Protecht.ERM Showcase: Manage the full lifecycle of risk management in one system
Register Now

Looking back over the last 12 months, corporate scandals continue with the finance industry seemingly always managing to make the headlines. Wells Fargo fake accounts in the US, CBA anti money laundering issues in Australia are two examples. The flow on effects from these scandals are often similar:

  1. Executives and CEO's involved are ushered out the door - key person risks arise.
  2. Fines were or will be imposed by regulatory agencies, which seem larger and more punitive in recent years.
  3. Class action lawsuits are attempted on behalf of disgruntled shareholders resulting in additional legal fees and potential settlement costs.
  4. Strategic growth objectives are derailed, as the companies involved need to batten down the hatches to recover from the scandal.

The ultimate cost to companies involved in these type of scandals are enormous and I'm sure, corporate governance and risk management get elevated as a priority.  Albeit it too late.

The focus of many commentators on these events include that they are examples of "Reputation Risk". Whilst reputation damage is a major aspect of these events, further investigation using Bow Tie (Cause, Event, Impact) analysis provides a greater and more valuable insight into these scandals.

Using causes, events and effects to create a risk statement 

"The Risk of... (Risk Event/s)... due to... (Risk Cause/s )... resulting in... (Risk Impact/s)..." 

In the case of the Wells Fargo fake accounts scandal, we have:

The risk of:

  • creating fake client accounts (internal fraud)

Due to:

  • unethical staff and excessive sales targets

Resulting in:

  • Financial loss - loss of shareholder value,  legal fees and regulatory fines  (USD 185 million)
  • Global adverse media coverage.
  • Non compliance with banking laws.
  • Departure of key executives (CEO resigned)

Protecht has developed a Bow Tie App. Read more information here.

App Store.png

The Webster dictionary defines reputation as "Overall quality or character as seen or judged by people in general".

The use of the word "overall" suggests that one's reputation is comprised of multiple building blocks - customer service, corporate governance and ethical behaviour as examples. Often, however, we see "Reputation risk" being considered as a risk event when upon closer inspection, it is the end result of more specific risk events that can have a number of impacts.

So if you see reputation damage being assessed as a risk event, stop and ask yourself, what actual events would lead to our reputation being damaged and what would be the more specific impacts that can be associated with them.

In all likelihood, these will be the true risk events and impacts that should be assessed.


Related Articles

feature image
Risk Culture, Risk Manager

How will you shape the future of Risk Management?

A futurist’s role is to help shape the future of something (risk management) in order to make it more relevant and valuable based on: Its known...
Read more
feature image
Compliance Management, Enterprise Risk Management, Protecht Culture, Compliance Professionals

It all starts with sound Risk Management

This interview was featured in the Forge Magazine. You can access the full publication here.  Too many organisations view risk management as a...
Read more
feature image
Risk Culture, Risk Professionals, Protecht.ERM

Webinar Q&A: How to easily measure your risk culture

You can find here the list of questions and answers to the topics that were raised during the live session of the webinar: How to easily measure your...
Read more