Risk management lessons from recalls

That Toyota is a super brand is not in doubt. However, Toyota has of late dominated news headlines around the world for the wrong reasons.

The car maker recently announced it was recalling up to 1.8 million cars across Europe, including more than 200,000 in the UK due to a faulty accelerator pedal.

It has also recalled 2.3 million cars in the US in the past four months for the same problem.

Other reports indicate the company also recalled about five million vehicles in the US for a different problem - where the accelerator pedal gets trapped under the floor mat.

Imagine driving a car that all of a sudden starts accelerating uncontrollably.

The massive car recall is expected to cost the company $2 billion (more than Sh140 billion) in lost output and sales.

This is obviously a substantial percentage of Kenya’s annual budget estimates.

But what has not been aptly estimated is the loss due to the reputation-at-risk. It is so huge, you don’t want to imagine.

Companies struggle to classify, let alone measure—reputational risk.

Risk managers are usually divided on whether reputational risk is an issue to be handled on its own or merely a consequence of other risks.

Where there is a culture of well-structured risk management the latter opinion is more popular.

Reputation is a very expensive and highly vulnerable corporate asset.

Indeed if you ask me, reputation is one of the most important corporate assets, and also one of the most difficult to look after.

Ask Tiger Woods, the world famous (or is it infamous) golfer or better even John Terry, the celebrated Chelsea footballer.

It takes a “small” scandal to bring a giant tumbling down, and once the people are convinced you’re not worth it- trust me you have lost it.