Finance directors urged to pay more attention to managing reputation (Director of Finance – 18 July 2011)

But how should this be done?Neville Bain, the Chairman of the Institute of Directors, said in the recently issued Chartered Institute Public Relations (CIPR) guidance on Reputation and the Board that ‘organisations – and particularly boards of directors – need to apply more attention to managing reputation’.With 24 hour news, an increasingly regulated business environment, and the evolving spectre of social media, good and proactive boardroom communications has become more important and finance directors as executive board members should take note of this latest guidance.

The CIPR states that ‘while everyone in a organisation plays a part in a firm’s reputation, the board must lead with support from those with appropriate operational experience. This is particularly true of reputational risk especially given the board’s task to manage risk’. The report also noted that Ernst & Young, in its Business Risk Report, identified reputation as a top 10 business risk. Given this, boardroom communications must become a priority for all companies and all directors must take note. Strong communication ensures businesses can capitalise on reputations, mitigate potential threats and helps business strategies to be communicated to internal and external audiences in a clear and coherent manner.

But how should this be done? Firstly, and most importantly, the guidance notes that the board needs to determine the impact of a strategic decision on reputation each and every time such a decision is made. This means communications professionals should take an active part in strategic planning so that reputational opportunities and risks can inform decision making – just as you would expect the finance director to consider the financial implications of any decision. This is, however, different to the current approach of expecting PR professionals to manage the impact of a decision after it has been made.

The CIPR guidance is also clear to point out that directors have a legal obligation to consider reputational factors under the Companies Act 2006. This act sets out requirements for directors to consider the desirability of maintaining a reputation for high standards of business conduct when making corporate decisions. Failure to consider the reputational impact of actions could constitute a breach of duties.

So what steps can directors take to ensure boardroom communications become the foundation for good reputation management?

The following are some of the steps which the CIPR advises all organisations to consider:

  • Boards should develop and regularly review a reputation policy that is cross-functional and reflects different geographies and stakeholders
  • The board should ensure an integrated approach to reputation and risk assessment
  • Reputation should form part of every organisation’s risk register so that reputational risk is identified, evaluated and planned for
  • Any discussions regarding organisation governance and sensitive issues such as executive pay should include reputational impact
  • Reputation monitoring should form part of business performance management approaches
  • Reputation should be a filter when reviewing or evaluating threats and opportunities
  • Any significant organisational decisions and the development of new strategies should be considered within a reputational context as well as other contexts, such as financial or operational
  • Any board audit should include an audit of reputation management skills and experience
  • There should be a clear process for identifying, training and guiding spokespeople, particularly those responsible for responding to issues
  • All the businesses stakeholders must be considered by the board and not just the shareholders
  • All factors that impact reputation should be measured
  • Directors should support investment in research and analysis to ensure that it’s decision making process is supported, perceptions are understood and impact can be measured

If boards start to take some of the steps above and give their companies reputations the same attention as they give the balance sheets their businesses will surely benefit as a result.