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by Brendon Wilson
Writing for Employers and Manufacturers Association
An excerpt from the article specifically addressing reputational risk:
Risk is on everyone’s mind right now for obvious reasons: threats to international trade, a real estate boom (or bust), extreme weather and a major earthquake all rightly focus us all on risk. But right now when businesses may be under pressure to perform, don’t forget some serious commercial risks which more than ever, still need your attention.
There are many integrity or corruption risks which are unethical or illegal, and will also bring your business into the serious long term likelihood of reputational risk. Pressures to compete or deliver at times when the market is under stress and scrambling, are the very time to strengthen your protective processes and show your integrity and quality performance to the world: show you’re in it for the long haul.
Some topical risk areas to watch out for right now:
A New Zealand Example: A Commerce Commission investigation in New Zealand found competitors in the wood preservatives market were taking part in price fixing and market sharing agreements. This included sharing pricing information and agreeing not to compete on price, and not to compete for each other's customers. As a result, farmers were paying higher prices for fence posts and homeowners were paying more for their house framing and decking timber.
Following proceedings in the High Court, Koppers Arch Wood Protection (NZ) Limited, its Australian parent company, three Nufarm companies and two Osmose companies (including individual executives), were fined a total of more than $7.5 million for breaches of the Commerce Act. Would these companies now wish they had approached these matters and their risks differently? I think so.
The Commerce Commission has good advice in all these situations and more – have a look at their website comcom.govt.nz and the excellent guidelines and fact sheets they offer.
Among all the possible operational, financial, logistical and market risks, some which are often not sufficiently considered are those of reputational risk. This is recognition that most businesses exist and trade on their reputation, and the risks to this reputation are many. If the grapevine carries the hint that a business’s integrity is low, or could be legally pursued for transgressions, or that their low reputation makes their future success a wobbly prospect, then everything from customer loyalty, to markets, to supply chain, to capital support, to staff commitment and effort, are all likely casualties – serious risk indeed! So, integrity risk is widely recognised as a major factor for Board and management priority. There are worthwhile positives in prioritising this area of risk: it is not hard to mitigate, and unlike most other risks, brings major business upside once understood and addressed.
A strong integrity code and culture, and implementation of a good integrity compliance programme, are invaluable to prevent risks of these and other lapses. A robust integrity compliance programme will include:
‘It takes twenty years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently’ – Warren Buffett.
Click this link to read the entire article The Road to Success is Littered with Risk.