Risk and reward: technology and firms’ reputation management
Contact: Karim Derrick, Richard West
Firms face some major challenges in today’s competitive marketplace. Dogged by recruitment and retention issues, not to mention the rising expectations of clients, a good reputation has never been more important. But it’s no longer just about the service you provide but what you bring to the table in terms of environmental, social and governance considerations (ESG). From sustainable supply chains and climate-friendly carbon footprints to charitable giving and a commitment to diversity and inclusion, lawyers want to work for – and clients want to do business with – firms sharing their values.
A joint report by Lloyd’s of London and KPMG found intangible assets now account for more than 85 per cent of a company’s value, with reputation and brand among the most valuable. Like it or not, your ESG reputation is an increasingly important asset – and something you cannot afford to ignore.
Cautionary tales include Meta, formerly Facebook, which, in 2018, saw its stock plummet as a result of the Cambridge Analytica data breach and privacy scandal. The same year, Uber suffered huge losses following a catalogue of problems, including claims of sexual harassment, bullying and discrimination.
Car manufacturer VW was also left counting the cost after deploying software in millions of its vehicles so the emissions released during government tests would be artificially low. Tens of thousands of affected motorists are now seeking compensation in what could become the biggest consumer action in English history. Thanks to social media, bad news also travels a lot faster than it used to – with the above all resulting in hashtags, urging people to boycott them, trending on Twitter.
Understanding your audience
Key to building, and holding onto, a good reputation is understanding your audience, and sentiment analytics holds huge potential for helping firms to do just that. Sometimes called ‘emotional AI’ or ‘opinion mining’, it uses software to mine text in order to detect the feelings, emotions, urgency and even intentions behind the words.
When applied to content such as reviews or social media posts, for example, it can help businesses to better understand how consumers feel about their brand and may also help prepare for future risks. Data from Allianz suggests firms who fail to properly prepare for events which may damage their reputation could see their company value slashed by as much as 30 per cent.
Kennedys is part of a consortium recently awarded funding to develop new technology able to analyse content – from corporate documents, such as reports and contracts to publicly-available information – and create a real-time reputational index of any risk relating to an organisation’s ESG practices.
The £1.2m ‘Reputation Advisor’ project will also model complex interrelationships between organisations and markets to measure any reputational risk from third parties, then generate risk profiles and ratings, allowing firms to manage risk based on robust evidence as well as being able to explore and plan for different scenarios.
Innovate UK, a government body which supports research and innovation in business benefitting the economy, awarded the project £783k from its Smart Grants scheme, with the remainder funded by Kennedys and its fellow consortium members: The University of Manchester, University College London, Cicero/amo and RiskCovered Limited.
Doing the right thing
Many companies, law firms amongst them, have been accused of ‘greenwashing’ in the past, but I think we have started to see a shift in attitudes as more people understand a genuine commitment to the planet and its people also makes good business sense. Not only do clients expect more now, but ESG considerations are increasingly influential when it comes to where investors choose to put their money. Assets managed by responsible and sustainable investors have doubled to $120trn in the last five years, putting greater pressure on businesses to develop long-term ESG strategies in order to secure capital.
The ongoing momentum is likely to lead to a new chapter in terms of insurance, with reputational risk added onto existing products, such as cyber or directors’ and officers’ liability insurance, or offered as ‘discreet hazard’ standalone cover. Insurance alone is not the solution, however. Firms should be able to accurately monitor and measure reputational risk themselves and while current systems for doing so are limited, much work is being done on developing the tools to help them. Watch this space.
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