Strategy
Risk, Professional Reputation In Age Of Disruption
The author of this article contends that preparing for the unexpected, developing and, crucially, maintaining an up-to-date understanding of reputational risk is vital for advisors who often operate at the intersection of complex industries and sensitive client matters.
The following article comes from Ryan McSharry, UK crisis head at Infinite Global, an international public relations firm. The author reflects on the demands of protecting reputations in volatile times, as exist today. This topic plugs into the “protecting the client” broad narrative that this news service writes about regularly. It also touches on matters relating to privacy which the editor of this news service spoke on at a recent conference.
This publication is pleased to share these comments; the usual editorial disclaimers apply. To respond, email tom.burroughes@wealthbriefing.com
We are living in volatile times.
While reputational risk management is not a new concept, recent
years have seen advisory organisations grappling with even more
challenges than usual, from ESG concerns and geopolitical risks
to heightened regulatory scrutiny.
Preparing for the unexpected, developing and, crucially,
maintaining an up-to-date understanding of reputational risk is
vital for advisors who often operate at the intersection of
complex industries and sensitive client matters.
But while there are significant ramifications from getting it
wrong – there are positive benefits from getting it right.
What’s your reputation worth?
The value of an advisory firm's reputation cannot be
overstated.
A strong reputation enhances client loyalty, attracts top talent,
and opens doors to new business opportunities. Conversely,
reputational damage will lead to loss of clients, increased legal
and regulatory scrutiny, and erosion of trust in the
marketplace.
It is not uncommon for an advisory firm to lose one third of its
brand value (typically valued at around 40 per cent of
annual revenue) as a result of a reputational crisis, and that
might be best-case scenario – sometimes, a crisis will be
existential in nature, particularly where an ineffective response
fails to mitigate, and only exacerbates, the impact.
But it’s not just about the money and the business impact.
Reputational crises at advisory firms often have very personal
consequences, sometimes leading to the departure of senior
figures and dramatically affecting the careers of those
individuals involved.
They also lead to indirect consequences, typically an increase in
costs, distraction from the all important “business as
usual,” as well as leading to unanticipated organisational
and cultural change.
The drivers of disruption
Disruption is driven by various factors, each exerting its own
unique influence on the business environment. Technological
advancements, shifts in client behaviour, and geopolitical and
economic instability are just a few examples. But these are all
exacerbated by two key factors – a general decline in trust of
businesses, fuelled by an epidemic of mis- (and dis-)
information, and the ever-increasing velocity of emergent and
unpredictable risks.
Critically, these disruptors can quickly reshape entire
industries, forcing firms to adapt quickly or risk obsolescence.
The changing “rules of the game” expose specific risks and
vulnerabilities for professional advisors with crisis triggers
falling into three primary areas:
-- People – including partner and employee behaviour, and firm
culture, gender pay-gap performance and lack of diversity, and
staff investment, retention, and employee wellbeing;
-- Clients – including client types and toxic associations, lack
of due diligence and conflicts of interests, and regulatory
compliance; and
-- The firm – safeguarding confidential information and
cyber resilience, supply chain awareness and integrity,
environmental performance, increasing expectations of
transparency and expectations of social activism or,
conversely, the lack thereof.
Why are reputational crises for advisory firms difficult
to address?
Responsibility for managing reputational risk often falls into a
nebulous gap, with no clear ownership among risk management,
communications, and other business units, for instance those
handling stakeholder relationships, such as fee
earners.
This lack of defined responsibility contributes to poor
situational awareness, as there is a weak understanding of the
sources of reputational risk and how to effectively manage them.
Furthermore, there is a tendency for firms to miss the broader
external stakeholder perspective, resulting in a failure to
address key concerns and expectations.
Compounding this is a low awareness of the full cost of crises.
Many firms fail to grasp the extensive impact of reputational
damage discussed previously. Despite these potential
consequences, there is often a pervasive fear of rocking the boat
– a cultural resistance to the behavioural changes necessary to
effectively manage risk.
Moreover, no one likes to talk about failure. Firms are reluctant
to openly discuss failure and learn from past mistakes –
particularly where personal accountability has to be accepted.
Without a structured review process or understanding of previous
crises, organisations are unable to identify patterns, assess
weaknesses, or implement corrective measures.
This aversion to introspection prevents organisations from
addressing underlying issues, asking difficult questions, and
ultimately inhibiting the ability to learn and adapt. Breaking
this cycle requires a cultural shift towards openness and
accountability, and a willingness to confront challenges
head-on.
Enhancing resilience
Firms should take an active approach to crisis management,
assessing where they are likely to be exposed, looking at the
worst-case scenarios and undertaking readiness preparation. By
following a structured approach, firms can enhance their
readiness to address unforeseen challenges, such as media
training, re-thinking messaging or even fundamentally
re-assessing policies and procedures.
Scenario mapping and risk mitigation plans should be updated
regularly, as types of events that could trigger a crisis,
cultural expectations, and behaviour evolve.
Understanding the crisis lifecycle – from pre-crisis preparation
to post-crisis recovery – is critical. By fully anticipating the
potential challenges ahead and having a well-defined and
strategic response plan in place for each, firms can minimise
crisis impact and expedite the path to recovery.
The team tasked with preparing for and managing a crisis must
also function effectively. A diverse range of people with
different perspectives may need to be involved, including
external PR advisors who can hold up a mirror to the business.
The correct person needs to be chosen to lead – which may involve
difficult conversations. Not all managing partners or subject
matter experts will be the right person.
Bad firms are destroyed by a crisis, good firms survive
them, and great firms learn from them
Navigating risk and upholding professional reputation in a
disruptive landscape requires a proactive and strategic approach.
By understanding the drivers of disruption, adapting to the new
risk landscape, and investing in effective crisis response
capabilities, advisory firms will safeguard their reputations and
thrive in an ever-changing world.