Our ongoing research and everyday observations show that the global corporate environment is increasingly scarred by financial crises, business collapses, cover-ups and abusive management behaviour.

In the process, many firms’ legitimacy to operate declines as leadership and organisational reputation spirals into freefall. The accompanying capacity to attract resources and invest in a sustainable future also becomes progressively untenable.

With such volatility in the markets, the importance of enhancing the entity’s reputation is tantamount to all other priorities.

As noted by The Reputation Institute in 2018, intangible factors account for 81% of a public company’s value, while a 1% increase in reputation yields a 2.6% increase in market capitalisation.

Who owns the organisation’s reputation?

The board’s role and responsibility in enhancing reputation is a crucial part of any company’s success. So why are so many reputations still regularly and glaringly tarnished?

The main challenge is that directors rarely own or control the perceptions others hold of the firm. A strong reputation, although always highly desirable, is an intangible asset that is often difficult to define and replicate.

Reputation is specific, but also multi-dimensional. A spread of different perspectives regarding a single individual or company can present themselves on any one day. An individual’s reputation for professionalism can be added to, or distorted, through a closer analysis of their background and experiences.

Many can relate to the old adage: reputation takes a long time to establish, but can be lost in an instant.

Above all, reputation should be viewed and understood by boards as a scarce and critical resource. ‘Who owns responsibility for reputational defence and maintenance?’ is often a highly disputed issue.

Most CEOs think the executive is responsible for reputation. Our ongoing ‘Kakabadse Research’ project paints a different picture, clarifying that high-performing organisations are often defined when they charge the board with guarding reputation.

This is because the board is the only body in the corporate or third sector structure that has a direct oversight remit for the whole organisation. This clearly encompasses reputation and risk concerns.

No other single body can be held accountable for overseeing the complexities involved in defending and promoting reputation. The C-suite and general management have a different function—to deliver strategy.

All organisations engage with a multitude of stakeholders and so will naturally face contrasting perceptions of the entity’s worth. The question is: ‘how do you work through a multiplicity of perspectives?’

Investors scrutinise past and present financial performance and, by doing so, determine the organisation’s reputation so they can assess future performance.

Consumers, on the other hand, are unlikely to assess reputation based on the ‘true value of assets’. Their concerns largely focus on attractive products and services, and increasingly how a brand treats its clients, staff and suppliers, and how it acts in relation to the wider environment.

The levers of power

Boards have only two governance levers at their disposal, namely:

• Compliance, controls, processes and disciplines
• Stewardship, requiring familiarisation with, and cultivation of, relationships, stakeholder mindsets and the shaping of the culture of the organisation.

Much of the emphasis to date has been on compliance and meeting legal and procedural obligations. Even the determination and oversight of strategy has mostly been driven through compliance, raising doubts about the board’s meaningful examination of market conditions.

Stewardship remains neglected, due to the discomfort of many board directors in raising distinctly pertinent, but sensitive issues.

Our research shows how 67% of board directors across a global sample of more than 40 countries do not speak up, despite fully understanding the consequences of their silence.

Being psychologically paralysed actually enhances each individual’s insight as to why they are facing challenges, what to do to remedy the situation, and clarifies the negative future outcomes.

It’s true—the greater the problem, the greater the insight and more accurate the prediction as to when the concerns in question will become public.

Despite all of this, the inhibiting threat of raising an uncomfortable issue is overwhelming for the majority of people.

Finger on the pulse

In contrast to the boards of the Post Office, Boeing or Kids Company, a high performing board has its ear to the ground.

Studies show the need for boards to adopt the following seven disciplines in order to ensure they remain well-informed, enhancing the value of tangible assets and intangible ones such as reputation:

1. Exploring fracture points: Beginning with the most important issue, it has long been recognised that a dysfunctional relationship between the board and C-suite represents a breakdown of governance oversight and strategy creation. https://boardagenda.com/2023/07/14/how-to-keep-strategy-delivery-on-track/

Considerable effort should be devoted to gaining a better understanding of these tensions, allowing the organisation all but guaranteed strategy execution. The connection between the board and C-suite is important, but not critical. Far more damaging is a failed interface between strategy creation, at the corporate centre, and its delivery at subsidiary or divisional level.

Strategy becomes meaningless until it is successfully deployed. A common experience is for general managers (GMs) to inform their corporate bosses that, ‘in principle’, the firm’s strategy is fine. However, certain elements need adjusting to make it attractive to local conditions.

In the words of one GM we interviewed: “Our global strategy is great, but we need to make adjustments to entice our customers here in Germany.” The response was a firm rebuttal from the centre and, after the third time asking, the GM in question was fired for ‘not being a team player’. His successor ultimately suffered the same fate.

Boards that reach down into the organisation’s strategy delivery and associated fracture points gain invaluable insight to discuss with the C-suite. The discipline required is to regularly expose board members to the contrasting realities of different fracture points in the structure.

When questioned on whether unannounced visits from board members were a problem, the GM in charge of a critical hub at a global postal company said: “Best thing ever! Now I know my messages go to the board unedited.” He added that issues of reputation and risk were vulnerable to unwanted alteration by the centre, leaving the board unaware of pending reputational concerns.

At the same time, scrutiny of strategy delivery by the board using fracture point analysis can often be viewed by the C-suite as a direct threat. To counter this, ensure the board’s relationship with the C-suite is robust and based on trust.

2. Competitive advantage: The UK sample from our studies highlights that 85% of board directors do not know or cannot agree on the competitive advantage of the company’s board they sit on. This must be corrected, otherwise the board will be unable to concur on a favourable configuration or strategic position of assets, making insurmountable problems inevitable and reputational harm guaranteed.

3. Interrogate arguments—not the person: This has been a long-standing discipline for the board of Macquarie Bank, Australia. Started by two ‘refugees’ from the City, Macquarie Bank has become a beacon of sound infrastructure investments, ranging from schools and highways in Canada, to energy infrastructure investment in Greece.

4. Address misaligned interests: Reaching out to stakeholder groups is crucial when it comes to empathising with their concerns. Consider how and why reputation can be enhanced—or damaged—depending on the sensitivity shown toward the multiplicity of interests facing the organisation. Discussion of the effect of different stakeholder groups on the organisation needs to take place in the boardroom. Once the board is clear on what to do, the executive can be properly briefed.

5. Challenge accepted practice: At the height of a scandal in the City, one CEO of a major financial institution told us: “It could so easily have been me! What we all did was accepted in the City and Wall Street.” Volkswagen is a case in point. Numerous car manufacturers had adopted comparable software that was insufficient to detect and comply with emissions standards, but it was common practice in the automotive sector. The board’s reach into the inner workings of the organisation is a crucial pre-requisite to recognising potential reputational harm from actions that are otherwise seen as standard practice.

6. Effective public relations: Using PR to tell the truth persuasively has never been more important for enhancing organisational reputation. Promises need to be kept – this is how trust is built. PR that captures the very essence of the firm is one side to promoting reputation. The other is corporate political activity, where lobbying and campaign contributions significantly influence a favourable response from government.

7. A disciplined chair: The chair is pivotal to defending and enhancing reputation through their stewardship of the board. Our research emphasises that a good chair equals a good board, with the reverse equally true. The discipline and sensitivity adopted by the chair to nurture positive board dialogues prevails throughout the culture of the organisation. The board’s utilisation of intangible assets favourably positions the organisation so that competitive advantage can be realised, enabling stakeholders to trust the enterprise.

Reputation is the undisputed heavyweight champion of any organisation and the trust it embodies needs to be actively and sensitively employed with stakeholders on an ongoing basis.

Too many organisations leave this task to the management who, because of their focus on strategy delivery, often fail to display the adaptability to appreciate stakeholder needs independently.

Building trust for meaningful dialogue with investors, employees, customers, media and government cannot be realised through periodic, one-off activities. Only the board, with its ear to the ground, can deliver purposeful oversight and sustainable stakeholder engagement.

The board, as the governing body, is the custodian of the organisation’s values, strategy and ethical standards. How to provide the necessary balance to at best meet and fulfil the array of interests facing the entity is the essence of defending and promoting reputation.

Andrew Kakabadse is professor of governance and leadership, and Nada Kakabadse is professor of policy, governance and ethics, both at Henley Business School.