Reputational risk
Encyclopedia
Reputational risk, often called reputation risk, is a type of risk related to the trustworthiness of business. Damage to a firm's reputation can result in lost revenue or destruction of shareholder value
, even if the company is not found guilty of a crime. Reputational risk can be a matter of corporate trust, but serves also as a tool in crisis prevention.
This type of risk can be informational in nature or even financial. Extreme cases may even lead to bankruptcy
(as in the case of Arthur Andersen
). Recent examples of companies include: Toyota, Goldman Sachs
, Oracle Corporation
and BP
. The reputational risk may not always be the company's fault as per the case of the Tylenol
cyanide panic after seven people died in 1982.
Shareholder value
Shareholder value is a business term, sometimes phrased as shareholder value maximization or as the shareholder value model, which implies that the ultimate measure of a company's success is the extent to which it enriches shareholders...
, even if the company is not found guilty of a crime. Reputational risk can be a matter of corporate trust, but serves also as a tool in crisis prevention.
This type of risk can be informational in nature or even financial. Extreme cases may even lead to bankruptcy
Bankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
(as in the case of Arthur Andersen
Arthur Andersen
Arthur Andersen LLP, based in Chicago, was once one of the "Big Five" accounting firms among PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young and KPMG, providing auditing, tax, and consulting services to large corporations...
). Recent examples of companies include: Toyota, Goldman Sachs
Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
, Oracle Corporation
Oracle Corporation
Oracle Corporation is an American multinational computer technology corporation that specializes in developing and marketing hardware systems and enterprise software products – particularly database management systems...
and BP
BP
BP p.l.c. is a global oil and gas company headquartered in London, United Kingdom. It is the third-largest energy company and fourth-largest company in the world measured by revenues and one of the six oil and gas "supermajors"...
. The reputational risk may not always be the company's fault as per the case of the Tylenol
Tylenol
Tylenol is a North American brand of drugs advertised for reducing pain, reducing fever, and relieving the symptoms of allergies, cold, cough, and flu. The active ingredient of its original, flagship product, paracetamol , is marketed as an analgesic and antipyretic...
cyanide panic after seven people died in 1982.
See also
- Reputation managementReputation managementReputation management , also known as directory management, is the process of tracking an entity's actions and other entities' opinions about those actions; reporting on those actions and opinions; and reacting to that report creating a feedback loop. All entities involved are generally people, but...
- AuditAuditThe general definition of an audit is an evaluation of a person, organization, system, process, enterprise, project or product. The term most commonly refers to audits in accounting, but similar concepts also exist in project management, quality management, and energy conservation.- Accounting...
- COSO framework, Risk managementRisk managementRisk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities...
- Quality auditQuality auditQuality audit is the process of systematic examination of a quality system carried out by an internal or external quality auditor or an audit team...
- Continuous auditingContinuous auditingContinuous auditing is the independent application of automated tools to provide assurance on financial, compliance, strategic and operational data within a company. Continuous auditing uses a set of tools to assure the internal control system is functioning to prevent fraud, errors and waste...
- Center for Audit QualityCenter for Audit QualityThe Center for Audit Quality is an autonomous public policy organization dedicated to enhancing investor confidence and public trust in the global capital markets...