Although we intimated recently that new SEC regulations effective 28 February would drive risk and reputation management into the boardroom, we hardly expected 140 year-old Goldman Sachs (NYSE:GS) would be first at the wheel. Nevertheless, reading through this venerable investment bank's latest 10-K filing the next day, there it was--the first formal disclosure of headline risk.

We may be adversely affected by increased governmental and regulatory scrutiny or negative publicity. ...
The financial crisis and the current political and public sentiment regarding financial institutions has resulted in a significant amount of adverse press coverage, as well as adverse statements or charges by regulators or elected officials. Press coverage and other public statements that assert some form of wrongdoing, regardless of the factual basis for the assertions being made, often results in some type of investigation by regulators, legislators and law enforcement officials or in lawsuits. Responding to these investigations and lawsuits, regardless of the ultimate outcome of the proceeding, is time consuming and expensive and can divert the time and effort of our senior management from our business ... Adverse publicity, governmental scrutiny and legal and enforcement proceedings can also have a negative impact on our reputation and on the morale and performance of our employees, which could adversely affect our businesses and results of operations.

Translating the above into lingua IAFS, Goldman Sachs is saying that their financial performance will be impacted adversely if their reputation is tarnished. They may lose pricing power, may have higher operating costs, may have higher credit costs, and may reward shareholders with lower equity returns.

As the Wall Street Journal reported the next day, March 2, this is the first known 10-K disclosure of "PR" risk. But it is hardly the first acknowledgement of reputation risk. For example, with respect to ‘PR risk,’ both German financial regulators and a 160 year-old Pittsburgh-based food company with a German-American heritage are well ahead of Goldman.

Last summer, the German financial regulator BaFin formally noted that reputation risk is a trigger of liquidity risk. Years earlier, the H.J. Heinz Company (NYSE:HNZ) created the first office of Risk and Reputation Management under the leadership of James Trout. Cutting to the chase, risk and reputation management is the new new thing. This Society is committed to ongoing thought leadership. Won't you join us?

And now, a tribute: Thank you, Dan Reynolds!

Join Us

If the above intrigues you, frightens you, or challenges you to learn more, look no further. The Intangible Asset Finance Society wants to be your business resource. Join us and be part of an organization that provides a wealth of educational materials, including a new book, to further your executive career, and exciting monthly conferences such as the upcoming one on innovation.

Innovation: Hot Policy and Practice Issues

Be sure  to register for a complimentary seat at the 5 March Mission:Intangible Monthly Briefing, held by phone at 12h00, EST. It's an innovation smack down. Athena Alliance President and intangible asset policy expert Kenan Jarboe goes head to head with Steel City Re's Judith Giordan, Managing Director of IA Finance and former senior technology executive with Pepsi, Henkel, International Flavors & Fragrances, and Polaroid. Yes, as always, registration is complimentary and slides are already posted on the website events page.