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Directors putting reputation before profit

REPUATATIONAL RISK is now seen as a critical company-wide concern with three quarters of finance leaders claiming their company was prepared to lose profit in the short term for the sake of protecting its long-term reputation.

According to a joint CIMA and AICPA survey of more than 1,300 finance professionals, more emphasis is being placed on reputational risk than in previous years, while almost half said they had rejected a project that made financial sense because the reputational risk was too great.

Respondents identified the demand for more transparency, competitor reputational failures and the rise in social media channels as contributing factors to the increased global interest on the topic.

Despite this, over 95% of organisations surveyed admitted to not always using feedback from these channels to help them anticipate and manage risk to their reputation. Similarly, 62% of those surveyed had no formal processes or models in place for calculating the financial impact of not managing reputational risk.

Tanya Barman, head of ethics at CIMA said: “Organisations are increasingly recognising the need to take reputational risks very seriously if potential crises are not to turn into catastrophes.

“What is very worrying is the revelation that businesses still appear to be struggling with how they go about managing non-financial reporting in this area.

“In order to be fully protected, it is vital for finance directors and leaders to start moving away from focusing primarily on the short term and to begin collecting, reporting and monitoring reputational risk information.”

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