Watch out for your reputation

Watch out for your reputation

Value destruction comes in many forms.  A hit to your reputation is often a reliable way of taking a hit to the share price or to morale, or to both. And even if the direct impact is short-term, it often lingers in the minds of many stakeholders.

The hazards can be obvious, even without the benefit of hindsight.  But we sometimes see boards discussing strategic risks without taking reputation much into account.  Sometimes it seems as if the risk mitigation is “it couldn’t happen here”, which as a mitigation strategy has a rather poor record.

Or maybe it’s as simple as not being on the list of the top ten risks.

Here are some ideas to help you ask: “Should your Board be taking more time to think about the main risks to your reputation?”

Good practices to consider…

Making sure you’re comfortable with the business relationships.  At the transaction level, that’s a question for management, not the Board.  But it is the directors’ responsibility to set the policy and the tone on, for example, countries which are complicated due to their profile (internal political, geopolitical, religious, human rights, diversity…).  And it’s the Board’s responsibility to know what assessments and due diligence procedures are in place – and how well they are working.

Things to avoid…

Thinking in terms only of the “obvious suspects” who are already behaving unacceptably, and not paying attention to those whose past behaviour shows that they won’t be bound by the same rules as you.  (Russia, anyone?)  It won’t be possible to make all the right calls, and some risks have to be accepted: but do you know that the right potential responses are there if things turn sour?

Good practices to consider…

Make sure that management has sufficiently considered the risk of being tainted through association.  Social media makes this even more likely than it used to be.

Things to avoid…

Thinking that it’s only your own organisation’s behaviour which matters.  You may have your house in order, but that might not count for much if a high-profile partner hits the reputational rocks.

Good practices to consider…

Being confident that you can credibly defend yourselves against accusations of “green washing”.  That means management taking a genuinely  self-critical and objective look at where such accusations might be made, and being honest about where you’re on thin ice.  And do they have clear guidance on when the Board should be put in the picture?

Things to avoid…

Dismissing media criticism or the allegations of interest groups too readily. Might they have some substance? Or could they be wrong but entirely reasonable given the way the organisation has communicated? And even if it really is just noise, mud sticks. So the Board needs to understand the strategy that’s in place to deal with this sort of thing.

Good practices to consider…

Getting explicit assurance that controls around sanctions are underpinned by specific assurance and a strong culture.  Failures can be very costly and are hard to defend, and they can be difficult to prevent, especially in complex, global organisations.  The Board should understand how the sanctions-specific control and assurance framework is working.  And it needs to feature as a significant, specific risk in other discussions, such as when considering culture.

Things to avoid…

Just assuming that all is in order and functioning because “we take these things seriously and get them right”.  There are plenty of high-profile examples of huge fines and reputational damage even amongst companies who believed that.  So nobody is immune.  Specific questions should be asked at board level, especially when the sanctions environment is particularly fluid.  And any possible  indications of issues should be followed up rigorously – by its nature, any evidence won’t be very apparent, so you can’t afford to jump to comfortable conclusions.

Good practices to consider…

Discussing the tax strategy from a reputational viewpoint.  Ensuring full legal compliance might not be enough.  Public perceptions are difficult to shake off, even if they result from poor understanding or partial information.

Things to avoid…

Leaving management and tax advisors to optimise the tax position.  Sometimes an aggressive tax strategy might be what’s best for shareholders, and in that case the Board should knowingly consider the reputational risks.  But it often appears that tax strategy isn’t on board agendas, despite the potential for public and government criticism.

Good practices to consider…

Considering executive pay and bonuses in the political and social context in which you’re operating.  Many companies were more sensitive to this during Covid but that seemed to wear off quite quickly.  Now the context is rising costs and pay restraint which are hitting the lowestpaid hardest, so the antennae of the Remuneration  Committee will need to become even more sensitive.

Things to avoid…

Failing to look at the outcome of the policy within the prevailing context.  RemCos have had to become increasingly sensitive to performance issues and the implications for applying discretion.  But often these discussions are narrowly focused on specific metrics and the possible reaction of shareholders.  There is a wider context including the effect on the workforce, as well as press and social media reactions.

Good practices to consider…

Anticipating the social impact of decisions.   With ESG discussions now a regular feature of board agendas, the effect on communities and groups of individuals should be more fully in the spotlight.  That needs to extend to the consideration of the strategic risks at board level, as interested parties become more astute and learn how to weaponise social media.

Things to avoid…

Letting “ESG” discussion slip into an overly narrow debate around climate change and the “E”.  Whatever you might think of the acronym, the risks attendant on social impact mean that it now needs to be a specific part of board discussions … and not just as part of an agenda item covering ESG strategy and performance.  It needs naturally to become part of the consideration of strategic items.

Good practices to consider…

Understanding the current customer experience.  That means the Board understands, at a strategic level, how current conditions and the organisation’s immediate responses are impacting attitudes and loyalty.  And don’t forget the law of unintended consequences: customer experience is often affected by employee reaction to management decisions, in ways which are often foreseeable but usually not foreseen.

Things to avoid…

Limiting thinking and discussion to just the intended (target) customer experience.  Or what it was last year before things changed around you.  It’s about what customers are experiencing today and what’s being done about it.  The detail is for management – but the Board need to have confidence that  customer attitudes are adequately measured, and that changes are being taken seriously.

Good practices to consider…

Being confident that the business knows how it is going to respond when the (probably inevitable) systems failure happens. Social media can quickly magnify the problem out of all proportion to the initial failure. So you need to consider, for example, how to deal with the situation where just a few hundred online lock-outs lead to the customer helplines being overwhelmed and the website crashing.

Things to avoid…

Relying on assurances of the type “it’ll be alright on the night”. Boards are well accustomed to the importance of getting comfort that well-tested continuity plans are in place. But often these are limited to how to get back up and running as quickly as possible. Do your plans consider how the reputational issues can cause knock-on problems, both immediate and in the longer term?

Good practices to consider…

Thinking through what the media would enjoy hitting you with. And then hearing from the CEO how much that might matter and how the leadership would respond. That is likely to mean creating some board time to reflect on where you might be exposed (over dinner maybe – but don’t start until the main course has arrived, so as not to ruin everyone’s appetites too early).

Things to avoid…

Being fatalistic. It’s true that potential headlines can be difficult to predict. And organisations can’t just be in the mode of responding to the ebb and flow of journalists’ stories. But some foresight can help make sure the risks are at least mitigated to some degree – including knowing what sort of role, if any, the Chair and the rest of the Board should play in any crisis response.



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