Reputation Is Everything
April 18, 2010 Leave a comment
In last month’s issue of Operational Risk & Regulation magazine, Goldman Sachs’ operational risk management program and its focus on reputational risk was profiled. The article focused on Goldman Sachs’ use of scenario analysis in anticipating the magnitude of reputational risk events. Scenario analysis exercises such as these are very useful tools to increase the risk awareness within an organization. Here is a summary of Goldman Sachs’ approach.
Goldman Sachs is using scenario analysis to study reputational risk, employing operational risk expertise within its broader risk management framework, according to its global co-heads of operational risk management, Spyro Karetsos and Mark D’Arcy. The bank says it embraces events, even those creating more reputational risk exposure than financial risk exposure, into its framework. ”Franchise value is highly important within the organisation and managing reputational risk is a by-product of that,” says Karetsos, who is based in New York. “While it is not our responsibility to quantify reputational risk, there is an internal process that measures our exposure to those risks that are difficult to quantify, one of which is reputational risk.”
The timeliness of this story is ironic given the potential massive impact to the bank’s reputation as a result of the fraud charges levied by the Securities and Exchange Commission on Friday. Once the announcement was made, the bank lost close to $12.5 billion in shareholder value by the end of the trading day. Whether that loss can be overcome remains to be seen. However, it does prove that in business, reputation is everything.