Preserving corporate reputation

Dec 12 2007 by Nic Paton Print This Article

In this age of instant communication, corporate governance is no longer just about ensuring the necessary financial checks and balances are in place. Because reputations which took years to build up can now be destroyed in a flash.

A study by The Conference Board has argued that there is growing recognition at boardroom level of the need for corporate governance to evolve into something much bigger than financial checks and balances.

A company's reputation is increasingly able either to generate or to rapidly destroy shareholder value but research on this area was generally "disjointed", it argued.

It was therefore up to boards to put in place robust programmes and initiatives to protect and manage their reputations, normally as part of an enterprise-wide risk management programme.

A summit held earlier this year by The Conference Board had reached consensus on a set of principles and guidelines to govern reputation risk governance, it added.

"Corporate governance is the system of checks and balances instituted by the board of directors to ensure that an organisation is suited to meet its business objectives, not the interest of insiders," explained Matteo Tonello, senior research associate at The Conference Board Governance Center

"Since corporate reputation is the perception of the firm by a variety of stakeholders, board members should consider having an organisational programme in place to oversee any material event that may affect stakeholder relations so as to ensure that such events do not compromise the company's ability to achieve its long-term goals," he added.

Boards of directors needed therefore to reach a common understanding of the concept of corporate reputation and how it can not only be protected but used to improve relations with employers, shareholders and other stakeholders.

Directors needed to be clear that they understood the board's rationale for prioritising stakeholder relations and why this was important for the long-term financial health of the organisation, it argued.

Boards, it stressed, needed to discuss and understand the nature of reputation risk within the context of the wider business, its impact, how it responds to reputational risks and the creation of a cohesive culture of risk awareness.

Within this, directors needed to oversee the design and implementation of a strategic, top-down risk management programme where all business events with potential consequences on the firm's reputation capital were identified, recommended The Conference Board.

It was beholden on directors to oversee the process adopted by senior executives to identify, categorise, and prioritise business uncertainties, particularly with respect to their effects on reputation, it added.

"Directors should be sceptical of any attempt at restoring stakeholder confidence exclusively through savvy communication tactics, and request that response strategies fully address underlying operational risks," the report stressed.

"In a well-designed enterprise-wide risk management programme, communication tactics and better disclosure should be seen as tools to corroborate and complete a business risk response strategy, not to replace it," it added.