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By DAN REYNOLDS, senior editor of Risk & Insurance®

Risk managers might never face a more challenging moment than when they are trying to mitigate reputational risk and protect brand value.

"Their ability to set the tone has been lost," Nir Kossovsky, CEO of Pittsburgh-based Steel City Re, said of the ever-weakening hold companies have on managing the impression of their name and reputation.

"They cannot keep up with the 7 billion keyboard-owning, self-appointed, investigative journalists out there," he said.

Kossovsky's company created an index for risk managers and investors that, among other things, links the impacts of a company's reputation to the value of its shares.

A BRAND'S WORTH

Millward Brown, the New York-based subsidiary of London's public relations conglomerate WPP, earlier this month released its list of the BrandZ Top 100 Most Valuable Global Brands. Leading the list was Apple. The maker of the iPhone, the iPad and the Mac has a market cap of $321.94 billion and has a brand value of $153.3 billion, according to Millward Brown.

Apple supplanted Google at No. 1 in brand value, according to Millward Brown. Google's brand value fell 2 percent to $111.75 billion against a market cap of $174.48 billion. IBM ranked third on the list, McDonald's was fourth and Microsoft was fifth.

Mario Simon, a managing director of Millward Brown Optimor (the firm's brand management arm), laid out three components that go into the calculus of a company's brand valuation number. Those three components are earnings, the percentage of those earnings that come from brand value and the multiple that determines the company's long-run growth potential as perceived by the financial marketplace. Simon said that the database Millward Brown uses to arrive at its figures is extensive, relying on interviews with some 1.5 million people.

For his part, Kossovsky just wants everyone to be clear on what terms they are using. Brand, he said, is essentially the promise that the company conveys to the consumer about its services or products. Reputation, on the other hand, is essentially how that product is received or perceived.

"Let's sort of agree on language because we are dealing with intangibles, and intangibles are characterized by the absence of sharp lines," Kossovsky said.

Having said that, Kossovsky added that there is no reason to doubt Millward Brown's numbers.

"We don't have any independent opinion over the validity of those numbers. They are a good working figure," Kossovsky said.

PROTECTING BRANDS IN DECLINE

For those companies that had years less successful from a reputational standpoint than Apple, the Millward Brown numbers seem to follow those companies' reputational or brand value declines.

Bank of America, which remains snagged in the weak lending economy, saw its brand value decline by 43 percent in the last year. British Petroleum, which suffered a now infamous blowout at the Macondo well in the Gulf of Mexico in April 2010, saw its brand value decline by 23 percent, according to Millward Brown.

Colliding with the timing of the Millward Brown rankings this month were numerous insurance industry media reports that Aon, Zurich and WPP were collaborating on a brand restoration product that would provide a $100 million limit toward covering the expenses should a WPP be required to sweep in and help a company shore up its reputation. Aon and Zurich are not ready to discuss the product in much detail publicly.

"Reputational risk is a growing concern for risk managers and corporate leaders," said Zurich in an e-mailed statement.

"Zurich has been engaged in ongoing discussions with customers, brokers and other stakeholders exploring the insurability of these risks. In terms of the development of new products addressing brand/reputation, we are working with Aon and one of the world's largest PR firms to develop potential solutions. However, considering the innovative nature of the coverage, it will require further discussions with customers and management to continue to assess the relevance and proper approach," the statement read.

May 17, 2011

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