Organisational reputation is an increasingly critical issue for boards to consider and is certainly on a par with overseeing product quality and service delivery.
Volkswagen Group is a useful case in point. Its board’s inaction at a critical juncture for the organisation was partly due to Bosch software, widely utilised across the automobile industry, which distorted its emissions test results.
The board’s thinking appeared to be that “if all motor manufacturers are complicit, then why break ranks and recognise the problem first?” This was no excuse, and both regulators and consumers took a dim view of such corporate malfeasance.
Our ongoing research shows that in the majority of cases boards intimately know the “why, where and what” of reputational challenges facing their organisations.
If this is the case, then why have the boards of Volkswagen, Royal Bank of Scotland, HBOS, Kids Company, Carillion and so many others not headed off obvious problems before they become catastrophes? Our findings reveal a recurring answer: the greatest challenge for boards is addressing known but uncomfortable concerns.
Facing up to sensitive issues can all too often become personal. In fact our studies show that over 67% of boards become paralysed when working through “un-discussable” issues.
So how much do boards need to know in order to make them act and circumvent reputational harm?
A prime requirement for board directors is to engage in the face of damaging divisions. This brings together a greater alignment of interests.
However, confronting damaging tensions raises sensitivities, which can often be taken personally; the outcome can be a loss of face and damaged personal reputations. Raising relevant reputational considerations may result in a bitterly divided board where resentment runs deep.
It’s little wonder that numerous board directors strive to preserve the alignments they’ve worked so hard to create.
Tackling matters of organisational reputation can be a double-edged sword. Neglect them and the enterprise will be likely to pay a high price. Insensitively attend to them and the ensuing damage may be higher still. It is all too easy for personal reputation to fall into direct conflict with organisational reputation.
Gifted chairs are conscious of the damage that can be done by mounting the right challenge in the wrong way, and rarely confront matters head-on. Instead they draw upon their ‘third-level power skills’ and carefully craft expectations.
“I think 12 meetings ahead,” says one chair, who wisely shapes the board agenda for the forthcoming year. He understands that raising any unwelcome issue now could lead to a disengaged board.
Cleverly planning forthcoming agendas, board dynamics and outcomes from one meeting to the next over a 10–12-month period will more likely end up with board members wholeheartedly supporting the chair’s perspective. What is initially an unspeakable reputational issue becomes a normal item of business.
Addressing issues of reputation is, by its very nature, a stretching process. Inherent weaknesses in the organisation, its leadership, strategy and governance are inevitably raised, and an underlying message of neglect rings loud—”Why has this issue been left so late? Why was action not taken sooner? Why was all this been allowed to happen?”
Ultimately the chair has to take the lead by continually balancing contrasting and interwoven interests—and none are as intricate as those between personal and enterprise reputation.
Nada Kakabadse is professor of policy, governance and ethics, and Andrew Kakabadse is professor of governance and leadership at Henley Business School. www.kakabadse.com