Are you and your directors familiar with the term “reputation recession”? If not, you may want to have a conversation with your board Chair about adding the topic of corporate reputation management to an upcoming agenda.
You’re likely familiar with the adage, courtesy of Warren Buffett, that it takes 20 years to build a reputation and five minutes to ruin it. That, however, was before the rise of social media. These days, a single tweet, post, image or comment can positively or adversely impact an organization’s reputation. Once broken, trust is difficult to restore.
The Importance of Corporate Reputation Management
Cybersecurity breaches can also deal swift blows to corporate reputations. As has been demonstrated this summer, the manner in which an organization responds to a data breach can have a restorative impact on corporate reputation. Following data leakage by a now former employee of Desjardins Group, the credit union – cited as the sixth-largest cooperative financial group globally – took a series of steps to restore confidence in the organization and in the security of clients’ personal and corporate data.
In an emergency meeting of the Canadian Parliament’s Standing Committee on Public Safety and National Security this summer, Desjardins Group Board Chair, President and CEO Guy Cormier called for the establishment of a stakeholder committee to study global best practices. He advocated for such a committee to recommend legislative changes that could position Canada as a global leader in the protection of personal information.
Unscrupulous characters and insider threats aside, litigation, ineffective internal controls, fraud and other factors also have the potential to damage corporate reputations. While it’s important for organizations to be able to manage responses to such incidents, it’s critical that they take a proactive approach to corporate reputation management.
How Boards Can Approach Corporate Reputation Management
How does your board approach corporate reputation management? Does the board see itself as the guardian of the organization’s reputation? Is corporate reputation management embedded within the board’s oversight of enterprise risk management (ERM)?
Neither boards nor management teams can eliminate risk – nor should risks be eliminated entirely, for few opportunities are devoid of risk. That’s why organizations invest time in developing risk appetite statements and creating, updating and reviewing risk registers. Boards are responsible for oversight and, along with management, will monitor and assess changes in specific risks. Organizations must develop, implement and assess risk mitigation strategies specific to a range of risks, in addition to monitoring and assessing changes to specific risks.
Corporate reputation is one such example. Consider the reputation management that’s reflected in a series of relationships between the organization and not only clients and employees, but also other stakeholders. Be they shareholders, the public, or government and regulatory bodies, your organization has multiple corporate reputations to manage.
Boards should approach corporate reputation management through the lens of stakeholders. Boston-based firm Reputation Institute, which has been assessing corporate reputations since 1997, has noted that we’re functioning in an “era of elevated reputation risk.” It cites global trade tensions, environmental concerns, changes in human values and desires for enhanced connectivity as contributing factors.
That’s not all. Add artificial intelligence (AI), the internet of things (IOT), cyber-physical systems and the #MeToo movement to the mix. In fact, Reputation Institute suggests that businesses are on trial in the court of public opinion – and that businesses must deliver on reputational assurances, as a company’s leadership, ethics, values and more are under the lens.
Annually, Reputation Institute measures more than 7,600 companies in over 20 industries and 50 countries. In the business of aiding companies in understanding, comparing, protecting and improving their corporate reputations, Reputation Institute identifies the need to understand media narratives, and how the resultant impressions impact an organization’s reputation.
In setting out to identify the globe’s most reputable companies through its fifth annual RepTrak analysis, Reputation Institute focused in 2019 on survey participants’ perceptions of organizations’ governance, citizenship, leadership, performance, innovations and products/services. It surveyed more than 230,000 people in 15 countries.
Participants were also asked to weigh in with ratings on their intentions arising from such perceptions: Given their perceptions of Company x, for example, would survey participants consider working for or defending it? What about survey participants’ readiness to support that company by purchasing its goods or services, or investing or otherwise trusting in said business?
The Future of Corporate Reputation Management
The 2019 Global RepTrak® 100 analysis probed the impacts of media pressure on perceptions and intentions, and linked them to key performance indicators (KPIs) of loyalty, sales, profitability and market value for individual companies.
In descending order, Rolex, Lego, The Walt Disney Company, Adidas, Microsoft, Sony, Canon, Michelin, Netflix and Bosch formed RepTrak’s 2019 list of the top 10 most reputable companies worldwide. The company identified Facebook as having experienced the greatest overall reputational decline, driven largely by perceptions of governance and workplace shortcomings.
When a global study concludes that 52% of the world’s population are “fence sitters” who “… have doubts about the good intentions of all companies” and are less likely to give companies the benefit of the doubt, it’s time for boards to take notice and consider how they approach corporate reputation management.
What approach should boards and their organizations adopt? The 2019 Global RepTrak® 100 identifies six key principles, beginning with focusing on who the enterprise is, suggesting that this is more important than what you sell. Boards would be well served, the report suggests, by noting that, globally, delivery on good governance, citizenship and products are drivers for all those fence sitters.
I wrote here a couple of weeks ago about the relevance of social media oversight and the significance of boards engaging in oversight of their organizations’ social media and disclosure policies. When we see documented correlations between media impressions, perceptions and organizational reputation, it makes sense to consider exercising such oversight as part of the board’s approach to corporate reputation management.
If your board and management team have yet to discuss corporate reputation management, you have an opportunity to once again add value as a governance professional. Do your research and flag the concept of engaging in such conversations in terms of KPIs, and in the context of the organization’s governance, citizenship, leadership, performance, innovations and products/services.