The See-Through Economy: New Technology and Risk Management

Year over year, scandals like Wells Fargo, Equifax, Chipotle and so many others have dominated news headlines as they wreak havoc on consumers, investors, and awaken industry and government regulators. What is driving this trend?

Consumers have entrusted corporations with increasing involvement and influence in their lives through the decades. In 2014, for example, the Supreme Court ruled that corporations have some of the rights and responsibilities as natural persons. In other words, corporations were granted a form of citizenship.

In many cases, this power has been yielded responsibly. However, some corporations are not acting like good citizens and have negatively impacted their communities and stakeholders.

We know that corporate misbehavior is nothing new, and that corporations may not be acting worse than they have in the past. What has changed is the technology that uncovers and disseminates their actions and inactions.

Every year, technology that allows us to share and acquire new knowledge advances. Newspapers have entered the digital age, while social media platforms like Facebook, Twitter, Glassdoor, and Yelp have enabled the public to share their opinions instantaneously. A simple Google search on a company keeps that scandal history visible for years.

New technologies such as these have left companies with nowhere to hide, which is why I’ve labeled this trend the see-through economy. We’re living in an age of transparency where the public is empowered to impact a company’s reputation. Now that PR departments can no longer control an organization’s image, the impact of their wrongdoings is amplified in three ways:

  1. Consumers can easily set their expectations, voice when they aren’t met, and move their business to companies that do meet their expectations.
  2. Investors can seamlessly connect scandals to corporate negligence and a company’s inability to retain customer loyalty, which has spawned many class-action law suits.
  3. Regulators are more attuned to what rights are being neglected and impose sanctions to ensure they are met in the future.

The see-through economy makes risk management more important than ever. To demonstrate this point, the LogicManager team created this infographic:

Independent research firms like Forrester and Gartner have started to grasp the connection between technology and risk management, that connection being reputational risk. Employee performance goals are increasingly being tied to their ability to manage risks in their areas, and senior leadership and Boards of Directors can now measure the 25% market premium incentive accrued to companies that can demonstrate their risk management competence.

Organizations need a way to integrate and account for reputational risk across departments and levels of an organization. Implementing enterprise risk management programs with the right infrastructure is the most effective way for corporations to protect consumers, investors, communities, and themselves.

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