REPUTATIONAL RISK
AS A LOGIC OF ORGANIZING IN LATE MODERNITY
Michael Power
London School of Economics and Political Science, UK
Tobias Scheytt
Helmut-Schmidt-University – University of the Federal Armed Forces, Hamburg, Germany
Kim Soin
King’s College London, UK
Kerstin Sahlin
Uppsala University, Sweden
Abstract
This paper argues that it is useful to regard ‘reputational risk’ as a pervasive logic of
organizing and organizational attention. First, we suggest that the risk management agenda
has expanded from its roots in technical analysis to become a cornerstone of good governance
and responsible actorhood. We illustrate this claim in the context of English universities.
Second we suggest that this expansion in the reach and significance of risk management has
increased organizational orientations to reputational risk and to more defensively and
legalistically framed forms of asset management. Specifically, organizations are responding to
the growth of external bodies which evaluative and rank, and thereby generate reputational
risk. In the context of universities, we argue that this leads both to specific transformations in
organizational practices in response to ranking systems, and also to an increased generalised
concern with reputational risk, which is a symptom of late modern insecurity.
Keywords:
RANKING, RISK MANAGEMENT; REPUTATIONAL RISK; LATE MODERNITY;
REGULATION; UNIVERSITY
Reputational risk … 2
Introduction
The conditions of late or ‘liquid’ modernity have been much debated (Bauman 2007; Giddens
1991). Variously characterized as an ‘information’ society, a ‘post-industrial society’, a
‘network’ society, and a ‘risk’ society, views differ on the timing, extent and significance of
key changes. Such consensus about the nature of late modernity that does exist refers to
increased ambiguity and uncertainty at the level of individuals and a problematization of trust
in, and legitimacy of, institutions and experts in an interconnected world. This may be
overstated as an epochal claim, but is broadly consistent with regulation theories which point
to a shrinking state, the rise of agency relationships and the growth of multiple forms of self-
regulation and norm creation by organizations (Shapiro 1987; Mörth 2004). Institutional
theory also contributes indirectly to late modern analyses of individualization by suggesting
that organizations must define, elaborate, manage and coordinate their identities, purposes and
relationships within fluid transnational networks without any obvious central steering
mechanisms (Drori 2006) And the expansion of formalized management knowledge (Sahlin-
Andersson and Engwall 2002), arguably part of these broad developments, is also
accompanied by critique and doubt about ‘illusions’ (Langer 1975) and fantasies (Clarke
1999) of control, about the transitory nature of management fads and fashions, and about the
paradoxes of societies and organizations awash with highly mediatised forms of information.
These broad sensibilities frame our current focus on risk management and its expanded
global significance as organizational practice in the past 10-15 years. We are agnostic on the
‘realistically’ framed question as to whether contemporary advanced societies are or are not
more ‘risky’ than previous ages (Beck 1992), preferring to focus more on how an expanded
institutional concern with risk and risk accountability, and increased social and political
Reputational risk … 3
demands for mechanisms of risk processing, are consistent with the mood of late modern
theory. Our analysis draws substantially on arguments developed in Power (2007) and focuses
on the manner in which organizations routinely process external demands for the rational
management of risk, and the consequences of these processes. Not least among these
consequences is the contribution of risk management to changes in behaviour, cognition and
communication. Specifically, and drawing mainly on the example of universities, we advance
two arguments.
First, we suggest that the adoption of standardized risk management designs has become
a benchmark of being a legitimate organization. Second, we suggest that the recent emergence
of ‘reputational risk’ as an increasingly explicit managerial category is both a specific
symptom of late modern intensification of organizational and individual concern with
appearances, and also plays a performative role in shaping managerial behaviour. We also
argue that reputational risk differs in its social construction from other risk categories by
being a purely ‘man-made’ product of social interaction and communication. We illustrate
this idea by drawing, again, on the example of universities as knowledge organizations which
operate in institutional environments which observe, rank and evaluate them via a variety of
instruments and metrics. We argue that not only do such instruments for measuring
organizational reputation transform and constitute it as a managerial object (Schultz et al.
2001; Espeland and Sauder 2007), but also that significant ranking systems come to be
perceived and articulated as a source of reputational risk.
Taking these two arguments together, our underlying emphasis differs markedly from
asset-creation and maintenance approaches to reputation which characterize longstanding
debates in marketing and management more generally. Rather, we conceptualize an abstract
notion of ‘reputational risk’ as a significant aspect of expanded discourses of risk
management. While, there is an extensive literature on organizations and reputation, and a
Reputational risk … 4
considerable body of work has been concerned with the dynamics of reputation building of
different kinds (e.g., Mahon and Wartick 2003), we argue that this abstract category of
‘reputational risk’, which has taken hold as part of enterprise risk management (ERM)
agendas, represents a critical change. Specifically, organizations are now responsible and
accountable for managing reputational risk as part of their risk management more generally,
and this is a change in register for existing practices of reputation management.
The arguments that follow have an empirical referent, but are mainly intended to
suggest a fruitful direction for theory development and for further empirical work. Reference
is made to the higher education sector because it exhibits a number of characteristics
particularly relevant to the broader significance of reputational risk being suggested. First,
such organizations are a class of knowledge organization whose asset base is predominantly
intangible. Reputations of different kinds have always been a pervasive concern in
organizations like this, dedicated to the production of ‘symbolic capital’. Second, formal
designs for risk management have become a regulatory requirement for universities in many
countries. Third, these organizations and the units within them, operate in changing
evaluatory environments which produce metrics and league tables of various kinds for
teaching and research, which may not be easy to avoid or exit.
In the next section, we provide our working definition of risk and risk management and
demonstrate how abstract ‘whole-of-enterprise’ risk management designs have been imported
into higher education organizations. In the second section, we deal with previous work on the
nature of reputation and argue that the category of ‘reputational risk’ has emerged relatively
recently. Fundamentally, we suggest that it may be more fruitful to regard ‘reputational risk’
as reflexive category which has the potential to permeate managerial belief systems, rather
than as a discrete risk management practice speciality. This feature of reputational risk
reflects the fact that it is anchored within institutionalised processes of communication among
Reputational risk … 5
different actors in a social field and has no referent outside of that. In the third section, we
address the complex ways in which organizations and organizational agents relate to, and are
governed by, external representational systems like league tables, rankings and metrics. In
common with others, we suggest that such instruments do not merely reflect pre-existing
perceptions but become part of a reflexive sense-making dynamic for at least some actors,
which shapes perceptions and defines both organizational and individual academic attention
to reputation. Overall the analysis argues for more investigation of the constitutive role of
generalised concerns with ‘reputational risk’ in managerial belief systems, especially where
organizations operate in dense evaluatory networks.
The Nature of Risk and Risk Management
We take it as a given that ‘risk’ is not a first order ‘thing’ (Garland 2003: 52) but is the
product of specific social, organizational and managerial processes by which various objects
get recognized and described as risks. This is consistent with Ewald’s (1991: 199) famous, if
elliptical, statement that “nothing is a risk in itself; there is no risk in reality. But on the other
hand anything can be a risk; it all depends on how one analyses the danger, considers the
event.” This conception frames our attention to the routine management systems and
instruments, including definitions and categories, for representing contingent outcomes as
risks. From this point of view, the oft-cited Knightean (Knight 1921) distinction between
‘uncertainty’ and ‘risk’ is transformed from a questionable analytic distinction, in terms of the
availability of probabilistic information, into an interesting sociological distinction between
forms of institutional attention. Put another way, contemporary organizations are often called
upon to plan for, represent, manage and be accountable for a range of ‘risks’ which in
epistemic character are like Knightean uncertainties i.e. they lack historical frequency data