Managing Reputation Risk.(Interview)(Interview)

Gary Peterson is president of IMAG and the developer of innovative reputation risk solutions. He is an expert in identifying regulatory risk within financial institutions and in designing effective controls and programs to lessen these risks. Jeff Naimon is a partner of the law firm Buckley Kolar, with expertise in mortgage banking and mortgage servicing. IMAG has joined forces with Buckley Kolar, to provide solutions for organizations to effectively manage their reputation risk.

It's hard to imagine an industry that has had to cope with more reputation risk issues than mortgage servicing firms in the subprime market. Today, this "mother of all risks" has captured the full attention of corporate leaders, product heads, regulators, investors, the plaintiff's bar, consumer advocates and, of course, consumers themselves. Reputation risk strikes hard, fast and with maximum destructive effect, taking along with it profits, hard-won business franchise and ultimately, careers. Everyone is demanding that action be taken, but what can really be done to guard against a risk that few understand?

Reputation risk affects every part of the industry and every organization. Consider a few recent situations: FAMCO - brought down by AARP, the FTC, state attorneys general and private plaintiff lawyers. CitiFinancial - settled allegations for over $200 million, with the FTC. Household - settled joint state attorneys general case for just under $500 million and sold company to HSBC. Fairbanks - FTC investigations prompted by congressional and media attention led to major ratings downgrades, loss of business and severe reputational harm.

Now there are new anti-predatory lending laws to contend with, coupled with an imminent fair lending "explosion" brought on with the coming release of the Home Mortgage Disclosure Act subprime pricing data. Potential reputation risk issues are bearing down with freight-train speed.

But reputation risk seems too broad and complex to manage. Too many issues can give rise to too much risk. With restrictions on so many fees, revenues are down and budgets are tighter. One bad event can undo years and even decades of progress and hard work. Where should the focus and priority be? What are applicable best practices? How can your organization avoid being "next"?

Here is a brief Q&A to give your team some guidance in this complex new world:

Q: Can reputation risk be defined?