How cities can mitigate political risk with enterprise risk management

The term “risk management” is widely known in society today, but a lesser-known type of risk management that all elected officials should be aware of is “enterprise risk management.” Traditional risk management is designed to address traditionally insurable or hazard risks. But risks for which you can insure make up a mere 20 percent, on average, of your entity’s total risk exposure. Identifying and managing risks that fall outside of traditional insurance is called enterprise risk management.

Risk itself can be defined as “the probability, or chance, that a negative event may occur resulting in a financial loss.” Risk management involves the identification, assessment, and mitigation of that risk. Enterprise risk management involves managing all of the risks affecting an entity’s ability to meet its goals, regardless of the type of risks being considered or their financial impact.

Considering all of the enterprise risk management vulnerabilities your entity may be exposed to can be a daunting and overwhelming task. This article will focus on one particular type of enterprise risk—reputational risk—and assist you in identifying the risk and raising awareness of it within your entity, as well as provide you with some high-level steps you can take to mitigate it. Let’s consider a couple of examples:

Example #1

A particular political issue is causing division within your city or town. Councilmembers are coming out vocally on both sides of the issue on social media. Some councilmembers are not clearly separating their views as agents of the city/town from their own personal opinions.

While all elected officials are allowed to hold and voice their own personal opinions on local or national issues, both traditional and enterprise risk vulnerabilities can be raised if a councilmember does not properly and effectively separate their role as a private citizen from their role as an agent of your entity. Should a councilmember voice an opinion that could be viewed as slander or libel, and the person or entity about which the statements were made were to sue, there may be some insurance coverage under your traditional liability errors and omissions coverage. However, there may be an even larger reputational risk to your entity if that councilmember is being identified (by themselves or by interpretation) as a speaking agent of your entity as opposed to a private citizen voicing their own opinion. The easiest way to manage this risk is to ensure that (1) your city/town has an effective social media policy, (2) all elected officials are trained on this policy upon assuming office and regularly thereafter, and (3) all elected officials have separate social media accounts for their role as a councilmember and their role as a private citizen. It is also critical to ensure that city council is aware that they must separate the content they post on these different accounts and remain diligent in doing so.

Example #2

Your police department is engaged in an incident with a citizen that gets picked up by the local (and potentially state or national) media. Your constituency are divided, and vocal, about their views on the officers’ actions. A press conference is called to provide factual information about the event and convey your entity’s position. The chief of police makes a prepared statement, but then when confronted with questions, they provide answers that further incite the constituency and exacerbate the issue.

Public statements that go awry may be the most common type of reputational risk an entity can face. While anyone can make a statement that they regret or that is misinterpreted, in today’s world of instantaneous access to information that can be widespread or even go viral in a matter of hours, ensuring that those who are tasked with making public statements on behalf of your entity are properly trained to do so is critical. Many smaller entities don’t have the resources to hire someone specifically skilled in this area, so how can this be accomplished?

First, make sure your entity has a policy or procedure in place that identifies who is allowed to make public statements or speak to the press on behalf of your entity. Never respond to a statement request “off the cuff.” While there is a timeliness element at play with public statements, take the time to gather trusted officials and staff to strategize and discuss the issue and come to a consensus on what should and should not be said. Discuss “what if” scenarios, like unanticipated questions if in a live interview situation, and how those will be addressed. Involve your city/town attorney so they can give you guidance on particular statements that may expose your entity to additional risk.

While these are only two examples of what are probably commonplace events in municipal life (see some more examples in “Political Perils,” at right), they should help you to identify (1) how these events can quickly and unexpectedly add to or exacerbate a variety of types of risks to your organization, and (2) what you can do to mitigate those risks. Bottom line: The best way to manage any risk is to take the time to identify what risks you believe your entity may be vulnerable to and the likelihood of those risks happening, both from a frequency (how often) and a severity (the impact) perspective—and then put a plan in place to prevent or mitigate that risk before an event happens.

AWC’s Risk Management Service Agency is a member-owned risk pool that offers comprehensive risk management for members through underwriting and loss prevention, as well as extensive trainings and education.