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Damage to Reputation No 1 Risk to Food and Drink Sector

15 April 2008 Aon Corporation

But 1/3 have no plans to tackle current and emerging threats in 2008

Product recalls, Chinese child workers and supply chain disruption have led food and drink companies to recognise how damage to reputation can have devastating consequences, citing it as their biggest threat in Aon’s annual Global Risk Management Survey. Even though 67% of food and drink companies have plans to tackle reputational damage, insurance broker Aon is warning businesses to test these plans regularly and plan for emerging threats in 2008, such as the biofuel crisis and food terrorism.

“High profile product recalls have knocked consumer confidence, whether as a result of malicious product tampering or accidental contamination,” says Reginald Haman (pictured right), Executive Head: Large Corporate, Public Sector and Risk Management for Aon South Africa, a leading global insurance broker and risk management company. “In 2007 we saw incidents of salmonella, pet food recalls and food contaminated accidentally with nuts.”

Haman cautions companies to properly manage recalls to prevent the devastating effects on reputation. “Worryingly, a third of the food and drink sector have no plans to protect their reputation. Proactive planning will also create opportunities to enhance brand and reputation,” he says.

As companies prepare for 2010, Haman advises companies to bear in mind that their reputation could also be affected by new and emerging threats – he provides the following list of examples:

* lack of water supply
* consolidation of industry
* food supply and shortages e.g. competition for grain for food and biofuel
* food terrorism/ malicious acts
* increasingly litigious society

“To prepare for the plethora of risks, companies throughout the supply chain need to adopt better crisis management procedures and practice their business continuity plans to test various situations,” says Haman.

Aon is urging organisations to focus on creating proactive risk management strategies to protect and enhance brand and corporate reputation. Haman concludes by urging companies to assess the reaction of key stakeholder groups to a range of unexpected events and use this to drive planning. He adds that the process can be extended to consider structured approaches to assess and manage organisation’s dependencies on suppliers.

Companies should ask themselves:
* Are the plans simply crisis management and PR plans designed to minimise the impact once the damaging event has occurred?
* Do the plans treat damage to reputation as a risk in its own right or as a consequence of other risks?
* Is there enterprise-wide planning in place for prevention?

In terms of enhancing brand:
* Do organisations understand the threats and opportunities associated with these changes and how they might impact their brand and reputation?
* Are they able to assess and evaluate in a coherent manner the impact of events of their key stakeholders perceptions?
* Do they have proactive strategies in place to manage their reputation and brand through these transformations in their businesses?

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