Board members, CEOs concerned about damage to company’s reputation during crisis

A company's brand or reputation can be one of its most valuable assets

Top executives and board members appear to have some very specific concerns. A new survey showed that concerns about reputation are more important to many U.S. corporate board members than even financial performance.

In fact, during an event, such as a crisis or scandal, 55 percent of board members and top executives are most concerned about damage to their company’s reputation.

The survey released by the Clifford Chance law firm showed that 58 percent of top executives were even reluctant to join boards as non-executive directors, with their exposure to personal liability a top concern. Also, continuing worries about personal liability is hampering the ability to recruit new board members at many corporations, the survey showed.

During a crisis, 38 percent of those questioned were concerned about price of company stock shares and 32 percent said financial loss was their top concern, the survey adds.

The survey conducted by The Economist Intelligence Unit questioned 320 board members and C-level executives. Seventy-one of them were from the United States.

In addition, there are specific concerns to board members and C-level executives, the survey said. These include 57 percent of respondents being worried about a cyber-attack. Some 15 percent said it is a current focus.

Also, over 60 percent of U.S. respondents were concerned about an incident or scandal arising out of sanctions or restrictions on trade. 

"Safeguarding an organization's reputation is a critical priority for boards and chief executives," David DiBari, U.S. head of Litigation for the Clifford Chance law firm, said in a statement. "A company's brand and reputation can be one of its most valuable yet most fragile assets. A dip in financial performance is often forgotten as soon as the market improves, while an event leaving a reputational stain can continue to harm the brand indefinitely."

Among the U.S. respondents, some 68 percent said managing risks to their organization's reputation will become more important over the next two years. Also, nearly a quarter of U.S. executives said criminal exposure is a major concern in connection with an incident or scandal.

"The risk of exposure to private suits has long been a concern of individual board members. Current criminal enforcement priorities that seek to hold the senior-most executives accountable significantly increases this pressure," DiBari said in the statement. "Against that backdrop, a top priority for companies is to implement a robust and effective compliance program that is based on a comprehensive assessment of legal and compliance risks faced by the company."

In addition, 64 percent of respondents said that ensuring a uniform approach to managing risk becomes more difficult because of cultural differences found across an organization's global operations. Also, 82 percent of U.S. respondents said more time has been invested in risk management by their companies' boards during the past two years, with 86 percent reporting their companies are much better equipped to address the principal risks facing their industries. Some 92 percent said their boards have appointed, or will appoint within two years, non-executive directors with expertise in dealing with specific risks facing their organizations.

Due to commercial, legal and reputational risks, more than 60 percent of U.S. respondents said their companies were concerned about an incident or scandal arising from sanctions or restrictions on trade. Also, the Foreign Corrupt Practices Act (FCPA) posed similar risks. 

"Executives can be held personally liable for FCPA criminal violations even where they had no direct involvement in or knowledge of the conduct in question," Edward O'Callaghan, a former federal prosecutor who was co-chief of the Terrorism & National Security Unit for the Southern District of New York, and who is now a Clifford Chance litigation partner, said in a statement. "It is critically important for the organization's leadership to take a proactive approach to compliance, insisting on periodic assessments that consider a number of factors to identify high-risk jurisdictions, business units and projects."

When it comes to managing risk, some 27 percent of respondents said risk management is “flowing below the management level” and 33 percent made it a “measurable element” of staff performance. Jeremy Sandelson, global head of litigation for Clifford Chance, also points out that, "Ultimately, everyone in an organization is responsible for conducting business in an ethical and compliant manner. But the standards, the expectations and the tone must be set, driven and embodied by a company's board and C-level executives – it all starts at the top.  Based on the overall responses to our survey, company leaders worldwide are aware of that."

In a related topic, a new BarkerGilmore survey shows that directors and CEOs increasingly look to General Counsels for their views on legal matters and corporate governance issues, InsideCounsel reported.

 

Further reading:

Corporate leaders say general counsel widely considered part of a company’s executive team

Navigating dynamics of the boardroom

To be a top legal leader, you must be a top business leader

 

 

 

Contributing Author

author image

Ed Silverstein

Ed Silverstein is a veteran writer and editor for magazines, websites and newspapers. A graduate of Harvard's Kennedy School of Government, he has won several...

Bio and more articles

Join the Conversation

Advertisement. Closing in 15 seconds.