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Boards must play major role in enhancing company reputation

Deloitte 2018 Directors’ Alert: Boards must play critical role in enhancing company reputation

Linking CEO succession to organisational culture, strategy to risk appetite, and digital innovation to strategy can drive reputation risk and reward for boards and leadership teams

AUCKLAND, NEW ZEALAND, 22 February 2018 — A new report from Deloitte Touche Tohmatsu Limited (Deloitte Global) examines the board’s role in protecting and enhancing an organisation’s reputation in today’s hyper-connected world where information—whether positive or negative, true or false—travels fast. The 9th annual publication, Directors’ Alert 2018: Linkages to Success, highlights governance topics that boards around the world will be focused on in the coming year including key strategies boards can pursue to protect and enhance their organisation’s reputation.

Deloitte partner Sonia Breeze says reputation is one of the most important assets for a company, and protecting as well as enhancing it is critical to an organisation’s future.

”By putting the right measures in place, boards can be proactive rather than reactive, and identify risks to their organisation’s reputation before they strike,” says Ms Breeze.

Linking CEO succession and organisational culture

“Given the high profile coverage when any incident forces a CEO to step down, and the breakdowns in organisational culture as a result, it is evident that ongoing board oversight of culture and CEO succession planning must operate in tandem,” says Ms Breeze.

“More than any other management role, the CEO determines how culture evolves in an organisation.”

According to the report, a CEO candidate’s past performance, industry experience, and stature in the business community may trump cultural needs, but neglecting these needs invites missed opportunities, and even disaster. By the same token, fulfilling these needs preserves and enhances reputation.

Boards should ensure CEO candidates meet the following criteria in order to minimise risk to an organisation’s reputation:

• Showcasing the desired culture and behavior – Through their daily communications and behaviors, leaders exert tremendous influence over the culture, and boards must understand a candidate’s ability to lead in that manner.

• Understand his or her alignment with the desired culture to drive positive change – Leaders who understand their own fit with the existing culture can lead more effectively by knowing when to leverage existing ways of working and when to call for change, informing an intentional approach to daily decisions and actions that shape the culture.

• Connect with hearts and minds to create common purpose – To sustain an effective culture, leaders must connect emotionally with employees to create shared purpose and motivation. This is particularly relevant to millennials and other highly purpose-driven cohorts.

Strengthening the link between strategy and risk appetite

As risks and challenges continue to multiply and evolve, boards must focus on increasing their oversight of risk. One way boards are enhancing their risk oversight practices is by clarifying—and formally approving—the organisation’s risk appetite, or, in other words, the aggregate level of risk that management is willing to take in pursuit of its strategy. But, as a first step, boards must also understand—and formally approve—management’s strategy.

While directors realise it is their role to oversee risk appetite and strategy, conversations linking risk appetite to strategy are usually informal, if they happen at all. Moreover, the board’s understanding of risks, especially nonfinancial risks, is often more intuitive than explicit.

Exercising oversight over digital innovation

According to the publication, many oversight practices from the pre-digital age simply don’t apply in the digital era. However, at many organisations, board oversight of digital innovation has not been keeping pace with organisational needs. Successful digital innovation hinges on new modes of thinking and acting. In order for boards to think digitally, there must be a shift in the risk oversight mindset to match the shift in digital technologies that are impacting organisations.

“While risks are evolving every day, the opportunity to make a positive impact, both for an organisation and society at large, presents a unique opportunity for board leaders,” says Ms Breeze.

“Despite challenges in the landscape, this is an exciting time to serve on a board,” she concludes.

Directors’ Alert 2018: Linkages to Success can be downloaded or read here.

ENDS


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