Managing the intangible: Reputation in the boardroom
August 3, 2018 • 3 minute read
One of the issues with reputation is its intangibility. As PRs know well, this makes it a challenging ‘thing’ to report on – both in terms of reputation enhancement, and the impact of reputational damage.
However, that something is difficult to do doesn’t mean it should be ignored. Corporate boards are increasingly savvy to this, recognising the fundamental impact that company reputation has on a myriad of other important measures of business success – sales, staff retention, shareholder trust and more. The other side of this coin, of course, is when things go wrong and reputations take a negative hit. According to Aon’s 2017 Global Risk Management Survey, ‘damage to reputation/brand’ was the number one risk identified by respondents.
Therefore, boards as a whole generally know how valuable reputation is. In our survey of Non-Executive Directors (NEDs), carried out in partnership with the Non-Executive Directors’ Association (NEDA), 82% of respondents agreed that corporate reputation is a business-critical asset, that should be managed as such. However, this is often where the problem lies – just how do you manage something which can often feel ethereal? As one anonymous respondent to our survey said, “Corporate reputation is a topic which NEDs acknowledge is ‘important’… but because it’s less tangible, there is a danger of paying lip service to the issue”.
Goodwill – which measures the intangible value of a company by subtracting the value of its tangible assets (property, stock, equipment etc.) from its full corporate valuation – helps to at least put a number on ‘brand’ and ‘reputation’, but more needs to be done to ensure that reputation is addressed as an asset, to be grown and protected in and of itself, and subjected to the same rigorous discussion at board level that other issues, like financial performance, HR, governance etc. are afforded.
Our survey purposely asked respondents how frequently corporate reputation was an agenda item for board meetings in and of itself precisely to shed light on this issue. While a large proportion of respondents believed that it was, more than a quarter said it was rarely or never on the agenda. At the same time, corporate reputation’s ‘importance’ ranked below many other areas – including HR, corporate strategy and corporate governance for NEDs.
Things are changing, though, and the majority (90%) of NED respondents to our survey believe boards will be discussing reputation more over the next 5-10 years.
One factor which is likely to have a significant impact on this shift, and which highlights still further the important role NEDs can play in how boards manage reputation, are the recent changes to Non-Financial Reporting Requirements for UK company strategic reports which came in in January 2017 (the result of an EU Directive). The FRC published new guidance on strategic reports in July 2018.
Importantly, these guidelines recognise that:
…sources of [company] value may include: corporate reputation and brand strength
Further, it reinforces the critical role that communications and engagement plays in relationship (and reputation) building with stakeholders. This is one of the key areas that NEDs can assist in reputation management, with the FRC’s guidelines suggesting the strategic report describe a company’s lines of stakeholder communication and recommends appointing a designated NED to help with these communications methods.
Clearly, NEDs, with their independent voice at board level and unique position as an external source of expertise and communication, have an important role to play in corporate reputation management. Boards must utilise this asset, while NEDs and communications professionals must come together to ensure that reputation management secures its place on the boardroom table and that NEDs have the right skills to advise in a rapidly evolving media and regulatory landscape.
Click here to download the full report ‘The Independent Voice: Corporate Reputation and the Role of the Non-Executive Director’
Tal Donahue is Senior Account Manager at Infinite Global and co-author of The Independent Voice: Corporate Reputation and the Role of the Non-Executive Director.