Managing reputational risk as a director

In today’s hyper-connected online world, any damage to your reputation stays around pretty much forever, so it is even more important to guard your reputation. By Cathy Parker.

A key consideration when doing due diligence for a board role – and even before applying, is what is the potential reputational risk from this role.

 Similarly actions you take outside of your governance roles can incur reputational risk damage. Essentially reputational risk is the potential for negative publicity or perception stemming from being a director of that organisation – or from one’s own activities within, or outside, the organisation.

This is distinct from reputational risk for the organisation itself, although the two will be linked in many situations. Reputational risk is much harder to quantify than, say, financial or health and safety risks, as it is much harder to predict as it is often from the conduct of individuals.

In today’s hyper-connected online world, any damage to your reputation stays around pretty much forever, so it is even more important to maintain and enhance your reputation.

When considering reputational risk, you need to consider a matrix similar to managing other risks weighing up, on one hand, the potential reputational risk and its severity alongside the potential frequency or likelihood of it occurring. 

Where it is a company reputational risk you also need to judge the potential fallout for directors which could also vary in magnitude.

A further risk is an event occurring that could damage the reputation of other board members which could rub off on all directors by association.

A director’s reputation is perhaps their biggest asset, lose it and future roles will dry up and current roles may be under threat if it is damaged. 

In fact, as I write this there is news of a company failure where one of the director’s roles on a different, but high-profile board, is being questioned in the media.

Without providing an exhaustive list some of the factors you may wish to consider might include:

• Other directors and their history (a Google search might be illuminating).

• Similar for senior management or the founder for a startup or early stage business.

• And for any major shareholders – has there been any controversy with other companies they part own.

• Risk of a major health and safety issue (severe injury or death).

• Risk of a major product or service failure.

• Risk of major IT or privacy breach.

• Financial risk – is the business sound and well-resourced financially.

Many directors start on smaller NFP boards and many continue to serve on these boards during their governance career. 

These can provide more reputational risk as the governance and management processes are often lacking in rigour or are not followed, giving greater risk of potential financial misconduct or other failure which could reflect on the board.

Often the risk can be more around how you (or the organisation) reacts to a potential reputational risk. If you react well you might even enhance your reputation from a negative event or at least ameliorate the potential reputational harm. 

Whilst the old saying around managing reputation is asking how would something look in the paper on Monday, now it is more how would it look on Twitter or other social media in 10 minutes.  

 

Cathy Parker is the director of Adrenalin Publishing, which owns Management magazine, and she sits on a number of boards.

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