Did you catch the news that the US Federal Reserve is dropping reputation risk from its examination programs which are a key element of their supervision of US financial institutions. Why? Because they are focusing on financial risk? Why?  Because they don’t care how successful these institutions are, they just don’t want them to fail. Three lessons we can take from this.

Beware the Needs of Regulators

The focus of regulators is the avoidance of failure. Good governance, and specifically risk management, is focussed on organisational success. It’s essential, and easier for governance professionals to talk to leaders about helping them to be successful rather than focusing on the avoidance of risk.

Consequently, it will sometimes be in the best interest of your organisation to push back on the requirements of regulators because their request will make your job harder, and the failures the regulator is trying to avoid, more likely.

Reputation is Not a Risk

Yep. You read that correctly. Reputation is something you enhance or damage by something you do or don’t do. When we talk about reputation risk we are actually talking about risks to our reputation.

Its All About the Money

While there is a big and rightful focus on reputation as a consequence category, it is really about the money. For companies that depend on an inflow of money, that is for-profits and not-for-profits, damage to reputation will ultimately have some financial impact. Because it is hard to quantify we use reputation as a proxy.

What the Fed Reserve is saying is “We are going to focus on you managing your business well and behaving well and that will take care of the money issues”.

Pulling this all together it is telling us – “Concentrate on running your business well and behaving well and you are likely to sustain solid growth”. Oh, and “Don’t get hung up on developing a reputation risk framework for goodness sake”!