1. What is reputational risk?
• Reputation refers to the opinions people have and communicate about something, so
reputational risk is the risk that people will have a negative opinion of an organization
and share that opinion with other people.
• Reputational damage can be caused by many factors such as dishonesty,
incompetence, activities that do unnecessary harm to the environment or unethical
behaviour.
• It can be caused by an individual or by the behaviour of a company as a whole.
2. Sources of reputational risk
There are a wide variety of considerations:
• Employees - the actions and behavior of staff reflect the principles of the organization
they work for.
• Management – their position implies they are more likely to reflect the core values of
the business, so any digression is more significant.
• Accounting - any company found to be operating dubious accounting practices will
lose the confidence of customers and investors.
• Fraud - if a company allows fraud to take place or doesn’t take appropriate action, this
can lead to stakeholders having concerns. The prerequisites for fraud to occur are
dishonesty, opportunity and motive.
• Bribery and corruption - if an organisation acts in an inappropriate manner by
offering or accepting bribery or any form of corruption, this will damage its reputation.
• Transfer pricing - it is of reputational importance to strike the correct balance
between using the rules and regulations of different countries to benefit shareholders
and paying a reasonable amount of tax.
• Cyber security - as online sales increase, having a reputation for a secure website is
increasingly important.
• Data protection - there is increasing legislation related to looking after personal
information, and failure to comply could lead to reputational damage.
Unethical behaviour – this is explored in more detail in the next section.
Business ethics
A management accountant should apply safeguards to eliminate the threats or reduce them to
an acceptable level such that compliance with the fundamental principles is not compromised.
• CSR, sustainability - for differentiation, to attract and retain employees, for brand
strengthening
• Miss-selling, misleading advertising
• Mistreatment of staff – e.g. discrimination, unfair dismissal
• Bribery and corruption, especially of foreign government officials
• Reputation refers to the opinions people have and communicate about something, so
reputational risk is the risk that people will have a negative opinion of an organization
and share that opinion with other people.
• Reputational damage can be caused by many factors such as dishonesty,
incompetence, activities that do unnecessary harm to the environment or unethical
behaviour.
• It can be caused by an individual or by the behaviour of a company as a whole.
2. Sources of reputational risk
There are a wide variety of considerations:
• Employees - the actions and behavior of staff reflect the principles of the organization
they work for.
• Management – their position implies they are more likely to reflect the core values of
the business, so any digression is more significant.
• Accounting - any company found to be operating dubious accounting practices will
lose the confidence of customers and investors.
• Fraud - if a company allows fraud to take place or doesn’t take appropriate action, this
can lead to stakeholders having concerns. The prerequisites for fraud to occur are
dishonesty, opportunity and motive.
• Bribery and corruption - if an organisation acts in an inappropriate manner by
offering or accepting bribery or any form of corruption, this will damage its reputation.
• Transfer pricing - it is of reputational importance to strike the correct balance
between using the rules and regulations of different countries to benefit shareholders
and paying a reasonable amount of tax.
• Cyber security - as online sales increase, having a reputation for a secure website is
increasingly important.
• Data protection - there is increasing legislation related to looking after personal
information, and failure to comply could lead to reputational damage.
Unethical behaviour – this is explored in more detail in the next section.
Business ethics
A management accountant should apply safeguards to eliminate the threats or reduce them to
an acceptable level such that compliance with the fundamental principles is not compromised.
• CSR, sustainability - for differentiation, to attract and retain employees, for brand
strengthening
• Miss-selling, misleading advertising
• Mistreatment of staff – e.g. discrimination, unfair dismissal
• Bribery and corruption, especially of foreign government officials
