There is no excuse for company boards not to take reputation management seriously

Date: 15 May 2015

Citywealth

Keith Schilling, Chairman of Schillings, advises on how to ensure the reputation resilience of your company.

Many banks went recently through a series of scandals. What should they have done to prepare their clients for the bad news?

Schillings recently launched its second Reputation Resilience report that, for the first time, establishes a clear link between a company’s reputation management and share value. Through in-depth interviews with the City’s most influential money men and women, the report sets out that good reputation management starts with culture and leadership, before moving into structure and processes with clear accountability at board level.

The good news is that analysts’ and investors’ desire to look to the future means they are prepared to put past reputational crises behind them; so long as companies have proved their ability to learn from it. Yet, the bigger the company the less reason they have for not having the processes in place to deal with a reputational issue.

One of the key findings stemming from our research is that while bad fortune is inevitable, good practice is invaluable. The investment community appreciates that in any business, there is always the potential for reputational damage. They very much regard it as part of doing business. What they do not appreciate, however, is being kept in the dark about reputation. If they feel the management team is not being transparent about the company’s reputation or exposure to reputation risk, they will take a very dim view.

Analysts and investors want to see evidence that information flows freely across the business. If a reputational event happens, they are looking for assurances that the issue will be escalated quickly and dealt with effectively right at the top of the company.

From our point of view, there are three thing companies should consider when preparing stakeholders for bad news:

A reputation risk management system must be in place to spot issues early on and to ensure that there is a plan to handle communications with external stakeholders.

Companies need to better showcase their plans for handling a reputational issue, either through general reporting or by proactively updating stakeholders.

During a reputational crisis, companies need to communicate effectively to stakeholders. Stakeholders don’t want to learn about what is happening via the media or other third parties.

What do they do now to rebuild their reputation?

Our report recommends six pieces of best practice when it comes to reputation management and ensuring the reputation resilience of a company – irrespective of whether the company is privately or publically owned.

Evidence leadership’s involvement in the reputation management in company communications. Also consider allocating responsibility for reputation management to an existing committee or establish a sub-committee on this specific subject that reports directly to the board. Finally, assign accountability to a Non-Executive Director.

Ensure the reputations of the leadership team are beyond reproach. With the eyes of stakeholder firmly focused on the management team, the reputations of board members are now inextricably linked to the reputation of a business. As we have seen on numerous occasions, digital media can see the proliferation of personal and sensitive information about business leaders be left open to detractors. In today’s age of social media, there is a corporate duty to ensure that digital due diligence is conducted on all board members current and new.

Create a Reputation Management System. While most large corporates will have crisis management systems in place to speed the operational recovery of the business after a crisis, more often than not, reputation is considered separately. A Reputation Management System ensures that there is a process for identifying and managing reputation risks, as well as a plan to handle the way a company is seen in the eyes of external stakeholders at the point in crisis.

Employ a reputation risk manager. Companies need to ensure there is a joined-up approach to reputation risk management. With the task requiring the actions of several different parts of the business, there is a need for a dedicated role to take responsibility for the subject and corral the contributing departments together. For larger companies, nominating or employing a person in this role is fast becoming a necessity rather than a nice to have.

Speak up before being asked. In the knowledge that stakeholders are actively looking for evidence of reputation management, businesses can help themselves by making sure information on the subject is more frequently and more obviously available. Despite our research showing that reputation is now seen as an essential part of a company’s corporate potency and, therefore, its corporate valuation, our research also highlighted that only 3% of FTSE 100 companies currently have a way of checking they are managing reputation across the business. With reputation management being annexed, successful companies need to ensure it is regarded as a component of core operations. Nothing will compare to the leadership team talking about reputation management in direct discussion with stakeholders.

Prove that you understand the consequences of reputation damage. Stakeholders want to understand how well the business understands the reputational consequences of its actions before it takes them. Companies therefore need to conduct reputation impact assessments in parallel with business case development. In doing so, product and service innovations or other strategic actions will be more likely to land in the media in the right way and be resilient to attacks from pressure groups.

What new trends do you see in institutional reputation management?

That the way a company protects its reputation will have a direct bearing on how stakeholders, namely; investors and analysts, will price the business and treat its stock.

Analysts understand that adverse reputation events will happen. So what matters most to them is businesses proving they are capable of handling them. Our report establishes that there is now not only no excuse for company boards not to take reputation management seriously, but a serious benefit to their shareholders if they do. Equity analysts factor reputation management into stock price forecasts, while investors examine reputation when evaluating investment opportunities.

It’s important to not just pay lip service to reputation management. The report finds that companies that identify what is important to all stakeholders, including investors, suppliers, customers and employees – and then build a reputation management system on that basis – are valued more favourably by the investor community. Put simply, it’s no longer just about managing the media.

As the report sets out, good reputation resilience starts with leadership, but is underpinned by specific structures, processes and disclosures. The incentive for getting the right people and processes in place are not just a matter of reputation protection but of a stronger valuation in the eyes of the investment community.

Do you see any other situations arising for banks or personnel within them that you could help advise on?

We live in an age where the abundance of information has changed how businesses interact with their customers. But the more data we create and acquire in the course of doing business, the greater the chance that sensitive information will be lost or stolen.

The increasing number of high profile data breach cases and coming EU regulation make it an issue that’s keeping every business owner awake at night.

In response, at Schillings we’ve created the world’s first Data Breach SWAT Team, comprised of reputation law, risk management, data protection and cyber and information security specialists. In short, our approach is about preparing businesses to make the right decisions quickly, safe in the knowledge that they are on solid legal ground

To request an exclusive print copy of our Reputation Resilience report; how the people who value companies value reputation, visit www.reputationresilience.com