Executive Context

Senior leaders increasingly describe reputational risk as visible, proportionate, and actively governed. Potential impacts are discussed and escalation routes exist.  Many boards receive regular reporting and assurance. That assessment is often sincere and, from the vantage point of senior forums, frequently justified.

Boards and executive committees engage with reputational risk through designed governance structures. Judgement is mediated through formal papers, impact assessments, and anticipated regulatory or stakeholder reaction. Accountability is exercised through escalation protocols and documented decisions. From this position, reputational risk appears tangible, discussable, and manageable. The difficulty is that this is not the only experience of the system.

Elsewhere in the organisation, reputational exposure is created through ordinary decisions taken under delivery pressure, commercial urgency, and regulatory interpretation. These decisions are rarely framed as reputational at the time they are made. They are assessed locally as lawful, proportionate, and defensible in isolation. Over time, they accumulate into exposure that sits outside the organisation’s direct control. The challenge for senior leaders is not indifference to reputational risk. It is that governance typically encounters reputational risk after exposure has already been formed.

Reputational Risk as Exposure, Not Impact

Reputational risk is commonly governed through its consequences. Frameworks focus on how an organisation may be judged once scrutiny arises, whether through media attention, stakeholder pressure, or increased supervisory oversight.

This framing is understandable. Reputational harm is external, difficult to quantify in advance, and shaped by perception rather than internal metrics. Impact can be documented, escalated, and explained. Exposure cannot.

The problem is timing.

Impact becomes visible only after attention turns outward. Exposure is created earlier, through decisions that rely on assumptions about tolerance, context, and interpretation that sit beyond the organisation’s control. By the time reputational impact is discussed at senior levels, the decisions that created vulnerability are often already embedded. This is why reputational risk can appear well governed while remaining structurally unconstrained.

How the Gap Forms in Practice

The gap does not emerge through misconduct or crisis. It forms through ordinary governance mechanics. Decisions that carry reputational exposure are assessed locally against policy, appetite, and precedent. Concerns may be raised around optics or defensibility, yet remain informal and judgement-based rather than anchored to explicit decision authority. Where no formal boundary is breached, approvals proceed.

As similar decisions are repeated, exposure start building up. Reporting remains stable because no single decision appears material. From senior forums, reputational risk appears controlled. From within delivery, strategic flexibility narrows. Both perspectives are rational responses to the system. The problem is that governance allows reassurance to form at the top while exposure builds below, without requiring those realities to meet.

How Reputational Risk Accumulates

Reputational risk does not accumulate because people fail to escalate. It accumulates because escalation is framed around impact rather than exposure. Under sustained business pressure, organisations adapt. Decisions are justified incrementally. Exceptions become precedents. Narrative becomes more important than constraint. Escalation remains possible, yet increasingly tied to the likelihood of external attention rather than the creation of vulnerability.

From above, indicators improve and issues appear contained. From within delivery, options narrow and dependency on explanation increases. By the time scrutiny arrives, the organisation is managing reaction rather than shaping choice. Silence in this context is not ignorance. It is experience.

The Role of the Risk Function

This dynamic raises an uncomfortable question for risk leaders. Reputational risk is often treated as a secondary consequence of other risks rather than as a primary exposure in its own right. Risk functions are asked to assess impact, support escalation, and advise on response. They are rarely positioned to influence decisions before commitments are made.

The distinctive value of the risk function lies in making exposure visible earlier. That means identifying patterns rather than incidents, tracing how informal judgement substitutes for governance, and showing how repeated defensible decisions accumulate strategic constraint. It requires shifting the conversation from how the organisation might be judged to whether it is prepared to stand behind its choices if judgement occurs.

Risk functions cannot remove reputational uncertainty. What they can do is ensure it is confronted while choice still exists.

Implications for Senior Leaders

Strong oversight of reputational impact matters, but it is not sufficient. Effective governance requires visibility of how reputational exposure is created through approvals, exceptions, and repeated decisions, not only how impact is managed once scrutiny increases. It requires escalation to operate as a decision input rather than a reaction mechanism.

Reputational risk does not fail everywhere. It fails at specific points of decision, justification, and commitment. Those points are visible long before external attention arrives. The leadership task is not to improve prediction of reputational reaction, but to govern exposure early enough to preserve strategic freedom.

Closing

Reputational risk is managed too late when it is framed as an outcome rather than a choice. Organisations do not lose control of reputation because leaders are inattentive. They lose it when governance allows exposure to accumulate without forcing decisions to be constrained.

Impact explains what happened. Exposure determines whether it had to.

By Julien Haye

Keywords: Risk Management, Business Strategy, GRC

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