Non-Executive Directors (NEDs) have a key, but as yet not fully-realised, role to play in corporate reputation management. Their independence, and remit which straddles a variety of factors that contribute to a company’s overall reputation, provides them a unique perspective and their companies a real opportunity.
Following the launch of The Independent Voice - a joint report authored by Infinite Global and the Non-Executive Director’s Association (NEDA) – we were pleased to host a discussion group bringing together experts from across the NED, wider boardroom, and Reputation Management communities to discuss the report’s findings and begin to create a roadmap for NEDs and boards to better prepare to advise and manage reputational issues affecting their companies.
Steered by Graham Durgan, Chairman of the Non-Executive Directors’ Association, the Group developed six immediate takeaways for NEDs and other stakeholders to consider.
1. The need for transparency is increasing, and requires a robust response
The stakeholder expectation of corporate transparency is increasing, while the impact of digital, big data and social media means more information than ever before is at the finger tips of external audiences.
At the same time, regulators are compelling businesses to communicate openly with their stakeholders (Gender Pay Gap Reporting, mandatory data breach reporting etc.).
NEDs have a key role to play in bringing their external perspective to bear for the benefit of boards tackling these issues, and are uniquely placed to hold the Executive to account.
2. In an emerging crisis, consider just what aspect of reputation is under threat
When assessing reputation risks and emerging crises, applying the theory that sees reputation through the dual lenses of Character and Capability (The Reputation Game, Rupert Younger & David Waller) is a helpful discipline for NEDs to consider.
A reputation for capability – based on competence - is more ‘sticky’ and might provide some defence if/when character is called into question. Consider for instance the extent to which ‘Character’ focused issues the likes of B2C businesses such as Starbucks and Uber have faced in the media compared with their market share and performance.
In people-focused B2B businesses, like consulting or law, or in sectors where competition is particularly high, having Character called into question can have a far more immediate impact.
A perfect storm is created, and corporate reputations risk destruction, where both Character and Capability are under fire - such as we saw with the collapse of Arthur Andersen (Anne Groves, former head of PR EMEA at Arthur Andersen and NED at Infinite Global provides a useful overview here) .
3. Seek to tackle reputation’s intangibility and measure financial and stakeholder impact
Part of the problem that NEDs and boards have traditionally faced in seeking to address reputational issues is the intangibility of reputation.
Brand has managed to make it on to the balance sheet, forming a central part of ‘Goodwill’, but reputation has yet to wholly do so – despite the attempts to create useful frameworks.
Of course, brand (how you want to be perceived) and reputation (how are you are actually perceived) are different, but the tangible affect that reputational damage, and indeed a positive reputation, can have on the bottom line warrants greater investigation.
We anticipate that more attention will be given to reputation management by boards, directors and NEDs when the new Companies Act Section 172 reporting requirements (a director's duty to disclose how they have contributed to the "success" of the company) come to the fore in 2019. The FRC has published guidance on how this is to be reflected in non-financial strategic reporting, and look out for NEDA's NED Briefing on the current UK corporate governance landscape on 22 November 2018 which will explore these issues.
4. Acknowledge and address the logistical challenges for boards, and embed reputation in the NED remit
The simple logistical challenges that boards face is a hurdle that NEDs, and communications professionals, will need to overcome if they are to ensure reputation is brought to the top table.
Given the preponderance of statutory roles that need to be filled, there is only likely to be a maximum of two board seats for which reputation specialists could be considered. In the same way, crowded board agendas are often (understandably) dominated by regulatory and compliance issues.
The question is one of prioritisation.
Part of the solution may be in embedding reputational expertise, or at least an awareness of reputational issues, into the remit of generalist NEDs – through training and greater collaboration with external experts.
At the same time companies should use the NED induction period to facilitate a deeper appreciation of the culture and environment of the workplace, so that a NED’s independent viewpoint can be fully maximised.
5. Don't forget the link between corporate and personal reputation
NEDs should assess the reputation of the business they represent, or are seeking to join, but should also pay attention to the impact of personal reputations.
This includes their company’s CEOs and leadership teams; for instance, CEOs with a strong reputation bring significant value to companies which can be lost – tangibly affecting share price – in the event of a departure. At the same time, there are also potential risks with dominant personalities, particularly when ethics are called into question.
NEDs should also be thinking about their own reputations, as well as their company’s, with roles forming a crucial part of a NED’s personal brand.
6. Remember, reputation is as much about opportunities as it is threats
While, at the moment, boards might often only discuss reputation explicitly when it is under threat, there is an opportunity to proactively work to enhance reputations amongst key stakeholders and ‘make hay while the sun shines’.
Or, to mix metaphors, positively building a reputation can be seen as filling up a reservoir of goodwill – there to develop stakeholder trust as well as to be drawn upon to help mitigate against risks and crises that might develop in the future.
Some boards may consider this type of activity in conversations about brand, or Corporate Responsibility and governance, but reputation is a fundamental consideration.
NEDs have a key role to play here in being able to act as a conduit between boards and external stakeholders.
Clearly there is much more to be discussed as we continue to raise awareness and improve understanding amongst NEDs, Executives and reputation professionals more broadly.
The CEO and their Executive Team might own the management of corporate reputation but the NED needs to be proactive in holding them to account - a concept that still seems to lack rigour given recent examples of corporate failure. NEDA explored why this might be, and what can be done, in a recent debate on a motion that "NEDs are failing to hold their executive to account".
Further, NEDs can, and should, play a critical role in bridging the gap between the reputation management profession and the boards whom they have historically struggled to engage with.
We welcome any feedback or suggestions as to how this can be achieved as we continue to explore further opportunities for development and collaboration between NEDs and the reputation management profession.
You can get in touch and contribute by emailing email@example.com.
Discussion Group members (current)
Jonathan Baird (Hogan Lovells), Matt Cartmell (PRCA), Estelle Clark (Chartered Quality Institute), Chris Glennie (Institute of Risk Management), Rowena Ironside (Women on Boards), Eamonn McGrath (EY Centre for Board Matters), Sean O’Hare (Boardroom Dialogue), Rupert Younger (Oxford University Centre for Corporate Reputation), Scott Addison, Jamie Diaferia, Tal Donahue (Infinite Global), Graham Durgan, Louis Cooper, Camilla Ritchie (NEDA).