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Reputational Risk Draws Increased Board Awareness, But Not Action

In its fifth annual board of directors survey, “Concerns About Risks Confronting Boards,” EisnerAmper surveyed directors serving on the boards of more than 250 publicly traded, private, not-for-profit, and private equity-owned companies to find out what is being discussed in American boardrooms and, in turn, what those boards are accomplishing as a result.

According to the report, reputation remains the top concern across a range of industries:

Most Important Risks

“The financial cost and damage to reputation from a cyber/privacy breach is growing exponentially,” said Nancy Brady, EisnerAmper’s director of IT risk services. “Directors have recognized the increasing risk companies face related to cyber/data security.

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Now they need to roll up their sleeves and, with the companies, address these risks.”

While reputational risk remained the top concern of respondents, the survey found that companies are not necessarily translating awareness into action. In fact, only 31% said they were concerned about crisis management.

“There were a surprising amount—close to a quarter of respondents—who had no plans, and others just informally ‘doing their best.

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‘ This lack of formality to address the most significant risk identified existed across all organizations,” the report said.

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“When plans existed, they included both everyday operations—such as to keep a positive reputation and reduce the risk—and strategies to address a crisis affecting reputation.”

Despite the minimal plans in place, the directors surveyed seem to hold themselves and other company executives primarily responsible for the response to a reputational crisis. When asked who is responsible for executing such a plan, they reported:

responding to reputational risk crises

Respondents also showed improving confidence in the performance of the board, committees, external auditors and accounting departments.

How well is board addressing risks

Click here for the full report from EisnerAmper.

Strength in Numbers: Internet Risk Detection and Brand Protection

Many of the attacks launched against today’s brands are as covert as they are debilitating. In today’s connected age, savvy cyber criminals often blitz companies with a flurry of activity across an array of online channels.

To make matters worse, employees who are using the Internet casually or personally create a vulnerability for businesses: workers could click on a phishing link sent to their personal account and unknowingly be exploited by cyber criminals, or they could bring harm to the business via a social media post they thought to be harmless.

And, let’s not forget that brands can also inflict damage on themselves, such as through executive scandals, accounting errors or failing to protect customers and investors.

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Even though these events may not involve a malevolent, third-party attacker, the resulting fallout can be just as severe as if they fell prey to one.

Given these circumstances, companies could face a barrage of both external and internal threats to their brand, customer loyalty and bottom line.

So, how can they defend themselves? The same crisis management procedures brands use following an external attack should also extend to self-inflicted events. Every reliable, robust brand defense strategy should begin with an Internet Reputation Management Council (IRMC).

The Power of Many

No one stakeholder within a company can be solely responsible for online brand reputation management. Instead, businesses need to bridge the gap between departments, creating an environment in which employees across the marketing, security/IT, finance and legal departments unite and share resources to defend the brand—and it all begins with an IRMC.

Council members representing departments throughout the organization will become Internet reputation champions who work collaboratively, from within their individual departments, to ensure that ownership and management of the brand is carried out across the enterprise.

As such, an IRMC has the range and visibility to combat the multitude of Internet-based threats. To borrow a term from the military, an enterprise that deploys an IRMC is essentially following a “defense-in-depth” strategy, by creating a redundant, layered web of defenders.

The Members of an IRMC

Once a company decides to launch a cross-departmental IRMC, who makes up its members? Executive-level sponsorship will provide the vision for an Internet reputation strategy, facilitate cross-functional and resource collaboration, and build a brand-aware organizational culture. A team leader is responsible for executing that vision on a day-to-day basis and marshaling the resources needed to protect the brand. Area leaders will protect the brand from various departments within a business, including marketing, legal, investor relations, compliance, e-business, human resources, public relations, security and fraud, and IT.

Although all IRMC roles are important, it’s these area leaders who can make or break a brand’s Internet reputation.

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A successful response demands the full participation of every member of an IRMC. Even though response actions may be centered in one department, these crises are full-company situations.

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After all, it’s not as though the public would only render judgment in isolation, for example, against “Target’s security team” or “Yahoo’s executive search committee”—the entire brand is put under a microscope following an incident.

A Defender at Every Position

With an effective IRMC, companies like these can use the “power of many” to combat such Internet-based threats to their brand, even when they’re self-inflicted. An IRMC operates by:

  • Identifying key internal stakeholders and inviting them to collaboratively establish the guidelines of Internet reputation management within the company
  • Meeting regularly to keep abreast of industry and technology changes, as well as emerging forms of Internet-based threats
  • Establishing goals and targets, such as building a structure to set up a “Best of Breed Governance Policy,” and setting metrics to track performance
  • Preparing emergency response protocols
  • Implementing training policies and communication within each department
  • Reviewing, measuring, evaluating and managing progress against objectives

Although a fairly new concept, there are already real-world examples of effective IRMCs. AstraZeneca’s reputation council, for example, comprises a diverse group of those with “stakeholder responsibilities,” including representatives from sales, marketing, finance, human resources and communications. It reports directly to the CEO, and because of this structure, long-term risk management and prevention are infused into the company’s corporate focus.

Ultimately, the true value of an IRMC like AstraZeneca’s isn’t in how many attacks it directly neutralizes, but that it creates an organizational culture of Internet reputation management excellence, starting with the heads of core departments and working its way throughout the rest of the enterprise.

By the time the IRMC is engaged responding to an incident, significant damage has already occurred. The best-protected brands are those that have identified brand protection as a central part of their mission statements. Their investment in a culture of excellence, led by their IMRC, mitigates risks before they become reality, improves profits and creates value for customers, employees and other stakeholders.

Staying Safe at the World Cup

Brazil is steadily moving into the international spotlight as it prepares to host the World Cup, which begins next week on June 12, and the Olympics in 2016, both of which are forecasted to showcase its status as an emerging economic power. On the other hand, these events are also likely to amplify security risks in the country.

The primary risk for travelers during the World Cup is the rise of common crime in host cities.

Often times, foreigners are perceived as wealthier and thus make attractive targets for pickpockets and armed robbers as well as express and traditional kidnappers. Risk managers should be aware that preparing travelers for these crimes is the best mitigation strategy.

Beyond crime, civil unrest is also a threat. Many groups already have plans in place to protest; the magnitude of their demonstrations and effectiveness of the government’s response are factors that are unpredictable. Widespread rallies may result in localized and violent clashes with police, especially in Sao Paulo and Rio de Janeiro, where they may be larger and more frequent.

These demonstrations can also routinely halt traffic, which can force an ambulance to take an hour to reach a hospital that may only be 20 minutes away. Risk managers are advised to plan an alternative route, especially in a medical crisis.

The Proactive Risk Manager
Due diligence and intelligence are every risk manager’s responsibility, but conveying this information to travelers is critical. This includes offering pre-trip training which teaches travelers how to be self-aware, and addresses visa requirements, language and cultural information, and any relevant medical and security threats. Simultaneously, all risks, mitigation strategies and contingency plans should be clearly communicated to relevant departments.

During trips to and within Brazil, risk managers should be aware of any itinerary delays and security incidents.

Knowing where travelers are at all times is vital; traveler tracking services, often offered by assistance providers, can help enormously in case of an emergency.

Following Best Practices
As we approach the World Cup, travelers and risk managers should expect a heightened security presence of police and other law enforcement officials, especially in all 12 host cities. That said, it is easy to fall into a false sense of security. Using common sense safety precautions can help to mitigate risks and ensure peace of mind:

  • Avoid exposing flashy jewelry or high-price items such as cell phones, laptops, cameras, etc.
  • Always carry extra medications with you.
  • Choose an indoor ATM so you don’t fall prey to express kidnappers or muggers.
  • Carry only a small amount of cash with you.

    Leave passport and credit cards in your hotel’s safe.

  • Do not walk alone at night. It is best to travel in groups.
  • Avoid public transportation. Hotels can assist in hailing “radio taxis” (taxis you call ahead of time to arrange a pick-up rather than cabs on the street).
  • Take out comprehensive travel and medical insurance before your travel.
  • Remember the local equivalent to “911″ is divided up into three services: 190 – Policia (Police), 192- Ambulancia (Ambulance), and 193- Bombeiros (Fire).
  • Carry the number of the nearest English speaking hospital and an emergency contact on you.

For more on staying safe at the World Cup, read our cover story in this month’s issue of Risk Management.

Jordan Belfort Delivers Keynote at RIMS 2014

DENVER—In his opening keynote address at RIMS 2014, Jordan Belfort, the infamous “Wolf of Wall Street,” spoke about the moment when his successful business career took a wrong turn. It wasn’t a big dramatic moment that set off major regulatory red flags, but rather a minor ethical lapse that went largely unnoticed.

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The problem was “the ethical line moved,” he said, and it became easier and easier to compromise on his standards until eventually he was thrown in jail for securities fraud.

This proverbial death by a thousand cuts should sound familiar. It is the same thing that happened during the subprime mortgage crisis when greed got the better of mortgage brokers as they stopped really evaluating the credit worthiness of prospective borrowers. And it is the same thing that happens in any organization when complacency sets in and risks are overlooked. As Belfort said, it is the result of “human beings not using common sense” and relying too much on models to make decisions for them.

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For risk managers, it is a reminder to never lose sight of the details because details are what can create the biggest headaches.

For Belfort, it took 22 months in jail, millions of dollars in restitution payments and a family upheaval for him to learn the lesson that, “success in the absence of ethics and integrity is not success—it’s failure.”

Belfort said he regrets the harm he caused with his reckless and unethical behavior and cautioned those that are new to the business world to always do a gut check of the business they are involved in and not take it for granted that someone else is making sure everyone stays honest. “If something doesn’t smell right, it’s probably not right,” he said.

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He also advised students to master the art of persuasion and communication. It’s a skill that is great for salespeople who are trying to get a client to see positive potential, but it is also great for risk managers who are trying to communicate risk and make sure that the organization takes appropriate measures to address it.

But the point, ultimately, is that ethical behavior leads to greater success than just going for the quicker buck. Contrary to Gordon Gekko’s motto, “greed is not good,” Belfort said. “Passion is good.” At the very least, it certainly beats prison.