In August of 2024, I co-authored the article, "Management consulting – A critical juncture" with my colleague Ken Kuk, who is a board advisor to many large professional services firms, on the critical juncture facing consulting firms. We argued that “in today’s polarized world, even the most well-intentioned advice can be misinterpreted or politicized.” After the COVID-19 pandemic and focus on social and political issues that followed, many companies had to address and talk about topics in the workplace that were avoided in the past. We felt then, and continue to believe now, that it’s tough being in the “advice business” in such a polarized world.
Beyond the challenges of being in the advice business, there are other significant emerging challenges facing professional services firms today. For example:
The decisions that professional services firms make in response to these challenges will have an impact on their brand and reputation for many years to come. Depending on the source, research shows that reputation accounts for anywhere between 25% and 63% of a company’s total market value.[1] Even on the low end, that adds up to trillions of dollars. We believe reputational risks are increasing for professional services firms as they navigate a perilous business environment and need greater attention.
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The starting point for managing reputation is to understand the sources of risk and quantify each element. These elements should formally be included in broader operational risk planning and prioritized based on potential impact to the firm.
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Consistent with operational risk best practices, professional services firms should have an action plan to get in front of each element of risk, calibrated to the potential losses the firm could incur.
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Regardless of how well professional services firms prepare, there will be unforeseen events. Proper governance and reporting, as well as structure for mitigation, should be put in place in advance, so that teams can respond quickly to the event.
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Businesses have traditionally found reputational risks difficult to insure as their unpredictability made them hard to assess and quantify. But if designed and worded properly, existing insurance policies will cover some of the risk. Directors & Officers (D&O), Errors & Omissions (E&O) and Business Interruption (BI), for example, will all cover some of the potential losses. Additionally, there are solutions out there that cover crisis management response and some even cover potential losses.
While harder to quantify and identify than some other risks facing professional services firms, the ecosystem in which firm’s operate and the potential reputational risks are becoming clearer. The tools and processes that exist to understand, manage and transfer risk are better than at any time in the past. The time is now for professional services firms to dive deep, get ahead of the risk, and protect one their greatest assets — their reputation.
If you would like to learn more about risk management and risk transfer strategies, please reach out to Brad Messinger or contact us here.
WTW hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, WTW offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).
