MISSION INTANGIBLE

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MISSION:INTANGIBLE, the blog of the Intangible Asset Finance Society, offers critical comments on intangible asset, corporate reputation, and finance; supplemented by quantitative reputation metrics. Intangible assets include business processes, patents, trademarks; reputations for ethics and integrity; quality, safety, sustainability, security, and resilience; and comprise 70% of the average company's value. MISSION:INTANGIBLE is a registered trademark of the Intangible Asset Finance Society.

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Corporate Boards: Charge them with the usual crimes

C. HUYGENS - Monday, July 08, 2013
The CEO may be getting big bucks. Moreover, in the US, they're getting bigger notwithstanding efforts at France-inspired salary caps. But when it comes to where the buck stops, ground zero appears to be the boardroom. Last month, the Financial Times published a story by Peter Whitehead titled, Company disasters – boards are to blame. The article was accompanied by a somber promotional video clip from the consultancy, Reputability, embedded below, explaining why.

In a spirited discussion on the Boards and Advisors LinkedIn group triggered by the article, it was flatly alleged "...that - even with non-performance of management - boards must be to blame, by their very nature and power. There are no flawed companies, only flawed boards. Boards are responsible for everything - management selection, strategy approval, risk oversight, compensation setting, etc. Boards can't argue "we missed it" because increasingly regulators are saying we will hold you responsible if you do miss it because it is your responsibility to know and not to miss. So institute systems and reporting so you do not, and replace management if need be."

Huygens is all for rounding up the usual suspects and charging them with the usual crimes, but he's not sure this is the best path to improved operations, superior governance, or better risk management. Nor a particularly good route to value creation.

Blame for most company failures will concentrate in the boardroom, with a serious skills gap and risk blindness of Board members being the most common allegations. That is why company crises become personal reputational matters for Board members, and why management and insurance solutions that help Board members combat these allegations, reputation risks, are now in great demand.

However, operational risks and reputational risks can be bifurcated. Data show that a reputational crisis is not a necessary consequence of an operational crisis provided that the Board has made a reasonable concerted effort to anticipate and mitigate the risk. And that stakeholders are aware of the effort and are able to appreciate and value it.

Warren Buffet would approve. Remember, he would forgive a financial loss; not a reputational loss.

Boards can be forgiven just as Jamie Dimon was forgiven.  What is helpful is having an established track record, a reputation, that can counter allegations of incompetence etc. This is a strategy Board members concerned about their personal reputations would do well to understand as they seek personal reputation protection solutions.


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