Reputation Risk: Why Companies Need to Care

GOOD. SMART. BUSINESS. PROFIT.TM

Reputation Risk: Why Companies Need to Care

November 10, 2014

Kevin McCormack

Managing Director, Content & Programming

[email protected]

303.819.9817

We welcome you to submit any questions for the panel

through the chat function you see on your screen.

HOST

QUESTIONS

RECORDING The event recording will be provided post event.

3

Andrea-Bonime BlancFounder and CEOGEC Risk Advisory

Jaqueline E. BrevardFormer Vice President,

Chief Ethics and Compliance OfficerMerck & Co., Inc (Retired)

Claire LewisHead, Compliance Coordination

and Compliance OfficerSNC-Lavalin

SPEAKING TODAY

© GEC Risk Advisory LLC 2014. All Rights Reserved. Confidential & Proprietary Information.©GEC Risk Advisory LLC 2014. All Rights Reserved. Confidential & Proprietary Information.

Reputation Risk: Why Companies Should Care

Andrea Bonime-Blanc, CEO, GEC Risk - Author, The Reputation Risk Handbook

Jacqueline E. Brevard, Senior Advisor, GEC Risk - CECO, Merck & Co. (Retired)

Claire Lewis, Head, Compliance Coordination & Compliance Officer, SNC-Lavalin

Ethisphere Live Webcast – November 10, 2014

© GEC Risk Advisory LLC 2014. All Rights Reserved. Confidential & Proprietary Information.

OVERVIEW

• The Merck Vioxx Case

• Reputation Risk in the Age of Hyper-Transparency

• Reputation Risk: Management Tools & Techniques

6

• The SNC Lavalin Case


OVERVIEW




7



SOME SURVIVED… …AND SOME DID NOT…

ETHICS, COMPLIANCE & RISK…GONE WRONG

order

8

http://www.bp.com/home.do?categoryId=1&contentId=2006973

http://www.bp.com/home.do?categoryId=1&contentId=2006973


9

GLOBALIZATION OF ANTI-CORRUPTION, ETHICS & COMPLIANCE


10

GLOBALIZATION OF ENFORCEMENT & COOPERATION


DO YOU KNOW WHAT YOUR TOP RISKS ARE?

A WORLD OF RISK & CRISIS

CorruptionCybercrimeClimate ChangeSupply ChainHuman RightsChild LaborPandemic/EpidemicBusiness Continuity

RegulatoryPoliticalAntitrustGovernanceFraudEnvironmentalHealth & SafetySecurity

What about aBlack Swan?

11


WHAT ABOUT LEADERSHIP & CULTURE FAILURE RISK?

Source: Andrea Bonime-Blanc, “The Biggest Risks Nobody Talks About”. Ethical Corporation Magazine. February 5, 2014. 12


Source: Deloitte, Exploring Strategic Risk, 2013. 13

WHAT ABOUT REPUTATION RISK?

REPUTATION RISK IS CONSIDERED A TOP (EVEN #1) RISK BY BOARDS & CEO’S GLOBALLY


Source: Eisner Amper. Concerns Around Risks Confronting Boards 2013. 14

FOR GLOBAL BOARDS REPUTATION RISK IS BY FAR #1 RISK


Source: The United States FCPA Resource Guide 2012. 15

EVEN GOVERNMENTS TALK ABOUT REPUTATION RISK


16

REPUTATION RISK WRIT LARGE I


17

REPUTATION RISK WRIT LARGE II


18

REPUTATION RISK WRIT LARGE III


19

REPUTATION RISK WRIT HUGE…


The Age of Twitter et al

20

AND THEN THERE’S SOCIAL MEDIA REPUTATION RISK…


21

AND REPUTATION RISK BIG DATA IS HERE TOO

THE REPRISK

INDEX


“Reputation risk is an amplifier risk that layers on or attaches to other risks – especially ESG risks – adding negative or positive implications to the materiality,

duration or expansion of the other risks on the affected organization, person, product or service.”

Sources: Nir Kossovsky. Reputation, the Stock Market and You. Andrea Bonime-Blanc. The Reputation Risk Handbook. 22

REPUTATION RISK IN THE AGE OF HYPER-TRANSPARENCY

WHAT IS IT AND WHY SHOULD COMPANIES CARE?


SOURCE: Transparency International Website. November 2-14. 23

HOT OFF THE VIRTUAL PRESSES:TI’S CORPORATE TRANSPARENCY RESEARCH


OVERVIEW




24



HISTORICAL PERSPECTIVE ON E&C AT MERCK

1978: Ethical Business Practices Program/Corporate Policy

1991: AdviceLine (anonymous)

1995: Established Chief Ethics Officer Position

Office of Ethics

Ombudsman Program

1999: Comprehensive Global Ethics Program (Code Edition I)

2002: Compliance Program Charter

2004: Ethics/Compliance Programs combined (Code Edition II)

Est. Chief Ethics and Compliance Officer Position

2009: Global Compliance Organization

2011: Edition III Code of Conduct

25


MERCK’S VIOXX WITHDRAWAL: AN EARTH-SHATTERING EVENT FOR THE COMPANY

• Merck’s voluntary withdrawal of $6 Billion of Vioxx, a blockbuster product, in 2006

• Sent shock waves throughout the company

• Negative media response, notwithstanding the Company’s good intentions

• Litigation ensued

• Potential for negative reputational hit

• Uncertainty amongst employee ranks

26


POTENTIAL CONSEQUENCES OF NEGATIVE REPUTATIONAL EVENT

Potential Catastrophic Consequences to the Company

• Poor employee morale

• Potential employee turnover

• Stock price decline

• Shareholder backlash

• Litigation

27


HOW COMPANIES & SENIOR LEADERS MANAGE REPUTATION RISK I

Merck’s Response

• Track record of operating on a solid foundation of a strong ethical culture

• Employees knew what the company stood for

• Negative media response hurt, but heads held high:

– constant, continuous information flow from senior management

– Externally: Negative PR

– Internally: Positive PR

28


Why the Response was Successful

• Strong organizational values – engenders confidence and trust

• Tone at the top, middle and bottom

• Consistent flow of information from senior management regarding business rationale for the withdrawal and ongoing litigation strategy:

– Weekly town halls

– Informative staff meetings

• Customer base believed in the company/product

HOW COMPANIES & SENIOR LEADERS MANAGE REPUTATION RISK II

29


OVERVIEW




30


DELIVERING ON OUR COMMITMENT TO

ETHICS EXCELLENCE

CLAIRE LEWIS

SNC-LAVALIN GROUP INC.

November 2014

Setting the scene:

SNC-Lavalin in the headlines, 2011-2013

32

HOW SNC-LAVALIN COMMITS TO

ETHICS EXCELLENCE

Our ambition is to become the global benchmark against which

other companies measure themselves. We strive to set a higher

standard for:

(1) How ethics is woven into the fabric of the way we do

business, and

(2) Transparency in the way we report to our stakeholders.

33

SNC-Lavalin is committed

to doing business

with highest integrity

DELIVERING ON OUR COMMITMENT PROGRESS TO DATE (1)

• Key leadership and structural changes

• Updated Code of Ethics and Business Conduct

• EthicsPoint Hotline

• Ethics and Compliance Committee

• Revision of Corporate Policies including:

o Business Partners Policy

o Gifts and Hospitality Policy

o Levels of Authority Policy

o Political Contributions Policy

o Donations and Sponsorship Policy

o Financial Control Policy

• Third party screening of new hires and appointments to the

Management Committee and the Office of the President

34

• New Chief Compliance Officer function established on

March 1, 2013

• Ethics and Compliance Awareness Session at April 2013

Management Committee

• Compliance Consultation Centre established

• Amnesty Program from June 3 until August 31, 2013

• 1st Compliance Officer Meeting on July 16, 2013

• Anti-Corruption Manual issued with guidance information on

relevant Compliance topics

• Compliance Investigations integrated in compliance function in

September 2013

• Employee certification on the updated Code of Ethics and Business

Conduct performed Q1 2014 and annually.

35


• External validation / monitoring of compliance program implementation

by WBG independent compliance monitor started August 2013

• Initial report by independent compliance monitor submitted on December

13, 2013

• Compliance intranet-website established

• Global Compliance in-person training program started on September 30,

2013

• Business Partner Compliance Due Diligence IT-Tool established

• SNC-Lavalin gets AMF approval to bid on Quebec public contracts in

February 2014

• 3rd Update of the Code of Ethics and Business Conduct will be

effective January 2015

36


WE CARE embodies SNC-Lavalin’s key corporate values and

beliefs. It is the cornerstone of everything we do as a company.

Ethics, health and safety, employees, the environment,

communities and quality: these values all influence the

decisions we make every day. And importantly, they guide us in

how we serve our clients and therefore affect how we are

perceived by our external partners. WE CARE is integral to the

way we perform on a daily basis. It is both a responsibility and a

source of satisfaction and pride by providing such important

standards to all we do.

WE CARE about the health and safety of our employees, of those who work under our care, and

of the people our projects serve.

WE CARE about our employees, their personal growth, career development and general well-

being.

WE CARE about the communities where we live and work and their sustainable development, and we commit to

fulfilling our responsibilities as a global citizen.

WE CARE about the environment and about conducting our business in an environmentally responsible manner.

WE CARE about the quality of our work.

WE CARE about being world-class in matters of governance and ethics for our shareholders,

clients and employees.


OVERVIEW




38



39

GLOBAL INDUSTRY & STAKEHOLDER TRUST

Source: Edelman Trust Barometer 2014.39

WHY REPUTATION

RISK MATTERS


40

REPUTATION RISK STAKEHOLDERS

SOURCE: Andrea Bonime-Blanc. The Reputation Risk Handbook. Oxford, UK: DŌ Sustainability (2014).

KNOW WHO YOUR

STAKEHOLDERS ARE


41

HAVE A STRONG RISK MANAGEMENT PROGRAM

KNOW YOUR

UNIVERSE OF RISKS



ORGANIZATIONALINTEGRITY

BEHAVIORSACTIONS

FINANCIAL RESULTS"ESG" RESULTS

OUTPUTS

ETHICSCOMPLIANCE

QUALITYSUSTAINABILITY

SAFETYSECURITY

ENVIRONMENT

INPUTS

REPUTATIONAL GAP

NEGATIVE GAP

WORSE THANEXPECTEDOUTCOMES

POSITIVE GAP

BETTER THANEXPECTEDOUTCOMES

STAKEHOLDER TRUST DOWN/UP

ENTERPRISE VALUE DOWN/UP

Copyright Andrea Bonime-Blanc 2014. All Rights Reserved.

GOVERNANCELEADERSHIPSTRATEGY

RISKCULTURE

INCENTIVES

ENABLERS

SOURCE: Andrea Bonime-Blanc. The Reputation Risk Handbook. Oxford, UK: DŌ Sustainability (2014). 42

WHY REPUTATION MATTERS:ORGANIZATIONAL RESILIENCE & INTEGRITY

HOW TO BUILD HIGH

PERFORMANCEORGANIZATIONAL

INTEGRITY& RESILIENCE

THIS IS WHERE THEREPUTATION RISK

EQUATION TAKES PLACE


Achieving “Effectiveness”

Is about Organizational

Integrity & Resilience

43

BUILD ORGANIZATIONAL INTEGRITY & RESILIENCE

TYPOLOGY OF ORGANIZATIONAL INTEGRITY & RESILIENCE


BUILD A RESILIENT HIGH INTEGRITYORGANIZATION


FONTERRA’S STRATEGY:• Took control as direct

investor• Eliminated 3d Parties• Expanded Health & Safety

FONTERRA’S RESULTS:• Grew market share• Protected & improved its

reputation• Improved crisis management

Source: Andrea Bonime-Blanc. Unpublished Research. Columbia University. 2014.

FONTERRA’S REPUTATION RISK:• Associated with Sanlu, Chinese

supply chain contractor who went our of business because of melamine tainted baby formula

44

TRANSFORMING REPUTATION RISK INTO VALUE

FONTERRA TRANSFORMED A SERIOUS SUPPLY CHAIN REPUTATION RISK INTO GREATER VALUE


THE REPUTATION RISK HANDBOOK

45


THANK YOU!

Questions/Comments?

[email protected]

+1.917.848.4448www.linkedin.com/in/andreabonimeblanc

@GlobalEthicist

[email protected]+908.230.1537

[email protected]/in/jacquelineebrevardesq

www.GECRisk.com

[email protected] x 56426

46

http://www.GECRisk.com

http://www.linkedin.com/in/andreabonimeblanc

mailto:[email protected]


http://www.linkedin.com/in/jacquelineebrevardesq

http://www.gecrisk.com/


Q&A

WHY SHOULD YOU APPLY?

• Learn your scores – your Ethics QuotientTM

• Compare your practices to those of the World’s

Most Ethical Companies

• Understand the gaps in your program, activities and

practices vs. leading companies

• Use this knowledge to guide and shape investments in

program and resources

• Engage the entire organization and ecosystem

http://ethisphere.com/worlds-most-ethical/nominate-for-wme/

http://ethisphere.com/worlds-most-ethical/nominate-for-wme/

This webcast and all future Ethisphere webcasts are

available complimentary and on demand for BELA

members. BELA members are also offered complimentary

registration to Ethisphere’s Global Ethics Summit and

other Summits around the world.

For more information on BELA contact:

Laara van Loben Sels

Senior Director, Engagement Services

[email protected]

480.397.2663

Business Ethics Leadership

Alliance (BELA)


THANK YOU