Understanding Reputational Risk

Abstract: The business world has lost much respect and credibility following a wave of corporate governance scandals over the past five years or so. Many have realized that the risk to their reputation is the greatest risk of all. The reaction of governments predictably has been to tighten up regulations and extend punishments for serious miscreants. But does this get to the root of the problem? This is unlikely as many of these problems are endemic to the performance management systems and accepted practices (such as aggressive targets and incentives) that are in place in most organizations today. This paper explores these issues and offers some thoughts as to what leaders should do about them.