Reputational risk management is one of those risks that are hard to measure, even though it should be addressed in the ICAAP process. Nevertheless, it deserves a comprehensive risk management framework.

Several surveys confirm that reputational risk has emerged as a major concern for many executives and risk managers, not only in the FSI industry. The increase in reputational risk is for the most part attributable to the increasing dominance of intangible assets. In today’s economy, intangible assets such as brand, intellectual capital, strategic relationships and the ‘licence to operate’ account for 70% to 80% of a company’s market value. This is certainly the case in the financial services industry where the ability to underwrite new business is heavily reliant on the standing of the reputation of the firm, a fact that was dramatically underscored in this year’s takeover of Bear Stearns.

Despite the increased awareness for reputational risk, most (if not all) organizations will admit that they struggle to manage this risk. This brief defines the notion of reputational risk, discusses its key drivers and develops a high-level reputational risk management framework.