If you asked a director whether they think their board should have a public reputation - one that is distinct from the company - most would respond with a resounding no. Boards of directors have historically operated behind closed doors, unseen and unknown to the outside world. However, proprietary research conducted by Edelman concludes that a board of directors does indeed possess its own reputation, which must be actively considered and managed. Two-thirds of respondents said they “must trust a company’s board of directors” before making or recommending an investment. Two-thirds of respondents also agreed “an engaged and effective board is important when considering a company in which to invest”.
THE VULNERABILITY OF A BOARD
A board’s reputation is most acutely on display during times of severe corporate controversy or distress. In these circumstances, the specific actions of the board come under a public microscope and become an unquestionable factor in public trust in the company.
A weak board is vulnerable when activists use social media to call into question the board’s integrity or motivations. Activists will criticize the qualifications of individual board members, or they may chide boards for being subservient to management. All of this creates an image, a reputation of the board that can be harmful to the company and impacts its license to operate.
Beyond investors, other stakeholders are increasingly holding boards publicly accountable, further dragging boards into the limelight. The media increasingly scrutinizes board decision-making.
This raises a threshold question: Should a board care about its public reputation?
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