Don’t Duck Reputational Risk in ERM

On March 14, 2011, Aflac severed ties with comedian Gilbert Gottfried; the only quacking voice that its popular television mascot, the Aflac Duck had ever had. The dismissal occurred within hours after Gottfried tweeted a chain of tasteless jokes about a devastating earthquake and tsunami in Japan, the same day the disaster occurred. In the aftermath, more than 20,000 people were lost making the potential harm to Aflac’s reputation from the tweets particularly severe at the time, as more than 70 percent of its income emanated from Japan.

How Aflac quickly and creatively responded to this massive reputational risk was an incredible achievement. Not only did Aflac avoid potentially disastrous financial losses, they turned the incident completely around into an incredible marketing opportunity. A year later, the response to this crisis is worthy of study by other insurers working to identify, monitor, and control reputational risk within their enterprise risk management (ERM) programs.

Aflac also stressed that the candidate must embody “the spirit of caring and ethics that Aflac is known for, both in and out of the recording studio.” As a core competency, Aflac further required that its new representative “inspire trust and behave ethically.”

By the end of the campaign, more than 250,000 people viewed the contest website,, and more than 12,100 people submitted auditions electronically. In addition, hundreds attended live auditions held in six cities across the nation.  

Second, the question of what reputational risk needs to be managed can be daunting, as most of the day-to-day operational, legal, regulatory, and financial activities can have a collateral impact on reputation. For example, consider some of the top compliance risks for insurance companies, which are also major direct and indirect risks to the company’s larger reputation:


Step 4: Measure the Risk

Third, measuring the true financial impact of reputational risk is incredibly difficult. In most ERM  assessments, companies rank and prioritize risks in terms of cost or loss scales, by severity of an occurrence and its frequency or probability. However, reputational risk is hard to measure in the same terms. Reputational harm is almost impossible to measure before an event (and easier to cost) but is of little use after an event. So many variables can affect the measurement of reputational loss, including historical/past dealings and current reputation, the details of the incident itself, and the many ways a response can be ultimately handled.

In contrast, the “reputational risk manager” can be anyone in the company with the skills to develop a comprehensive project plan. The key is for the company to create an active, central hub with a strong personality that will bring together information from all parts of the company specifically with a reputational impact, and who can coordinate a response to emergencies quickly.

Ultimately, however, ownership of reputational risk rests with the company’s board of directors, who sets the “tone from the top” for the company’s ethics and compliance culture. Reputational risk management is a major tool in crisis prevention. It is also important to keep in mind, however, that building a reputation in the first instance, and maintaining it long term, is often a matter of human trust. When consumers and stakeholders have trust in company management, staff, and governance policies, the impact of negative incidents may not be as severe.

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