LONDON, ENGLAND - MARCH 21: NatWest chief executive officer Alison Rose poses for a photograph at NatWest's headquarters in the City of London, where Catherine, Princess of Wales hosted the inaugural meeting of new Business Taskforce for Early Childhood at International HQ of Natwest and RBS on March 21, 2023 in London, England. (Photo by Daniel Leal - WPA Pool/Getty Images)

“Reputational risk” is rot

Business is obsessed by this pseudoscientific nonsense


This article is taken from the December-January 2024 issue of The Critic. To get the full magazine why not subscribe? Right now we’re offering five issues for just £10.

The recent publication of the independent legal review into NatWest’s ill-starred attempt to debank Nigel Farage gives me the excuse to offer what I trust will be the very final words on this curious affair. 

When you cut through the thousands of hysterical column inches ranting about corporate “thought police” and shadowy “north London elites”, this is a story about reputations. And, with the benefit of a little hindsight, the clear lesson is that reputation is a much more resilient commodity than is generally appreciated.

Our tale begins with the now infamous reputational risk committee of Coutts, NatWest’s private bank where the great provocateur was a customer. Thanks to Farage’s freedom of information request, we gained a remarkable window into the machinations of this hitherto obscure body. 

We hear its members fret about their customer’s links with Russia, and whether his gamey opinions aligned with the bank’s “purpose and values”. Someone in the committee unwisely calls him a “disingenuous grifter” — and then someone else even more unwisely minutes this odd expression for posterity. 

There’s an awkward moment when it is pointed out that Farage treats staff “professionally and with courtesy”. You can imagine the committee members struggling to reconcile this Jekyll and Hyde figure — the Mosleyesque monster and the urbane chap tipping his Homburg to the blushing clerks.

By the end of this 40-page document, I was starting to feel sorry for the decent compliance people of Coutts, who had been given the impossible task of quantifying the risk posed by a person who is the embodiment of a black swan event. Nigel Farage is not a man who can ever be slotted neatly into a nine-box risk matrix.

Crucially, however, there is no evidence in the committee minutes that anyone asked the simple question: “So what?” Imagine the worst happens and, say, the old rogue gets prosecuted for hate crimes and does a midnight flit to Moscow. In that moment, would anyone really care where he had a little home loan?

Yet, not just in banking, but everywhere in business life, there is a growing solipsistic obsession with this thing called “reputational risk”. On one of my boards which operates in a slightly fruity sector, I was recently asked to approve a new risk appetite framework, which itemised how many consecutive days of bad headlines we would be willing to accept in scenarios of varying implausibility.

There was no use protesting the whole thing was nonsensical and none of it actually mattered. There is now a whole branch of pseudoscience fuelling this kind of half-baked analysis and our leaders of tomorrow are being indoctrinated too. Oxford University, for example, has a Centre for Corporate Reputation, so MBA students can “explore how organisations manage reputation, status, celebrity, legitimacy, stigma and trust”.

So, let’s go back to our own business school case study. What has been the ultimate impact of the Farage affair? While we cannot overlook the defenestration of Alison Rose, the NatWest chief executive, already the bank is back to business as usual. The “independent” report published last month hosed down the embers of any remaining outrage with bland legalese and equivocal conclusions. 

More importantly, on the day the report came out the bank published third-quarter results showing a year-on-year increase in customer deposits of £2.4 billion. This rather implies that vanishingly few customers ever closed their accounts in protest at the “wokery” of their bank managers.

The truth is that “reputational crises” rarely have an impact on the bottom line

The truth is that “reputational crises” rarely have an impact on the bottom line. When Volkswagen was caught rigging diesel emission data, customers continued pouring into their showrooms. Despite the oceans of media outrage, I suspect most motorists regarded VW’s infraction as the corporate equivalent of being caught doing 25 in a 20mph zone.

Similarly, Elon Musk’s “pedo guy” outburst against the British caver who rescued the Thai kids trapped in a flooded cavern failed to deter Rishi Sunak from inviting the Tesla chief to his toe-curling AI “bro-fest”. 

Aah, some of you may be asking, but what about poor old Gerald Ratner? In 1991 his jewellery empire collapsed after a single badly-judged joke at a speech to the Institute of Directors. 

What people forget is that Gerald never said all his products were “crap” and, in context, his remarks were witty and self-deprecating. “We do cut-glass sherry decanters complete with six glasses on a silver-plated tray that your butler can serve you drinks on, all for £4.95,” he said. “People say: ‘How can you sell this for such a low price?’ I say: ‘Because it’s total crap.’”

So why was there such a backlash? Looking back, there was more than a whiff of anti-Semitism. It is hard to imagine Ratner would have suffered the same torment if he had sported garish knitwear, grown a beard and changed his name to Branson. So, my advice to fellow business folk is simple. Free yourselves from the reputational risk committees and fire your whining PR men. Trust me, you will never be more happy — or more prosperous

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