Author Archives: Morgan O'Rourke

About Morgan O'Rourke

Morgan O’Rourke is editor in chief of Risk Management magazine and director of publications for the Risk & Insurance Management Society (RIMS).

Making Sense of Social Media Risk

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Social media is everywhere. In only a few years, Facebook, for instance, went from being an exclusive network for college students to a dominant social platform with more than 600 million active users. Twitter went from being a cartoon sound effect to a communication network of choice for more than 200 million users. It has reached enough critical mass that the RIMS 2011 Twitter feed has been on display for the first time this year at the RIMS booth in Vancouver. Tweets with the #RIMS2011 hashtag have been coming fast and furious.

But while the rewards of increased customer access are well known, many risk managers are unsure of the threats that social media presents to their businesses. In a standing room-only session at RIMS 2011, entitled “The New World of Social Media: Business and Legal Risks,” Chad Jackson, director of risk management at FedEx, Rennie Mazzi, managing director at Marsh and attorneys Melissa Krasnow of Dorsey & Whitney and Tamara Russell of Barran Liebman, helped educate attendees about those risks.

According to Russell, social media risk is difficult to quantify because employment and labor law have yet to catch up to the reality of its application. One of the more interesting areas of concern that she brought up is the seemingly innocuous practice of Googling a prospective employee—a practice that is actually anything but innocuous since it could run afoul of discrimination laws. Employers could be liable because Googling an applicant is the equivalent of “asking” questions you wouldn’t (and shouldn’t) ask in an interview. Russell’s recommendation is to make sure what you are looking for is pertinent to that person’s employment. “Don’t go overboard and be prepared to backup why you searched,” she said.

Social media policies are one solution but in many cases existing communications policies may already cover some of these areas. Krasnow pointed out that it’s not enough to simply have a policy–you have to be able to implement and enforce it.

Jackson, an admitted social media neophyte, suggested that you don’t have to be an expert to take advantage of what social media has to offer. Risk managers need to come up with a philosophy that fits their business, establish consistent guidelines for the use of social media from both a company and employee standpoint and consider using risk management tools like online activity tracking software to help monitor social media outlets for information relevant to the organization.

Social media can seem like a chaotic mess, but it can’t be avoided. The key, as summed up by Mazzi, is finding a way within your company to “enable the chaos.”

For a more in-depth look at social media risk, check out the multi-part cover story in the October 2010 issue of Risk Management.

Senior Executives Address RIMS 2011 Attendees

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This morning, RIMS 2011 attendees were treated to panel discussion and Q&A that has become an annual tradition at the conference. It featured a veritable “who’s who” of insurance executives. Hosted by three former RIMS presidents, the session was divided into two separate panels. The broker side featured Neal Aton, president and CEO of Wells Fargo Insurance Services; J. Patrick Gallagher, chairman, president and CEO of Arthur J. Gallagher; Alan Garner, president and CEO of Marsh Canada and Stephen McGill, chairman and CEO at Aon Risk Solutions. The insurers were represented by John Doyle, president and CEO of Chartis U.S.; Michael Kerner, CEO global corporate, North America at Zurich; Seraina Maag, chief executive, North American P&C at XL Insurance; and Shivan Subramaniam, chairman and CEO of FM Global.

The discussion began with a presentation on the state of the commercial P&C market by David Bradford, executive vice president of Advisen. Bradford indicated that despite the first quarter’s massive catastrophe losses, the soft market would likely remain throughout 2011. The catastrophes simply haven’t yet absorbed enough capacity to affect a substantial market change. Of course, with hurricane season fast approaching things could change very quickly if a major catastrophe were to hit the United States.

From there the discussion touched on a wide range of topics, including innovation, ethics, diversity, attracting young professionals, regulatory changes, commissions, M&A activity, the impact of social media, the importance of relationships, and the overall need for risk managers to be prepared for the unexpected.

How to Avoid Reputational Harm

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Reputational risk is often overlooked and underestimated, but it may be the most potentially devastating threat to a company today. One only needs to look at the recent trials and tribulations of firms like BP, Toyota or Sony to see the impact that a scandal can have on public perception of a company and its overall revenue.

In fact in a session at RIMS 2011 Vancouver, entitled “Reputational Harm: Pushing the Envelope,” John Eltham of Miller Insurance Services, Kieron Russell of Lloyd’s syndicate RJ Kiln and Co. and Angela Matherly of Synder’s-Lance, Inc. pointed out that since the 1950s intangible assets like reputation have steadily become more important than even the tangible products that a company sells. Put simply, “reputation drives business results,” said Eltham. In a case like Toyota, while their recent recalls may have seemed to be strictly a product issue it was actually intangibles like bad governance and lack of citizenship in their awkward and slow response to the issues that were the keys to their damaged reputation.

Given that reputation is so important to the entire company, Matherly pointed out that it is a perfect risk for a ERM framework. Since the whole company can be affected, the whole company needs to help manage the risk. “Do sweat the details,” she said.

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This involves making sure that crisis management and crisis communication plans are in place, PR firms are engaged before an issue occurs, executives and spokespeople recieve media training and that a business continuity plan is in place.

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Companies can choose do it themselves or they can turn to an insurer to help transfer the risk. Either way, successful mitigation is all about “maximizing the ‘Golden Hour’,” said Russell–the time between when the event occurs and when the media gets a hold of it. (And these days, that “Golden Hour” can sometimes be more like “Golden Minutes.

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” ) By considering this important time period, which means being prepared beforehand, companies can the reduce the time it takes to regain whatever revenue might be lost because of a reputational event.

It may take a lot of good deeds to make up for a bad event, but considering the stakes, it seems that a sound reputational risk management program is essential to making sure that you will need fewer of those good deeds to make things right.

America’s Most Reputable Companies

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As a business asset, reputation is often overlooked in favor of the more easily quantified components of a typical balance sheet. But reputation may be the most important factor in determining whether or not a consumer chooses a particular product or service. And although it may be difficult to put a number on reputation, it’s not impossible, as the latest survey by the Reputation Institute indicates.

As reported in Forbes, according to the survey of more than 30,000 consumers, Amazon.com is the most reputable large companies in the United States.

“Amazon is the most reputable company in the U.S. in 2011 because consumers believe that it stands for more than what it sells,” says Anthony Johndrow, managing partner at Reputation Institute. “Its enterprise-wide story engages consumers in more than just delivering innovative products and services, a trustworthy and ethical customer experience or strong financial performance. The whole really is greater than the sum of the parts with Amazon, and this holistic perception creates a meaningful connection between Amazon and consumers, resulting in an excellent reputation score.”

The Reputation Institute gauged reputation by measuring how people felt about 150 of the largest U.S. companies in the areas of trust, esteem, admiration and good feeling. From there they were able to create a “RepTrakPulse” score that went from 0 (the worst) to 100 (the best). Amazon’s 82.7 score was 1.3 points higher than the second place company Kraft Foods. The next four companies  on the list–Johnson & Johnson, 3M, Kellogg’s and UPS–were the only other companies to score in the 80s.

On the other end of the spectrum, unsurprisingly, financial firms received some of the lowest scores. Freddie Mac’s 29.47 score put it at the bottom of the list with AIG, Fannie Mae, Goldman Sachs and Halliburton rounding out the bottom five. The highest charting insurer was State Farm, which was 48 on the list with a score of 72.7.

The following are the top 10 most reputable U.S. companies (the entire list can be found at the end of the Forbes article):

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