Four out of five companies say threats to corporate reputation are rising

Reputation is one of the most important corporate assets, and also one of the most difficult to protect, according to a global survey of senior risk managers by the Economist Intelligence Unit. The survey, which captures the views of CEOs, CFOs, chief risk officers and other executives responsible for managing risk, reveals that 84% executives believe the threat to their companies' reputations has increased significantly over the past five years. Tough competition for customers, the expansion of global media and communications networks, and increased scrutiny from regulators, were cited as the top reasons for managers' increased focus on reputational risk.

The survey results are published today in Reputation: Risk of risks, a report by the Economist Intelligence Unit sponsored by ACE, Cisco Systems, Deutsche Bank, IBM and KPMG. The report sheds light on why reputational risk has become a top priority for global businesses, and on the progress companies have made towards managing these issues as part of their overall risk strategy. The findings are drawn from a new survey of senior executives, 37% of them from companies in the financial services sector. Respondents from 18 other industries also participated in the research.

The main findings include the following:

• Companies struggle to categorise and quantify reputational risk. Reputational risk is a top concern for business leaders, and one they find fiendishly difficult to control. Fully 62% of companies say reputational risk is harder to manage than other types of risk. Problems in managing reputational risk include confusion over how it should be categorised; the lack of widely-accepted techniques to quantify such an amorphous risk; and the fact that there is no formal ownership of reputational risk, with responsibility spread amongst a wide range of business managers.

• Compliance failures are the biggest source of reputational risk. Threats to reputation come from many sources. Companies worry particularly about exposure of unethical practices, and about failing to deliver minimum standards of service and product quality to customers. However, the biggest threat to reputation arises from compliance failures, with 29% of companies citing failures to meet regulatory or legal obligations as a major source of reputational risk.

• CEOs are the top risk managers when it comes to reputation. Everyone from the board down to ordinary employees has a role to play in guarding the company's reputation. Ultimately, however, the CEO is regarded as the individual with primary responsibility for managing reputational risk by most executives in the survey. The chief executive is expected to set high ethical standards, and to co-ordinate the organisation's response to reputational threats. By contrast, the chief risk officer has a more technical role, quantifying or prioritising potential threats to corporate image, and policing risk policies to make sure they are properly enforced.

• Communication is the key to crisis management. Crisis management is the area where companies feel their capabilities are weakest when it comes to managing reputational risk. Only 10% say they are excellent at managing crises; 11% admit they are poor or worse, and 44% say they are adequate. To improve their performance in these areas, organisations must learn how to communicate with customers and the media when things go wrong. Companies that have a communications strategy that enables them to respond quickly and effectively to "bad news" events, and which address issues openly and proactively, often emerge with their reputations in tact and even enhanced. Those that don't may suffer heavy and, in some cases, irreparable damage.

"Reputational threats represent the biggest risk to business according to this survey. But because it is hard to categorise and measure, many companies lack a formal strategy or management structure to manage reputational risk effectively," says Daniel Franklin, the editorial director of the Economist Intelligence Unit.

Reputation: Risk of risks is available from Sheila Allen on +44 (0)20 7576 8188. Alternatively e-mail Sheila at sheilaallen@eiu.com

Economist Intelligence Unit
Press Liaison:
Sheila Allen +44 (0)20 7576 8188 or sheilaallen@eiu.com

About the research
Reputation: Risk of risks is part of the Global Risk Briefing, a research programme on corporate risk issues by the Economist Intelligence Unit. The programme is sponsored by ACE, Cisco Systems, Deutsche Bank, IBM and KPMG. The findings in this press release are based on a survey of 269 senior executives. Thirty-one percent of the participants were based in the US, 30% were based in Europe, and 28% were based in Asia Pacific. All survey findings in this report and press release are drawn from a survey conducted in October 2005.

Thirty-seven percent of the companies participating in the survey were from the financial services sector. Respondents from 18 other industries participated in the survey, including professional services, energy sector companies, and IT and technology firms, and pharmaceutical and healthcare companies.

About the Economist Intelligence Unit
The Economist Intelligence Unit is the world leader in global business intelligence. It is the business-to-business arm of The Economist Group, which publishes The Economist newspaper.

The Economist Intelligence Unit provides geopolitical, economic and business analysis on more than 200 countries, as well as strategic intelligence on key industries and management practices. With over 300 full-time professionals in 40 offices around the world, supported by a global network of more than 700 contributing analysts, the Economist Intelligence Unit is widely known for its unparalleled coverage of major and emerging markets. More information about the Economist Intelligence Unit can be found on the Web at www.eiu.com.