Reputation Risk a Growing Board Concern: How Business Sustainability Can Help

image: reputation risk managmentFor the second year in a row, reputational risk is the top concern for board members according to a survey of 193 directors. Regulatory risk concerns remained stable while concerns for reputational risks grew.  The survey, conducted from October 2011 through February 2012, measures the opinions of directors serving on the boards of publicly traded and private companies.

Of respondents surveyed, more than two-thirds serve on audit committees and half sit on nominating and/or compensation committees. The respondents serve on boards across a variety of industries: 30% in the financial sector, 19% in the technology sector, and 18% in the consumer sector, according to EisnerAmper.  Taken together, the top areas of concern in reputational risk are product quality, liability, and customer satisfaction, at 39%. Second is a combination of concerns about integrity, fraud, ethics, and the Foreign Corrupt Practices Act, which totaled 24%.

The results of the survey, however, reveal boards are realizing that the CFO needs support to help identify and deal with some of these risks.  Business sustainability offers a means to reputation risk management.  

Contrary to the corporate myth, a company does not have to be an environmental business to reap the value from a sustainable business reputation.  The truth is that top performers compliment innovative products with business sustainability actions. What do these admired organizations have to teach us?

The article, Finance Directors Urged to Pay More Attention to Managing Reputation, describes how an increasingly regulated business environment and the evolving spectra of social media have forever altered boardroom communications.  A sustainable business reputation has become more important than ever to finance directors and corporate executives.

The Chartered Institute Public Relation offers twelve steps directors should take to ensure boardroom communications become the foundation for good reputation management.  

1. Boards should develop and regularly review a reputation policy that is cross-functional and reflects different geographies and stakeholders

2. The board should ensure an integrated approach to reputation and risk assessment

3. Reputation should form part of every organization’s risk register so that reputational risk is identified, evaluated and planned for

4. Any discussions regarding organization governance and sensitive issues such as executive pay should include reputational impact

5. Reputation monitoring should form part of business performance management approaches

6. Reputation should be a filter when reviewing or evaluating threats and opportunities

7. Any significant organizational decisions and the development of new strategies should be considered within a reputational context as well as other contexts, such as financial or operational 

8. Any board audit should include an audit of reputation management skills and experience

9. There should be a clear process for identifying, training and guiding spokespeople, particularly those responsible for responding to issues

10. All the businesses stakeholders must be considered by the board and not just the shareholders

11. All factors that impact reputation should be measured

12. Directors should support investment in research and analysis to ensure that it’s decision making process is supported, perceptions are understood and impact can be measured

A strong reputation is a valuable asset to every business, but it is especially important in driving consumer eco awareness and business sustainability.  As described by the Reputation Institute, companies need to be able to demonstrate beliefs with action. ‘Walking the talk’ is no longer just a catchy phrase, it is a critical component to driving sales and capturing additional market share.

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