July, 9 2024

Tackling Reputational Risks with AI

AI significantly amplifies business risks from negative customer experiences, ethical lapses, emerging deepfake technology, product recalls, leaks, data breaches and social media backlash. These threats severely damage reputation, impacting financial performance and equity value. Conversely, organizations implementing robust AI-driven risk controls can expand insurance coverage and protect against revenue loss caused by reputational damage and other AI-related risks.

Despite AI’s evolution, leaders must play an active role in managing reputational challenges.

“The best way to predict the future is to create it,” remarked management guru Peter Drucker, who foresaw the use of outsourcing and the conversion of manual workers to knowledge workers.

Now, global business is entering a new era leveraging AI for enhanced protection against reputational damage by employing rapid-response capabilities.

These systems monitor real-time, online company mentions, analyze sentiment, provide sophisticated analytics to identify emerging threats and offer rapid response to predetermined issues.

Benjamin Franklin observed, “It takes many good deeds to build a good reputation, and only one bad one to lose it.” AI offers businesses new safeguards to prevent that one adverse event from bringing the whole house down, along with its brand and good name.i

It is essential for boards and management teams to fully grasp the considerable impact these innovative tools have on mitigating risks and reduce exposure to vulnerabilities. A record of results will lower insurance costs and contribute to the continuity of comprehensive coverage, safeguarding against unforeseen challenges.

“Organizations that have strong controls and processes in emerging risk areas like AI can benefit from expanding insurance coverage options. This includes the ability to insure against revenue loss due to reputational impacts and other risks associated with AI usage,” said Chris Keegan, national practice leader for cyber and technology at Brown & Brown.

In today’s hyper-connected world, reputational risk arises from a multitude of factors. With algorithms and statistical models, AI anticipates and mitigates potential reputation threats with unparalleled precision, analyzing vast data from the entire universe of information — social media, news and commentary, customer reviews and any other public documents. AI provides a global radar that detects patterns and signals looming risks.

Companies confront substantial threats stemming from various sources, such as negative customer experiences, social media backlash, ethical lapses, emerging deepfake technology, product recalls, leaks or data breaches. If not effectively managed, each of these factors has the potential to inflict severe and unrelenting damage on reputation and financial performance.

These contemporary attacks are complex and intense. They drain leadership resources, and divert management attention from core business activities.

AI is probably the hottest corporate topic at this time. Sheryl Estrada, CFO Daily columnist for Fortune, noted, “AI mentions on earnings calls have skyrocketed, according to Accenture’s Technology Vision 2024 report. In Q1 2022, there were approximately 500 mentions, and by Q3 2023, there were more than 30,000.”

And despite AI’s prominence in discussions, many corporate cultures, business leaders and their advisors lack the readiness or experience to operate effectively at warp speed.

One Compelling AI Advantage: Its Predictive Capability

AI, equipped with its real-time monitoring and analysis capabilities of online conversations, can promptly alert managers to emerging crises. By detecting negative sentiment early on, companies can swiftly intervene, addressing complaints and resolving issues before they escalate.

A mere slip-up — a single derogatory post, undocumented or leaked — has the potential to spark a wildfire of negative remarks that spreads rapidly across the globe. AI assists leaders in managing this volatile space by continuously scanning the vast online sphere, issuing alerts and analyzing commentary related to brands, products or executives.

AI offers valuable insights by analyzing the performance of other companies that have encountered similar risks. This predictive analysis empowers companies to devise tailored risk strategies that align with their industry, culture, geography or regulatory requirements.

Imagine if a company fails to meet customer expectations with products or services, resulting in widespread dissatisfaction. This discontent swiftly spreads across social media platforms, triggering a cascade of negative news coverage and commentary.

AI detects a pattern of any sentiment surrounding a product and can forecast potential repercussions on sales and stock prices.

With this information, leaders can swiftly reduce risks by improving product quality, enhancing customer service or experience and adjusting or initiating targeted marketing campaigns. Moreover, they can prepare responses for key stakeholders, while arming sales teams and employees with persuasive talking points to tackle issues.

Changing stakeholder or public opinion will not happen overnight. It requires patience, planning and experience. Nevertheless, a prompt response could help mitigate an emerging crisis.

AI also helps detect deepfakes and fake news that spreads misinformation about a company or its products and services. This technology captures characteristic language and structure often found in false postings, enabling identification of unusual patterns that signal disinformation campaigns.

AI-driven chatbots offer 24-hour customer support and swiftly adapt to emerging issues. AI’s flexibility enables it to acknowledge and respond to a rapidly changing environment or uncover emerging crises that may elude the attention of the C-suite. For company messaging, a one-size-fits-all approach falls short.

Comprehending and interpreting AI insights at the highest organizational levels is paramount. Delegating social media responsibilities to less experienced individuals who are proficient with platforms but lack industry knowledge, sensitivity to current and changing issues or financial expertise poses challenges for large organizations.

Thus, overseeing AI should be entrusted to seasoned professionals who can anticipate potential problems and adapt to the unique, autonomous nature of AI.

The Integration of AI

Integration of AI into reputational risk management is not just about crisis prevention; it is about gaining a strategic competitive edge.

By continuously monitoring and analyzing data, companies stay ahead of potential risks and adapt quickly to changing conditions. This approach fosters resilience and stability, enhancing long-term success.

The future of reputational risk management lies in seamlessly integrating new technologies. Therefore, embracing AI-driven risk management is now a strategic imperative for any forward-thinking business leader.

To navigate this complex process, boards must seek independent expertise and establish dedicated risk teams trained with tabletop exercises and  equipped with innovative insights, preplanned responses and unwavering oversight.

CEOs should consider appointing an AI czar or engaging experienced consultants to guide strategic communications decisions.

Data privacy, security, bias and ethical considerations pose significant challenges that can erode trust and damage reputations if not addressed up front. Organizations must prioritize diverse training, regularly audit AI systems for fairness, and establish clear ethical guidelines for AI development and deployment.

An “AI Code of Conduct” should be posted on the company website, detailing responsible AI principles, robust data governance, strategies to mitigate bias, transparent stakeholder engagement and regulatory compliance.

The Third Eye

AI is the ever-watchful third eye transforming how we see and interact in the world.

Technology is a tool that requires careful application by leaders experienced in crisis management within cyber, digital and AI realms. By adhering to principles, companies can mitigate risk, establish trust and demonstrate responsible AI use in an increasingly complex world.

Corporate leaders must guide the appropriate use of AI. Human knowledge and experience remain crucial even after AI is integrated into company operations.

AI must not become an all-knowing, one-eyed cyclops like HAL in 2001: A Space Odyssey. Business leaders must still rely on their own insights and judgment when managing reputational challenges. AI serves as a critical third eye … but is not the only sensor.

As Warren Buffett wisely said, “It takes 20 years to build a reputation and five minutes to ruin it.” With AI’s assistance, those critical five minutes can be managed with preparation, turning many reputational risks into positioning opportunities.

About the Authors

Ronald Levine is a litigation attorney with Herrick Feinstein LLP. With more than 45 years of experience, he co-chaired the firm’s litigation department and served as its general counsel.

About the Authors:

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