Reputations Matter

A utility’s ability to overcome adversity affects its reputation and consequent market performance. Be vigilant, says Nicholas Chrysanthou

The recent water shortages in Northern Ireland cost chief executive of state-owned Northern Ireland Water Laurence Mackenzie his job. This is a graphic example of how being unprepared for resilience issues can have significant consequences on a company’s standing with its stakeholders, and therefore its reputation.

The associated financial cost can be equally catastrophic. Environment Agency analysis into the costs of the 2007 floods estimated that they caused £660 million-worth of damage to critical infrastructure and essential services, with water supplies and treatment plants the most affected. Utilities incurred half of the total bill.

Poor risk or response management not only hits a company’s bottom line, it also has a negative affect on reputation, and therefore on share price, customer confidence and sales. And there is a difference between having a strategy in place and being able to implement it.

“Getting risk management wrong severely affects corporate reputation,” says Jeff Colburn, UK head of Marsh Risk Consulting. ”You have to get it right first time because perception is reality, and how you are perceived by stakeholders is crucial. This is even more critical under the current economic conditions when utilities are going to be under incredible scrutiny by their customers.”

Part of this scrutiny is coming from social media sites such as Twitter and Facebook, where it is easy to lose control of information, and where performance failures can quickly proliferate and explode into operational and reputational risks.

“Increasingly we need to engage on reputation with customers, suppliers and other stakeholders in the dynamic 24 hour social media space,” says Paul Eveleigh, head of risk co-ordination and governance at Eon-UK. ”We use a common risk assessment matrix across the whole organisation so that we can understand the likelihood, impact, velocity and interrelatedness of reputational risks on a comparable basis with financial, environmental, legal and operational risks.

This article was written by Nicholas Chrysanthou, energy consultant analyst at Alva and released in full on Utility Week.