Independence is what board directors at publicly traded companies hold most dear as the key to a positive perception of a company and its board.
The question is whether "independent" directors - that is, directors with no business ties to the company on whose board they sit - can truly qualify as independent if the information they rely on to make judgments about the company is spoon-fed to them by the CEO and senior management.
This is one major concern raised in our agency's survey of more than 200 board members conducted in cooperation with Directorship magazine. Our purpose was to determine what directors believe their role to be in the oversight, monitoring, and measurement of corporate reputation. Put simply, it's considerable. Almost three-quarters of directors felt they should play an active role in overseeing reputation management, and they believe overwhelmingly that the number one objective of a strong reputation is protecting a company during times of crisis, ahead of attracting and maintaining quality employees or enhancing stock price.
It is clear that recent scandals are weighing on directors' minds when they consider reputation. Directors say they are most likely to intercede in reputation management after an alleged ethics violation. However, directors are far more willing to let management handle the fallout from a precipitous drop in stock price on their own, somewhat surprising given the board's fiduciary duty to shareholders.
But it's independence that seems to be the trickiest aspect of a director's life - and it's the area where PR people play the most crucial role. Sixty-six percent of directors surveyed say that the public perception of good corporate governance principles follows when all the directors other than the CEO are deemed independent. In contrast, "financial disclosure beyond compliance" was mentioned by only 15%.
The problem is the sources on which directors rely for their information. Independent directors should have independent sources, or so one would think. However, their three top information sources are the CEO (92%), other senior managers (70%), and company-prepared board books (63%). Little more than half review analyst reports (56%), and fewer than a third look at media coverage (32%).
Directors also seem to be lulled into a false sense of security when measuring a CEO's performance in reputation management. Nearly 60% say they have a formal review process, but when you ask how they go about it, it seems remarkably ad hoc. Directors cite "informal feedback from stakeholders" as the most often used measurement, with formal custom research cited by only 15%.
It would help if reputation were the clear responsibility of a lead director or a specific committee, but here again boards are coming up short. While 50% of respondents cited the lead director or governance committee as having reputation-management oversight, the other 50% either spread responsibility across a number of different board committees or couldn't identify a specific individual or committee tasked with this responsibility.
PR people have a clear role to play in helping boards fulfill their oversight roles in assessing the CEO's and senior management's abilities to manage reputation, as well as exercise the kind of independence board directors say they believe is so crucially important today.
The process should start with a candid conversation with the CEO about overall management of board relations and the role of communications and information-sharing in effectively managing these relations. The CCO needs to make the point that the perceived effectiveness of the board is a direct reflection of the CEO's performance and that information - including the unfiltered kind - will enhance the understanding of company reputation issues. The next step is a board-level program of information sharing from disparate external sources that will provide the same kind of due diligence for intangible assets that audit committees provide for tangible assets. Part of this program is the identification of the board committee responsible for overseeing reputation management efforts and building this activity into the committee's overall charter.
Putting this kind of program into place brings with it an ongoing role for the senior communications pro. We can help create the metrics used in measuring and monitoring effectiveness in reputation management. In addition, we can help the board understand the levers that drive perceptions of reputation and educate them as part of their due diligence on the role communications plays in facilitating reputation management efforts. We can also provide a window to the outside world, so that the board has access to external information sources that help balance the input they receive from inside the company.
The board wants to play an active role in reputation management, and we have a real opportunity to help define that role, ensuring true independence in the bargain.
- Harlan Teller is US director of reputation management for Financial Dynamics.