Ignoring your reputation comes at your peril.

Our ongoing research and daily observations show that the global corporate environment is increasingly scarred by financial crises, business failures, cover-ups, and fraudulent management practices.

In the process, the legitimacy of many companies' operations declines, and their leadership and organizational reputations plummet. With it, our ability to attract resources and invest in a sustainable future becomes increasingly unsustainable.

With such volatility in the market, the importance of enhancing a company's reputation is on par with all other priorities.

As noted by The Reputation Institute in 2018, intangibles account for 81% of a publicly traded company's value, with a 1% increase in reputation leading to a 2.6% increase in market capitalization.

Who is in charge of the organization's reputation?

The board's role and responsibility in promoting reputation is an important part of a company's success. So why are so many reputations regularly and obviously damaged?

The main challenge is that directors have little ownership or control over the perception that others have of the company. A good reputation, while always highly desirable, is an intangible asset that is often difficult to define or replicate.

Reputation is specific, but also multifaceted. Different perspectives on a person or company can suddenly appear on any given day. A person's reputation for professionalism can be further enhanced or distorted by a detailed analysis of his or her background and experience.

Many people can relate to the old adage. Reputation takes a long time to build, but can be lost in an instant.

Above all, boards must view and understand reputation as a rare and important resource. “Who is responsible for defending and maintaining reputation?” Often a highly contentious question.

Many people can relate to the old adage. Reputation takes a long time to build, but can be lost in an instant.

Most CEOs believe that management has a responsibility to its reputation. Our ongoing 'Kakabadse Research' project paints a different picture, revealing that high-performing organizations are often defined when they impose on their boards the responsibility of protecting their reputations. I am.

This is because the board of directors is the only body within a corporate or third sector structure that has the power to directly oversee the entire organization. This obviously includes reputational and risk concerns.

No single entity can be responsible for overseeing the complexities involved in protecting and promoting reputation. Executive and general management have different roles in delivering strategy.

All organizations engage with a large number of stakeholders, so they naturally face contrasting perceptions of the company's value. The question is: How do we deal with different perspectives?

Investors scrutinize past and current financial performance, which allows them to judge an organization's reputation and assess future performance.

On the other hand, consumers are less likely to assess reputation based on the “true value of the asset.” Their concerns are primarily focused on attractive products and services, and increasingly on how brands treat their customers, staff and suppliers, and how brands behave in relation to their wider environment. The focus is on what to do.

lever of power

There are only two governance instruments at the board's disposal.

• Compliance, management, processes and discipline.
• Stewardship. It requires familiarity with and cultivation of relationships, stakeholder thinking, and shaping an organization's culture.

Stewardship continues to be neglected, with many directors uncomfortable with raising clearly pertinent but sensitive issues.

The focus has been on compliance and meeting legal and procedural obligations. Even strategic decisions and oversight are primarily driven by compliance, raising questions about meaningful examination of market conditions by boards.

Stewardship remains undervalued as many directors are uncomfortable raising clearly pertinent but sensitive issues.

Our research found that 67% of boards in a global sample of more than 40 countries are not speaking up, even though they are well aware of the consequences of silence.

In fact, psychological numbing increases each individual's insight into why they are facing challenges, what to do to improve the situation, and makes future negative outcomes clearer.

That's true. The larger the problem, the more insight we have into when concerns will be made public, and the more accurate our predictions can be.

Despite all this, the inhibiting threat of raising unpleasant issues is overwhelming for the majority of people.

put your finger on the pulse

In contrast to the boards of the Post Office, Boeing Co., or Kids Company, high-performance boards listen to reality.

Research shows that boards should adopt the following seven disciplines to ensure they are well-informed and increase the value of their tangible assets and intangible assets, such as reputation.

1. Search for break points: Starting with the most important issue, a dysfunctional relationship between boards and executives has long been recognized as representing a breakdown in governance oversight and strategy creation. https://boardagenda.com/2023/07/14/how-to-keep-strategy-delivery-on-track/

Significant efforts must be made to better understand these tensions and ensure that organizations can execute on their strategies. The connection between the board and the executive team is important, but not decisive. Far more pernicious is the failure of the interface between strategy formulation at the corporate center and strategy implementation at the subsidiary or divisional level.

A strategy is meaningless if it is not successfully deployed. A common experience is for a general manager (GM) to tell a company's boss that the company's strategy is okay “in principle.” However, certain elements must be adjusted to make it attractive to local conditions.

A strategy is meaningless if it is not successfully deployed.

In the words of one GM we interviewed: “Our global strategy is great, but we need to make adjustments to attract customers here in Germany.'' This response is a firm rebuttal from the center, and 3 After a second round of questioning, the GM in question was fired for not being a team player. His successors ultimately suffered the same fate.

Boards that delve into the implementation of an organization's strategy and related issues can gain valuable insights to discuss with executives. The discipline required is to regularly expose board members to the contrasting realities of different points of failure within the structure.

Asked if unannounced visits by board members were a problem, a general manager in charge of a key hub for a global postal company said: Now I see that my message gets sent to the message board without being edited. ” He added that reputation and risk issues were susceptible to undesirable changes by the Center and the board remained unaware of pending reputational concerns.

At the same time, boards using breakpoint analysis to scrutinize strategy execution can often be seen as a direct threat to executives. To combat this, ensure that the relationship between the board and executive management is strong and based on trust.

2. Competitive advantage: Our research in the UK sample highlights that 85% of boards do not know or cannot agree about the competitive advantage of the companies they serve on. This must be fixed. Otherwise, the board will not be able to agree on a favorable composition or strategic position of the assets, inevitable insurmountable problems and guaranteed reputational damage.

3. Interrogate arguments, not people. This has been a longstanding discipline on the board of Australia's Macquarie Bank. Founded by two “refugees” from the city, Macquarie Bank pioneered sound infrastructure investments, from schools and highways in Canada to energy infrastructure investments in Greece.

4. Address misaligned interests: It is important to reach out to stakeholder groups in order to empathize with their concerns. Consider how and why reputations can be enhanced or damaged depending on the sensitivity shown to the various interests facing an organization. Discussions about the impact that different stakeholder groups have on the organization should take place in the boardroom. Once the board is clear on what to do, it can provide appropriate explanations to senior management.

The board's involvement in the internal affairs of the organization is an important prerequisite for recognizing potential reputational damage.

5. Challenging accepted practice: At the height of the scandal in the city, the CEO of a major financial institution told us: What we all did was accepted by the city and Wall Street. ” Volkswagen is a great example. Many car manufacturers had comparable software that was insufficient to detect and comply with emissions standards, which was common in the automotive sector. Board involvement in the internal affairs of an organization is an important prerequisite for recognizing the potential reputational damage caused by actions that are considered normal practice.

6. Effective public relations: Using PR to communicate the truth convincingly is more important than ever to enhance your organization's reputation. Promises must be kept. This is how you build trust. PR that captures the essence of a company is also one aspect of enhancing its reputation. The other is corporate political activity, with lobbying and campaign donations having a significant impact on favorable responses from the government.

7. Disciplined Chair: The chair is critical to protecting and enhancing the reputation of the board through its governance. Our research highlights that a good chair equals a good board and vice versa. The discipline and sensibility adopted by the chair to foster positive board dialogue permeates throughout the organization's culture. The utilization of intangible assets by the board of directors puts the organization in a favorable position, provides competitive advantage, and gives stakeholders confidence in the company.

Reputation is the undisputed and powerful champion of any organization, and the trust it embodies must be actively and carefully leveraged with stakeholders on an ongoing basis.

Many organizations leave this task to management, who are often too focused on delivering on strategy to be adaptable and uniquely aware of stakeholder needs.

Building trust for meaningful dialogue with investors, employees, customers, media, and government cannot be achieved through routine, one-off activities. Only boards that listen to the field can achieve purposeful oversight and sustainable stakeholder engagement.

As a governing body, the board is the custodian of the organization's values, strategy, and ethical standards. The essence of protecting and promoting reputation is how to provide the balance necessary to best meet and realize the various interests facing a company.

Andrew Kakabase is Professor of Governance and Leadership and Nada Kakabase is Professor of Policy, Governance and Ethics, both at Henley Business School.