Reputational Risk

AAA

DEFINITION of 'Reputational Risk'

A threat or danger to the good name or standing of a business or entity. Reputational risk can occur through a number of ways: directly as the result of the actions of the company itself; indirectly due to the actions of an employee or employees; or tangentially through other peripheral parties, such as joint venture partners or suppliers. In addition to having good governance practices and transparency, companies also need to be socially responsible and environmentally conscious to avoid reputational risk.

Also known as "reputation risk."

BREAKING DOWN 'Reputational Risk'

Reputational risk is a hidden danger that can pose a threat to the survival of the biggest and best-run companies. It can often wipe out millions or billions of dollars in market capitalization or lost revenues and can occasionally result in a change at the uppermost levels of management.
 
The biggest problem with reputational risk is that it can literally erupt out of nowhere. Reputational risk can also arise from the actions of errant employees, such as the massive trading losses disclosed by some of the world's biggest financial institutions from time to time. In an increasingly globalized environment, reputational risk can arise even in a peripheral region. 
 
In some instances, reputational risk can be mitigated through prompt damage control measures, which is essential in this age of instant communication and social media networks. In other instances, this risk can be more insidious and last for years. For example, Canadian energy companies that are extracting oil from the Alberta tar sands have been increasingly targeted by activists because of the perceived damage to the environment caused by their oil-extraction activities.

RELATED TERMS
  1. Brand Identity

    The components of the brand are created by the business itself, ...
  2. Prophet's Reputation Management ...

    An index created by strategic brand and marketing consultancy ...
  3. Brand

    A distinguishing symbol, mark, logo, name, word, sentence or ...
  4. Brand Awareness

    The likelihood that consumers recognize the existence and availability ...
  5. Record Date

    The cut-off date established by a company in order to determine ...
  6. Corporate Social Responsibility

    Corporate initiative to assess and take responsibility for the ...
Related Articles
  1. Entrepreneurship

    The Power Of Branding

    It's the ultimate economic moat, and we look at the approaches and effects of good and bad branding.
  2. Retirement

    How To Profit From Risk

    CDs may look safe and attractive but considering most pay a rate that is less than the rate of inflation seniors today risk actually losing money with CDs. We need to be our own money managers ...
  3. Personal Finance

    Is A Bad Reputation A Bad Investment?

    Many of today's successful companies have survived scandals and bad press with nary a scratch.
  4. Professionals

    How To Build Your Professional Reputation

    If you’re an expert in a particular field, you can use Internet resources to get your name out there. We tell you six ways of how to do it.
  5. Personal Finance

    How Companies Create A Brand

    We take a hands-on approach to creating a brand, and see what it can mean as an investor.
  6. Investing Basics

    Explaining Risk-Adjusted Return

    Risk-adjusted return is a measurement of risk for an investment or portfolio.
  7. Investing Basics

    Calculating the Margin of Safety

    Buying below the margin of safety minimizes the risk to the investor.
  8. Economics

    Explaining the Balanced Scorecard

    A balanced scorecard is a metric that measures a business’ performance.
  9. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  10. Mutual Funds & ETFs

    ETF Analysis: Guggenheim Enhanced Short Dur

    Find out about the Guggenheim Enhanced Short Duration ETF, and learn detailed information about this fund that focuses on fixed-income securities.
RELATED FAQS
  1. Is my IRA/Roth IRA FDIC-Insured?

    The Federal Deposit Insurance Corporation, or FDIC, is a government-run agency that provides protection against losses if ... Read Full Answer >>
  2. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  3. What are common delta hedging strategies?

    The term delta refers to the change in price of an underlying stock or exchange-traded fund (ETF) as compared to the corresponding ... Read Full Answer >>
  4. How does being overweight in a particular sector increase risk to a portfolio?

    An investor who is overweight in a particular sector risks a loss in value for the portfolio if there is a downturn in that ... Read Full Answer >>
  5. What are the primary risks an investor should consider when investing in the retail ...

    The retail sector consists of companies operating in multiple industries such as specialty retail, general retail, food and ... Read Full Answer >>
  6. What risks do I face when investing in the insurance sector?

    Like all equity investments, insurance companies present investors with market risk. Insurance companies, like banks, also ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  2. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  3. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  4. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  5. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  6. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!