In the world of governance, we use the term “best practices” as readily and with much the same commitment to excellence as a surgeon who calls for and makes use of scalpels. Just as surgeons turn to their preferred tools, directors, corporate secretaries and other governance professionals routinely turn to best practices in order to improve outcomes.
You research, consider and apply best practices – sometimes on a case-by-case basis – in order to introduce or reinforce them for your board, its directors and your management team. In recognizing the need to develop and maintain a competent and diverse board, for example, you’re likely to apply best practices associated with board succession planning, recruitment and onboarding.
The same approach applies to your board’s commitments to integrity and ethical behavior; specific practices will reflect these priorities. Directors and senior executives will understand and respect the delineations between their respective roles, and you’ll have alignment of goals and strategies. Accountability is key, and the board and management will have agreed-upon quantifiable performance metrics/key performance indicators (KPIs).
Approaching Reputation Management
How, though, do you approach reputation management through the lens of best practices? One principle a board can apply is to not wait until its organization is waist-deep in an organizational crisis before paying attention to reputation management. That’s a bit like closing the barn door after the horse has already bolted – except that the likelihood of success in restoring a horse uninjured to its stall is greater than that of an organization bouncing back unscathed from a reputational crisis.
While it’s management that holds day-to-day responsibility for risk management, the board is responsible for oversight of enterprise risk management (ERM), including reputation management. AON has reported that intangibles such as reputation and intellectual property (IP) assets represented 84% of the S&P 500’s 2018 value, significantly outweighing the value of tangible assets such as real estate and equipment. Echo Research has stated that, on average in both the S&P 500 and the FTSE 350, approximately 25% of market value is now attributed to corporate reputation.
Governance is not a passive responsibility. When it comes to reputational risk, as with the balance of its responsibilities, the board must be prepared to monitor, question, probe and respectfully challenge assumptions. The board and at least a lead committee should engage in routine and robust review and discussion of risk registers, heat maps or a combination thereof.
Your board may charge its audit committee with responsibility for initial review of reports reflecting risks associated with compliance, cyber, financial, operational and strategic matters. All such risks have the potential to impact reputational risk. Some boards now identify risks that may be best reviewed by committees whose members have related expertise, and assign responsibility for monitoring accordingly. For example, if your board has a committee charged with oversight of technology matters, it may be reasonable to delegate the initial review of cyber risks to that committee.
Reputation Management & Your Board of Directors
Regardless of whether your board tasks one committee or a series of committees with such risk reviews, the board as a whole has a responsibility to collectively review risk-related reports and discuss the associated committee’s feedback and recommendations.
If your directors turned to you for insights on a board’s best practices in reputation management, which of the following might land on your list? What might you add?
- CEO – hire/develop/retain the right one, an individual who provides ethical, accountable leadership
- Tone at the top – board, CEO and senior management to reflect the desired corporate culture
- Policy – board oversight/approval of significant policies and periodic reviews of same
- Corporate culture – routine board monitoring; employee survey/engagement metrics, exit interviews with senior executives, engaging with employees, site visits, events
- ERM (routine board oversight of risks, including reputational risks, whistleblower reports/ethical reporting)
- Board development – onboarding and ongoing education; insights from independent external experts (e.g., audit, compensation, CRM, culture, cyber risk, ESG, governance, legal, strategy, technology) as well as internal experts
- Employee development, engagement – including cultural, ESG aspects of strategic plan
- Compliance – monitoring of compliance with policies, regulations, laws, legislation
- Compliance/risk officer – elevation of the role
- Communications officer – coordination of responses to reputational risks
- Crisis management plan – annual board review/approval of management’s plan
- Crisis management tabletop exercises – routine exercises for directors, management
PwC recently released the results of the 2019 Annual Corporate Directors’ Survey, in which it secured the views of 734 US public company directors reflecting a cross-section of businesses from more than a dozen industries. PwC noted that several high-profile companies have recently incurred damaging reputational hits as a result of what could be deemed failings in corporate culture. It listed a series of actions that could be taken to address corporate culture, and asked participants to identify which of those actions their companies had taken.
A full 16% of survey respondents reported that their organizations had not taken any action to address corporate culture. So, what were the top-five actions taken by those companies that have acted on the need to address corporate culture? Sixty percent of respondents reported that their companies had enhanced employee development/training programs. Another 43% enhanced their whistleblower programs, while 32% had worked to increase board-level reporting of culture metrics. Almost as high a percentage, 31%, reported having conducted a broad-based assessment of employee culture. Rounding out the top five, almost one in four reported having implemented a culture/engagement component in their strategic plans.
Next Steps for Board’s To Improve Reputation Management
What else can boards do? It’s been a few years now since corporate director Roxanne Decyk, in an article published by the Kellogg School of Management at Northwestern University, recommended that directors educate themselves. This is no slight on the diligence and expertise that you as a governance professional bring to the onboarding and board development processes. It’s common sense.
In recommending that directors seek education beyond the norms associated with orientation and onboarding, Decyk also cited participation in a “reputational intelligence system.” You may already have such a system in place, albeit without this name. If you’ve collaborated with your board chair to seek out external experts who can provide the board with independent insights, that’s an example of such a system. Much as the board engages with external auditors and compensation advisors, the board can identify and seek out additional external parties to meet with the board about their specific areas of expertise – and you can add value to the board and the organization by raising the concept.
For example, given the prominence of cyber risks and their potential to impact an organization’s reputation, you might suggest seeking out an external cybersecurity expert. Inviting such an individual to a board education session could generate conversation and insights that strengthen your board’s reputational intelligence.
We’ve been hearing a lot about environmental social governance (ESG) of late. Would your board be prepared to further its reputational intelligence by meeting with a representative of a stakeholder group whose perspectives don’t align with the organization’s traditional practices? After all, 57% of the directors participating in PwC’s 2019 Annual Corporate Directors’ Survey reported that ESG issues are a part of the board’s ERM discussions.
Some parties around the table may be uneasy, though, about what the board may hear or about the prospect of raising such parties’ expectations of having an ongoing voice at the table. Others may believe the board’s time would be better, or more efficiently, spent on other matters. Fifty percent of the directors who participated in the same survey think their board has a strong understanding of the ESG issues impacting their respective companies, while 56% said investors devote too much attention to environmental/sustainability issues.
If reputation management hasn’t made its way onto your board’s work plan or agenda of late, share this article with your chair and start the discussion.