Reputational Risk a Bigger Concern for Businesses than Regulatory Fines

Reputational risk and ethical stance are now bigger drivers than the fear of regulatory fines when organisations consider compliance, according to a new survey.

Osborne Clarke’s COVID-19: Compliance Risk Survey 2020 contains interviews with company decision makers in a variety of business sectors across the UK.

The survey found that compliance investment has increased significantly in recent times, as legal teams work to comply with relevant laws and regulations in different jurisdictions – particulary during COVID-19.

Perhaps due to the fact that 2020 has shone a spotlight on business ethics and corporate behaviour, almost 2 in 5 (39 per cent) respondents said that one of the most important current drivers of investment in corporate legal compliance was ethical stance.

The highest number of respondents (41 per cent) also identified reputational risk as one of their organistion’s most important current drivers.

Osborne Clarke co-head of global compliance Chris Wrigley said reputational risk had “undoubtedly moved up the boardroom agenda.”

“It’s often only when organisations have gone through a major reputational issue that they take it seriously. In an era of social media, reputational damage can escalate quickly and can be hard to contain.”

Wrigley said training on compliance areas often focuses on the legal implications and the level of potential fines. However, the survey suggests this is not what drives investment in corporate legal compliance.

“Senior business people know and understand the legal risk and consequences. But it is the corporate concern for reputation that is guiding compliance legislation around the world in a number of compliance areas.”

“Governments have recognised the priority given by corporates to protection of reputation and are leveraging that corporate concern to drive change in areas such as modern slavery.“

“It’s an area in which investment in training will almost certainly pay off in the short to medium term.”

What is reputational risk?

What is the perception of your company in the minds of your key stakeholders? How do your employees, customers, partners, lenders, regulators, and communities view you?

Global media reach has expanded, and along with the the rise of social media use, the public’s access to information has grown and they speed at which they can access it has increased.

Additionaly, public expectations of companies have developed to the point where organisations can no longer risk doing the wrong thing.

This has meant an organisation’s reputation has become increasingly linked to it’s viability.

However, compliance initiatives should not only be used to avoid a bad reputation, but also to build a good one. As respondents to the survey confirmed, compliance does have a financial value to businesses.

The companies at the forefront of this thinking treat their reputation as a business asset. They have built their success on a strong reputation for doing the right thing, and they like to report on it.

PwC UK diversity and inclusion consulting leader, Jon Terry, says organisations need to take this shift in attitude seriously.

“How you are viewed in all manner of different aspects, not just products and services, but your impact on society as an employer is right at the top of the agenda now. This is a new phenomenon in its importance.”