Boards Need to Be Engineers of Corporate Reputation

By Roy Maurer Oct 3, 2012

Corporate reputation has captured the attention of boards of directors as a valuable asset that is neither sufficiently understood, monitored, nor governed, said Davia Temin, president and CEO of Temin and Company, a management consultancy focused on reputational risk.

During a September 2012 webinar sponsored by the corporate governance journal Directors & Boards, Temin said that while reputation may be a hard concept to define—quantified by business process metrics, a complex algorithm of risk factors, brand equity or fulfilling a social contract of trust with the public—its byproducts, such as share price and goodwill, are highly tangible.

“I believe that corporate boards cannot only effectively govern reputation, but that by focusing on the issue, they can both mitigate reputational risk and improve their company’s reputation overall,” Temin said.

Should corporate boards go beyond stewarding reputation and engineer it proactively?

“Corporate boards are indeed an important engine of reputation, not just its monitors,” she said.

“By signaling the value the board places on corporate reputation, that message and vigilance will be picked up throughout the organization, and the reality will change.”

Directors should care about this because it’s their job to care, said Sarah Stewart, managing director of global executive search firm Boyden, also speaking at the webinar.

“The board is there to protect shareholders, to make sure that management’s decisions are reasonable and ethical and to react decisively and appropriately when things go wrong. I see the board as the conscience of the company and no matter what happens the board is ultimately responsible,” Stewart said.

A company’s response to a crisis is really more important than the negative event itself, Stewart added. “That’s what people remember going forward. The public may not remember the details of crises, but a residual loss of trust remains when it isn’t handled well.”

Having a Plan

As more boards begin to cope with the minefields of risk that their companies face, recognizing that reputational risk is a very real threat is the first step in developing a plan to deal with an embarrassing and potentially value-crushing revelation about unsavory behavior, Stewart said. “It’s not an easy task, especially if the CEO is also the chairman, but being prepared is the key,” she added.

Specifically, Temin provided a 20-point guide for corporate boards to consider, as they not only address, but positively affect, corporate reputation during good times and bad:

Put reputational risk on the board agenda. Place reputation and reputational risk on the board agenda annually, or more often ideally, Temin said.

Let the board’s scrutiny be known. Let the organization and the public know that reputation is an active concern of the board. “Lapses, such as violations of the Foreign Corrupt Practices Act, cannot go unreported or unaddressed, nor can they be tolerated,” she said.

Establish best practices. Establish consistent best practices at the board level to identify, prioritize and address reputational issues, proactively as well as reactively.

Stress-test business processes and management. Make sure that all critical business processes and key management are “stress tested” under a variety of circumstances, both predictable and unpredictable. “I can tell you as a crisis manager, you do not want to do a stress test and figure out how to handle remediation after a crisis has hit. You want to do that before. Reputational good will has to be built before you’re in a crisis,” Temin remarked.

Review how management monitors reputation. Require a briefing on who in the firm monitors reputation, and how. Make sure the activity is ongoing, consistent and verifiable. Ask to see a dashboard report at least twice a year and include online and offline chatter.

Monitor employee and client engagement surveys. Look for red flags and make sure they are addressed by management. “This is not to say that you are going to bore into management and prescribe change, but you do want to make sure that the repercussions of those red flags are not going to reach a governance or reputational level,” she said.

Review unedited traditional and social media, quarterly. Make sure that the board sees news coverage and sentiment analyses, both from traditional and social media sources, as well as the Web in its entirety, on a regular basis. “Make sure to see not only good stories, but negative ones as well, uncensored and uncurated,” she said.

Require preparation of a full list of reputational risks. Ask for a full listing of all the reputational risks that are apparent and predictable, as well as possible unpredictable “black swan” risks. Review this list at least annually, Temin advised. “You can see what’s on the radar.”

Review the company’s crisis plan for dealing with risks. Make sure that plans are in place to handle every kind of emergency, with every important constituency, she said.

Create a board crisis plan. Make sure that the board has its own crisis plan, and that it dovetails with the corporate crisis plan, “but you may want to have something for the board itself depending on the industry.”

Engage in a reputational crisis role play/simulation at the board level. Learn who is cool under pressure, who takes the lead and how clearly each board member sees, thinks and acts under duress. “You start to understand how people think in a crisis. Some think clearly and do the right thing quickly, while others go into deer-in-the-headlights mode. Some think illogically, and others absolutely take the lead. You see that in simulations. This is very valuable in my experience,” Temin said.

Assure that the company has a proactive mission statement. This should include corporate values, intent, integrity and openness, Temin noted. “Make sure that it exists not only on paper, but is socialized throughout the organization and taken seriously,” she said. If a company credo is something actively socialized throughout the organization, the company is not liable to make missteps in the first place, and if something happens, it shows the company’s good intent to the public and shareholders, which will afford good will as well, she added.

Make clear what the board’s expectations are around integrity, risk, quality, strategy and excellence to company leadership, management and even the public.

Enforce those expectations by holding the board and management accountable and taking strong corrective measures when needed.

Hold one another, and management, accountable and proactive, and make reputational issues a known priority.

In a crisis, be strong, visible and proactive. Assure that management recognizes and begins to address and solve issues immediately. “The [child abuse] scandal at Penn State is a good example of this. The board was complicit in what became the problem there, because even if the board didn’t know exactly what was going on, they didn’t lay down the law,” Temin said.

Assure that the company limits liability, but not humanity, as any crisis unfolds.

It’s the humanity that’s remembered, Temin said.

Assure that the company becomes part of a solution. Help the organization focus on rebuilding stakeholder trust after any crisis; make sure to insist that the organization becomes known as part of the solution. You can change it for the better, she said.

Assure that the company grows resilient and responsible, not defensive and inflexible—possibly the first reaction—in the aftermath of any crisis.

Make sure to stand not only for the shareholders, but for the public, in mandating the company “do the right thing” when under pressure.

Roy Maurer is an online editor/manager for SHRM.

Related Articles:

Penn State’s Organizational Flaws Make for Perfect Storm, SHRM Online Business Leadership Discipline, July 2012

Penn State Abuse Report Urges Stronger Role for HR, SHRM Online Legal Issues, July 2012

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