Emison also provides a series of non-financial key performance indicators (KPIs) that drive value. Many of these KPIs
would be effective at building or preserving corporate reputations and minimizing reputation risks.
Crisis Avoidance & Reputation
The importance of emphasizing crisis avoidance instead of
crisis response and recovery cannot be overstated. Financial
icon Warren Buffett, CEO of Berkshire Hathaway, said: “It
takes 20 years to build a reputation and only five minutes to
ruin it. If you’d think about that, you’ll do things differently.”
Another Warren Buffet quote illustrates the importance he
attaches to corporate reputation: “Lose money for the firm
and I will be understanding; lose a shred of reputation for the
firm and I will be ruthless.” 1
The Halo Effect vs. the Black Eye Effect
The “halo effect” occurs when the perceived positive attributes or actions associated with an individual, product, brand,
or company outweigh the negative features of the same person, product, brand, or company. A major benefit of the halo
effect is that these positive attributes persist or endure until
diminished by a significant negative event.
The halo effect is a positive bellwether for personal and company reputation because once a person, brand, product, or
company has been perceived positively, the by-products are
trust, respect, confidence, and esteem.
Unfortunately, a reverse halo effect also exists, whereby the
negative attributes or actions of a person, brand, product, or
company outweigh the positive attributes and actions. This
is described as the “black eye effect” – when one company in
an industry experiences an event that produces a negative
image, not only does that company get a “black eye,” but the
entire industry also suffers the same consequences.
The black eye effect represents a crucial turning point in any
crisis – the point at which reputation risk shifts to reputation
Reputation: The Ultimate Indirect Cost
CFMs frequently ask me to help quantify the costs of insurance
risk and loss costs. In previous articles for this magazine, I have
described “Risk Performance Metrics” (September/October
2007) and “Internal & External Benchmarking of Insurance
Claims Data,” co-authored by Greg Stefan (July/August 2008).
These articles shared examples of various methods and techniques of measuring or quantifying risk. An important concept here is the difference between direct and indirect costs
in calculating the total cost of risk.
Basically, indirect costs are the uninsured costs that act as a
multiplier on the direct insured costs. Indirect costs are
rarely captured in job costing, and therefore, are a drain on
a company’s bottom line.
Given the gravity, difficulty, and time needed to repair and restore a damaged reputation, a company’s image and corporate
reputation can be viewed as the ultimate indirect cost.
Reputation Management to Build
Anthony Johndrow, Managing Director of Reputation Institute’s U.S. advisory practice, shared some thoughts on the
applicability of reputation management to the small, privately
held businesses that characterize America’s construction
continued on page 20
1. Bernstein Crisis Management, Inc. –
Crisis Management Articles: www.bernstein
2. Crisis Care Network – Training:
3. Crisis Management International – News:
4. The Lukaszewski Group Inc. – Crisis Communication
5. Marsh Inc. & Risk and Insurance Management Society,
Inc. (RIMS) – The 360˚ View of Risk: Excellence in Risk
Management IV, An Annual Survey of Risk:
6. Reputation Institute – “Is Your Company Building a
Reputation that Enhances Business and Mitigates
Risks?” Diagnostic Tool: www.reputationinstitute.