggest area that financial risk has to deal with is usually to do with the market. The changing marketplace means that consumer habits often change on a whim and companies have to swiftly adapt to stay relevant. There’s also market risk from competitors being faster to change or offering unique approaches that make their products stand out. Reputation is often only second to this innovation when it comes to why consumers will choose one financial company over another which is why companies may have public relations personnel.
Another area of financial risk that a company may encounter is that of credit. Credit can affect a company’s liquidity and can also create risk for the company’s own credit financially. Any business that offers credit accepts some amount of financial risk because there is rarely a guarantee that a customer will pay. Just last year defaulted mortgages in the Northern Territory were still above 2%, according to a report from S&P Global Ratings, and though this number is falling, financially there is the potential for massive loss should all of these mortgages remain in default. When customers fail to meet their obligations this is passed on to the company who then fail to meet theirs which will inevitably damage that company’s reputation with suppliers and others who they do business with.
Risk Management Techniques
With any venture there are risks but they can either be mitigated or managed with the right approach. Some risks are simply part of doing business – in the case of finance, credit risk is to be expected while some occur because of unforeseen circumstances. Once identified, the best thing any business can do is create a plan to protect their assets and mitigate the fallout.
Firstly, risk should be avoided as much as possible. Identifying the most common risks and smart business planning helps, followed by using research, detailed analysis, and following applicable laws. Companies like Deloitte, recognised by ALM Intelligence as a global leader in the area, offer strategic risk management plans for this.
Secondly, risk can also be transferred by using insurance. While it’s impossible to have such a thing as “reputation insurance” insurance can be used to help head off situations which would escalate into reputation damage. Errors and Omissions insurance is something that no financial group should be without.
Finally, simply accepting that there are risks to doing business and being smart about regulating profits in case of this for future crises. Risk tolerance allows for some fluctuations in financial balance without being worried about a potential downtown. How large that capacity depends mostly on the size of the financial contribution, and the risks of the ventures it’s invested in.
No financial venture is without risk, and often reputation alone can sway investors into making the choice to use your services. Maintaining a good risk management plan and preemptively dealing with risk threats before they become a public crisis is the ideal solution, but it’s often how a company behaves publicly in these situations that improves their reputation after all.
Let me know, what kind of experiences have you had with risk?

Felicity Cooper, General Manager of Technology Risk and Enterprise Services, Commonwealth Bank

Felicity Cooper is an expert in risk management solutions – Executive Manager responsible for Enterprise, Technology and Risk at Suncorp Group. As a board member for WIT (Women in IT) Felicity established the City Series breakfast program for women in leadership in IT in QLD, and was nominated as a finalist for the 2017 Financial Services Executive of the Year Award.

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