Manage Expectations, Manage Reputation
The art of managing reputation risk really comes down to shaping the expectations of shareholders, customers, vendors, creditors and investors.
“Not an easy thing to do,” said Nir Kossovsky, chief executive officer, Steel City Re, speaking at the annual RIMS conference in San Diego on April 12.
“Managing expectations involves behavioral economics – shaping what people expect from you and then meeting those expectations.”
He said expectations typically revolve around six key areas: safety, ethics, quality, security, sustainability and innovation. Failing to meet any of those expectations creates vulnerability for a company, opening up an opportunity for shareholders or special interest activists to come after the board of directors as the culpable party.
Increasingly, directors and officers are the true casualties of reputation damage.
Dissatisfied customers or partners know that “the court of public opinion is much more effective than the court of law,” Kossovsky said, so they will bring allegations against the board and force a public response.
“Managing expectations involves behavioral economics – shaping what people expect from you and then meeting those expectations.” – Nir Kossovsky, chief executive officer, Steel City Re
The best way to mitigate reputation risk, then, is to proactively communicate the board’s awareness of a company’s exposures, and acknowledge its duties to deliver on expectations related to the six key areas.
“Communication is critical,” said Todd Marumoto, director of risk management, Mattel, Inc. “There needs to be some sense of a plan for how the board will respond to a reputation event.”
Without a quick response, the silence is filled by the white noise of unsubstantiated opinion, Kossovsky said. That weakens the board’s credibility.
“Facts are available without much of a down payment. Allegations brought against the board don’t necessarily have to be true and can’t always be validated.”
Conflicting expectations make reputation risk management even harder.
Customers expect, for example, near impossible standards of quality and customer service, while shareholders expect strong profit and growth, and creditors expect swift payment.
While many believe that marketing and press coverage can be the tool for the messaging needed to mold expectations through public perception, the most effective way to mitigate reputation risk is through enterprise risk management that strives for excellence, the speakers said.
In other words, expectations should be set by a company’s performance.
Kossovsky offered the example of BP, which claimed to be “beyond petroleum.”
Despite impressive initiatives to use cleaner energy, BP was still, in fact, heavily reliant on petroleum. The Deepwater Horizon spill of 2010 sparked so much anger because people expected BP to be above such environmentally dangerous accidents.
ExxonMobil, on the other hand, acknowledged to its shareholders that a spill was always a real threat, but demonstrated the steps it was taking to minimize the risk. Shareholders thus had more realistic expectations of the company and are harder to disappoint.
Presenting to the C-Suite
Risk managers can bring the importance of reputation risk to the C-suites’ attention by demonstrating its financial impact.
“Expenses could come from having to replace a vendor, from a government penalty, litigation and class action lawsuits, or having to implement a new management process,” Marumoto said.
Overall, costs associated with remediating a reputational event can be two to seven times higher than costs related to the operational failure that caused the reputation damage in the first place.
“With reputation risk, it’s not always about right or wrong, but about getting the right outcome to satisfy shareholders and customers.” — Todd Marumoto, director of risk management, Mattel, Inc.
“It affects every line item of the P&L,” Kossovsky said.
The impact on D&O effectiveness will also certainly grab senior management’s attention.
“A typical board member makes about $250,000 per year to sit on the board for a term usually of about three years, and he’s usually sitting on three different boards,” Kossovsky said.
“He’s looking at a personal loss of over $2 million” if a reputational hit leads to him being asked to step down from those boards.
According to Marumoto, risk managers can influence outcomes of a reputational event by working internally with investor relations and marketing to ensure the company is sending a consistent message, and to develop a coordinated response plan.
“Ultimately, you have to be responsible for all things that pass in front of you,” he said. “Partner with vendors you trust, be transparent in your efforts to mitigate risks, and develop relationships with government agencies.
“With reputation risk, it’s not always about right or wrong, but about getting the right outcome to satisfy shareholders and customers.”
A Potentially Explosive Reputational Risk
With more Americans passionate about carrying guns in public and more laws allowing it, businesses must assess their risk tolerance and prepare.
Uniform strategies that mitigate the growing risk of gun-related losses for most entities, however, have yet to emerge, leaving employers to define the best plan of action for their unique circumstances and their stance on guns on their premises.
The risks that restaurants, universities and most other entities face include, workers’ compensation losses, general liability exposures and operational challenges, should a shooting force an extended closure.
“”The biggest risk, actually, is reputational,” said Michael P. Lowry, an attorney at Thorndal, Armstrong, Delk, Balkenbush & Eisinger. “So if you can avoid that by taking some preventative measures you are ahead of the game. You are helping to contribute to the company’s bottom line.”
While the growing risk of a mass shooting incident will cause reputational harm, taking a stance on whether to ban guns or welcome customers and employees who pack them also generates reputational backlash from ardent proponents on both sides of the issue, the speakers said.
About five years ago Texas de Brazil posted their policy online stating that the restaurant company was fine with allowing concealed weapons or the open carrying of firearms in states where laws allow those practices.
“We were vilified within the first three days,” said Danielle Goodgion, director of human resources for the Brazilian-style steakhouse and churrascaria with locations across the United States.
“We pulled it off the website. It was not worth the drama.”
Conversely, companies that seek to mitigate the risk of violence by banning guns on their premises face social media attacks from interest groups opposing such policies “and now your brand is being drug through the mud,” Lowry said.
While a simple, uniform policy for mitigating the reputational exposures associated with firearms does not exist, risk managers should identify their risks and develop a plan that best protects their employees, customers and operations, the speakers said.
Each plan, however, comes with its own potential consequences requiring assessment.
Welcoming guns on premises, for instance, expose companies to liability should a weapon accidentally discharge. Posting signs banning guns, on the other hand, could expose the companies to claims from injured parties that the companies were responsible for their safety, Lowry said.
Whatever policies employers adopt, it is important they maintain mechanisms for enforcing those policies.
Employees, for instance, need to know what is expected of them and their responsibility for themselves and customers should a situation arise requiring action.
Goodgion said the company trains employees to respond to gun-violence threats or active shooter situations.
That training works in conjunction with other guidance such as anti-bullying training and exercises for identifying potential workplace dangers, for example, to provide opportunities for teaching how to treat others with dignity and respect and how to respond should violence occur, she said.
“All of that integrates,” Goodgion said. “It’s an evolution. So adding an active shooter response is just one more piece. For me, it was just adding another segment to the training.”
Advocacy: The Impact of Continuous Triage
In the world of workers’ compensation, timing is everything. Many studies have shown that the earlier a workplace incident or injury is acted upon, the more successful the results*. However, there is further evidence indicating there is even more of an impact seen when a claim is not only filed promptly, but also effective triage is conducted and management of the claim takes place consistently through closure.
Typically, every program incorporates a form of early intervention. But then what? While it is common knowledge that early claims reporting and medical treatment are the most critical parts of a claim, if left alone after management, an injured worker could – and often does – fall through the cracks.
All Claims Paths are Not Created Equal
Even with early intervention and the best intentions of the adjuster, things can still go wrong. What if we could follow one injury down two paths, resulting in two entirely different outcomes? This case study illustrates the difference between two claims management processes – one of proactive, continuous claims triage and one of inactivity after initial intervention – and the impact, or lack thereof, it can have on the outcome of a claim. By addressing all indicators, effective triage can drastically change the trajectory of a claim.
While working at a factory, David, a 40-year-old employee, experienced sudden shoulder pain while lifting a heavy box. He reported the incident to his supervisor, who contacted their 24/7 triage call center to report the incident. After speaking with a triage nurse, the nurse recommended he go to an occupational medicine clinic for further evaluation, based on his self-reported symptoms of significant swelling, a lack of range of motion and a pain level described as greater than “8.”
The physician diagnosed David with a shoulder sprain and prescribed two weeks of rest, ice and prescription strength ibuprofen. He restricted David from any lifting over his head.
By all accounts, early intervention was working. Utilizing 24/7 nurse triage, there was no lag time between the incident and care. David received timely medical attention and had a treatment plan in place within one day.
A critical factor in any program is a return to work date, yet David was not given a return to work date from the physician at the occupational medicine clinic; therefore, no date was entered in the system.
One small, crucial detail needs just as much attention as when an incident is initially reported. What happens the third week of a claim is just as important as what happens on the day the injury occurs. Involvement with a claim must take place through claim closure and not just at initial triage.
The Same Old Story
After three weeks of physical therapy, no further medical interventions and a lack of communication from his adjuster, David returned to his physician complaining of continued pain. The physician encouraged him to continue physical therapy to improve his mobility and added an opioid prescription to help with his pain.
At home, with no return to work in sight, David became depressed and continued to experience pain in his shoulder. He scheduled an appointment with the physician months later, stating physical therapy was not helping. Since David’s pain had not subsided, the physician ordered an MRI, which came back negative, and wrote David a prescription for medication to manage his depression. The physician referred him to an orthopedic specialist and wrote him a new prescription for additional opioids to address his pain…
Costly medical interventions continued to accrue for the employer and the surmounting risk of the claim continued to go unmanaged. His claim was much more severe than anyone knew.
What if his injury had been managed?
A Model Example
Using a claims system that incorporated a predictive modeling rules engine, the adjuster was immediately prompted to retrieve a return to work date from the physician. Therefore, David’s file was flagged and submitted for a further level of nurse triage intervention and validation. A nurse contacted the physician and verified that there was no return to work date listed on the medical file because the physician’s initial assessment restricted David to no lifting.
As a result of these triage validations, further interventions were needed and a telephonic case manager was assigned to help coordinate care and pursue a proactive return to work plan. Working with the physical therapist and treating physician resulted in a change in David’s medication and a modified physical therapy regimen.
After a few weeks, David reported an improvement in his mobility and his pain level was a “3,” thus prompting the case manager’s request for a re-evaluation. After his assessment, the physician lifted the restriction, allowing David to lift 10 pounds overhead. With this revision, David was able to return to work at modified duty right away. Within six weeks he returned to full duty.
With access to all of the David’s data and a rules engine to keep adjusters on top of the claim, the medical interventions that were needed for his recovery were validated, therefore effectively managing his recovery by continuing to triage his claim. By coordinating care plans with the physician and the physical therapist, and involving a case manager early on, the active management of David’s claim enabled him to remain engaged in his recovery. There was no lapse in communication, treatment or activity.
After 24/7 nurse triage is conducted and an injured worker receives initial care, CorVel’s claims system, CareMC, conducts continuous triage of all data points collected at claim inception and throughout the life of a claim utilizing its integrated rules engine. Predictive indicators send alerts to prompt the adjuster to take action when needed until the claim is closed – not just at the beginning of the claim.
This predictive modeling tool flags potentially complex claims with the risk for high exposure, marking claims that need intervention so that CorVel can assign appropriate resources to mitigate risk.
Claims triage is constant – that is the necessary model. Even on an adjuster’s best day, humans aren’t perfect. A rules engine helps flag things that people can miss. A combination of predictive systems and human intervention ensures claims management is never stagnant – that there is no lapse in communication, activity or treatment. With an advocacy team in the form of an adjuster empowered by a powerful rules engine and a case manager looking out for the best care, injured employees remain engaged in their recovery. By perpetuating patient advocacy, continuous triage reduces claim severity and improves claim outcomes, returning injured workers to the workforce and reducing payors’ risk.