RBS 2012 Annual Report Download - page 517

RBS GROUP 2012
515
The Group’s operations have inherent reputational risk
Reputational risk, meaning the risk to earnings and capital from negative
public opinion, is inherent in the Group’s business. Negative public
opinion can result from the actual or perceived manner in which the
Group conducts its business activities, from the Group’s financial
performance, from the level of direct and indirect government support or
from actual or perceived practices in the banking and financial industry.
Modern technologies, in particular online social networks and other
broadcast tools which facilitate communication with large audiences in
short time frames and with minimal costs, may significantly enhance and
accelerate the impact of damaging information and allegations. Negative
public opinion may adversely affect the Group’s ability to keep and attract
customers and, in particular, corporate and retail depositors. The Group
cannot ensure that it will be successful in avoiding damage to its
business from reputational risk, which may result in a material adverse
effect on the Group’s financial condition, results of operations and
prospects.
The Group could fail to attract or retain senior management, which may
include members of the Board, or other key employees, and it may suffer
if it does not maintain good employee relations
The Group’s ability to implement its strategy and its future success
depends on its ability to attract, retain and remunerate highly skilled and
qualified personnel, including its senior management, which include
directors and other key employees, competitively with its peers. This
cannot be guaranteed, particularly in light of heightened regulatory
oversight of banks and heightened scrutiny of, and (in some cases)
restrictions placed upon, management and employee compensation
arrangements, in particular those in receipt of Government support (such
as the Group).
In addition to the effects of such measures on the Group’s ability to retain
senior management and other key employees, the marketplace for skilled
personnel is more competitive, which means the cost of hiring, training
and retaining skilled personnel may continue to increase. The failure to
attract or retain a sufficient number of appropriately skilled personnel
could place the Group at a significant competitive disadvantage and
prevent the Group from successfully implementing its strategy, which
could have a material adverse effect on the Group’s financial condition
and results of operations.
In addition, certain of the Group’s employees in the UK, continental
Europe and other jurisdictions in which the Group operates are
represented by employee representative bodies, including trade unions.
Engagement with its employees and such bodies is important to the
Group and a breakdown of these relationships could adversely affect the
Group’s business, reputation and results.
The Group continues to be exposed to its insurance business which is
subject to inherent risks involving claims
Future claims in the insurance business may be higher than expected as
a result of changing trends in claims experience resulting from
catastrophic weather conditions, demographic developments, changes in
the nature and seriousness of claims made, changes in mortality,
changes in the legal and compensatory landscape and other causes
outside the Group’s control. Because the Group will continue to
consolidate DLG’s results with its own for as long as required under
accounting rules, any adverse impact on DLG due to these trends or
insufficient or improper risk management by DLG could have an adverse
effect on the Group’s financial condition and results of operations.