KQ rep­u­ta­tion risk is the board’s re­spon­si­bil­ity

The Star (Kenya) - - News Business - DAVID KARIMI Karimi is a risk man­age­ment ex­pert

The cor­po­rate rep­u­ta­tion is one of a firm’s most im­por­tant strate­gic re­sources as it of­fers a valu­able source of com­pet­i­tive ad­van­tage that gen­er­ates stake­holder sup­port. Sur­pris­ingly, many com­pa­nies fail to im­ple­ment ap­pro­pri­ate as­sess­ment and con­trol tech­niques to man­age it.

Com­pa­nies face sig­nif­i­cant rep­u­ta­tional risks if cus­tomers and other stake­hold­ers do not like what they see or hear; which is what Kenya Air­ways has been ex­pe­ri­enc­ing for the past few months. As with KQ, such un­pleas­ant in­for­ma­tion re­sults in loss of con­fi­dence by in­ter­ested par­ties in­ad­ver­tently elic­it­ing a chal­lenge in at­tract­ing and re­tain­ing ta­lent, loss of cus­tomers to ri­val firms, in­creased scru­tiny from govern­ment agen­cies and the me­dia among oth­ers.

Re­ports in the pub­lic do­main re­veal bad busi­ness de­ci­sions by the board and se­nior level man­age­ment of KQ, fre­quent flight can­cel­la­tions, pi­lot strikes as some of the happenings that have tainted the air­line’s im­age. While a risk to rep­u­ta­tion may be the one that brings a com­pany down, rep­u­ta­tional risk is, more of­ten than not, an ef­fect (sec­ondary risk) rather than a cause (pri­mary risk). There­fore, a causal chain ex­ists be­tween a pri­mary risk – as a trig­ger for the con­se­quences of other risks – and rep­u­ta­tional risk, and this only in­creases the com­plex­ity of man­ag­ing rep­u­ta­tional risk. This notwith­stand­ing, how can Kenyan com­pa­nies go about man­ag­ing this risk?

Cor­po­rate rep­u­ta­tion risk man­age­ment should start with the board of di­rec­tors and mem­bers of se­nior man­age­ment. Here’s my rea­son why: if we liken a com­pany to a 50-floor build­ing, the best view of risk would be gained from the top floor or the roof, which is where the board and se­nior man­age­ment sit in the cor­po­rate hi­er­ar­chy. Be­cause of the le­git­i­mate and ref­er­ent power they wield given their po­si­tion, they are bet­ter placed to man­age the ex­pec­ta­tions and per­cep­tions of stake­hold­ers, thus en­sur­ing that the com­pany’s trust is re­tained. KQ’s board failed in this role, am­pli­fy­ing calls for its over­haul.

Board mem­bers need to be proac­tive by un­der­go­ing train­ing on cri­sis man­age­ment and com­mu­ni­ca­tion, es­pe­cially in this dig­i­tal age we are in, in or­der to turn any risks pre­sented to their com­pa­nies into op­por­tu­ni­ties. They also need to push for their com­pany’s stronger en­gage­ment in cor­po­rate so­cial re­spon­si­bil­ity ac­tiv­i­ties as this could in­crease the trust lev­els with the pub­lic.

If suc­cess­fully im­ple­mented, CSR will en­able a com­pany mit­i­gate con­se­quences of rep­u­ta­tional risks. With cases of lit­i­ga­tion in Kenya on the rise, it is also worth hav­ing a di­rec­tors and of­fi­cers (D&O) in­sur­ance pol­icy in place, as this could pro­vide fi­nan­cial pro­tec­tion for to­day’s ex­ec­u­tives, and pro­vide le­gal cov­er­age in the event of a claim chal­leng­ing “bad” busi­ness de­ci­sions by the board and se­nior level man­age­ment.

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