Boards of Directors & Reputation
The conference board just issued a new report titled “Reputation Risk: A Corporate Governance Perspective.” The report confirms that corporate reputation can create or destroy shareholder value and warns of the increase evidence of reputational failures. Input for the report was received at a Corporate/Investor Summit on reputation risk in 2007 in Washington DC. Participants included representatives from companies, investors, professional institutions and other professionals. In short, the report advises greater board oversight of checks and balances for managing reputation and argues that reputation is a corporate governance matter of the highest order. Here are some of the recommendations made in the report:
- Boards of directors should reach a common understanding of what corporate reputation means.
- Boards should understand how management prioritizes stakeholders and how relations with them are being managed for the long-term.
- Boards should treat reputation risk as part of their enterprise risk management (ERM) best practices and not as separate and apart. The report argues for greater cohesiveness within companies in managing reputation risk.
- Boards should paricipate in identification, categorization and priorization of business events that could have negative effects on the firm’s reputation capital and address them in a timely fashion.
- Boards should take part and oversee the proper response strategies for each risk category affecting corporate reputation. Reputation metrics should be employed.
The report also makes a statement about communications that somewhat startled me: “Directors should be skeptical of any attempt at restoring stakeholder confidence exclusively through savvy communication tactics, and request that response strategies fully address underlying operational risks. In a well-designed ERM program, communication tactics and better disclosure should be seen as tools to corroborate and complete a business risk response strategy, not to replace it.” My sense is that few communications companies would advise a company trying to restore their reputation with stakeholders to enlist pr tactics and the job is done. In fact, many boards do not even invite their communications officers to the table when facing reputational challenges (although that is changing somewhat). I find the report’s statement abit harsh considering how many reputational challenges today are poorly handled in terms of transparency and responsiveness.
Despite my concern over that one recommendation, the report is very comprehensive and timely. It brings together a great deal of information on reputation management and the board’s oversight role in reducing risk to the enterprise. Expect me to cover more from the report since it holds valuable information that I aim to share.