New Index: Iran War is the Top Reputational Risk for Companies
WASHINGTON, D.C. – Major international disruptions fueled by the ongoing war in Iran have overtaken artificial intelligence as the greatest risk to corporate brands, according to the latest edition of the Reputation Risk Index® (the Index).
The war’s economic and political fallout has caused massive disruptions and damage to businesses worldwide. The reputation impact can be seen in unreliable supply chains, increased costs, and hyper-politicization of decisions to diminish impact on revenue. Consumers already frustrated with high prices are changing purchasing plans. It has introduced a new level of uncertainty, preventing executives from making key decisions on hiring to major investments. Each of those reduces confidence and reputational resilience. American companies meanwhile find themselves facing further backlash from countries blaming Washington for the damage to their economies.
“War is taking a heavy toll on the reliability, affordability and political exposure of brands,” said Isabel Guzman, Chair of the Global Risk Advisory Council (the Council) which contributes to the Index and former head of the U.S. Small Business Administration. "While there is considerable focus on the immediate changes and costs, we are starting to get a clearer picture of how it is impacting the market share and strength.”
Guzman said the findings also underscore a broader trend identified by the Council: reputational risks that once emerged independently are now increasingly interconnected. Armed conflict fuels cyberattacks and supply-chain disruptions. Inflation forces difficult pricing and workforce decisions. Artificial intelligence creates new governance challenges. Political pressure reshapes stakeholder expectations. Organizations are increasingly judged not only for the decisions they make, but for how they respond to forces largely beyond their control.
Reduced trust due to accelerated adoption of Artificial Intelligence and targeting by President Donald Trump remain top risks currently confronted by organizations, according to the latest Index. One example is Anthropic, where the President took an unprecedented step in declaring it a supply chain risk, the first time that designation has ever been used for a domestic company. The dispute centered on Anthropic’s position that their technology not be used for autonomous warfare or domestic surveillance. The move by the Trump administration demonstrated how quickly AI policy can become a reputational issue. Ultimately, Anthropic emerged from the crisis in a stronger position, receiving credit for sticking to its red lines. Claude became the most downloaded app on the App Store following its designation.
This quarter’s Index spotlights the legal sector, which the Council saw as uniquely exposed to several of the leading reputational risks. Law firms are simultaneously facing public growing pains as they adapt to AI upheaval, increased political scrutiny and cyberattacks, among others. The reputational upheavals of the last year are likely to reorder the balance of power amongst top firms.
The report highlights both cautionary tales and successful examples. Sullivan & Cromwell was forced to alert a federal bankruptcy judge that an emergency motion contained fabricated citations and AI hallucinations. In the United Kingdom, Pinsent Masons referred itself to the Solicitors Regulation Authority after a junior lawyer used AI to generate fabricated law in letters to a London court. Despite these initial shocks, 80% of the Council feels the legal industry is somewhat prepared for AI disruption, pointing to governance initiatives such as Latham & Watkins’ "AI Academy" program which has trained more than 400 associates and demonstrates how firms can integrate AI responsibly with structured education and training.
Political pressure on law firms was one of the first fronts for the Trump administration to attack and 95% of Council members expect pressure to continue in the next 12-18 months. President Trump's executive orders targeted major firms and sought to revoke security clearances and terminate federal contracts. Organizations that chose to fight saw their reputations strengthen. Perkins Coie, WilmerHale, Jenner & Block, and Susman Godfrey, challenged the orders in court and four separate district judges struck them down as unconstitutional. In contrast, firms that reached settlements with the administration such as A&O Shearman; Cadwalader Wickersham & Taft; Kirkland & Ellis; among others, faced criticism from some attorneys and experienced high-profile departures, illustrating how leadership decisions can quickly become reputational issues.
Looking forward, Council members identified several emerging issues likely to shape reputational risk through the end of the year. Members expressed concern about the spread of ebola from the outbreak in the Democratic Republic of Congo, autonomous AI systems and the growing mental health crisis facing youth across the globe. The findings were discussed during the launch of the Index by Isabel Guzman, Chair of the Global Risk Advisory Council; Kevin Kent, Transatlantic Practice Chair at Clark Hill; and David DiBari, Partner at Womble Bond Dickinson, in a conversation moderated by Ryan Harroff, Business of Law Reporter for the New York Law Journal.
Past reports can be found at www.ReputationRisk.org.
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