A Board's Eye View of Reputation Management
Reputational risk is a growing concern in organizations of all sizes and types. Both executive leadership and board members must play a key role in managing such risk. Roxanne Decyk, Ford Scholar at the Ford Center for Global Citizenship at the Kellogg School, warns that reputation-management procedures can lose their effectiveness. Leadership may conduct an annual review of risk, for example, but fail to determine where the next problem will come from, or what they will do about it when the problem arises. The question then becomes: How can boards take the initiative to revisit the nature of the risks they face and find ways to manage those risks before they become crises?

First, education is key. Directors must interact with a broad array of constituents and learn about risks from them in ways that transcend the traditional notions of on-boarding and diligence. The second step is selecting the risk-focused governance structure that best fits the organization. Some believe that risk management is the responsibility of the full board, while others believe a risk committee should be formed to oversee reputation management. The third step put forth by Decyk is to create a “reputational intelligence system” that includes periodic sessions where the board learns from independent experts. These experts can range from financial professionals to government officials to cyber-security specialists.

When it comes to hiring a top executive, boards should also consider how this individual will set the tone from the top. He or she must live the values of the organization and have a plan for when things go wrong. Often, even managing the first-order risks well is not enough to ensure that the risk is truly mitigated. Decyk writes that the most important part of safeguarding a group's reputation is for the board to keep asking three questions: "What does this risk mean to us, what are you going to do about it and what happens if things go wrong anyway?" Debating these questions in advance could mean the difference between "long-term viability and oblivion," she concludes.
Kellogg Insight (03/02/15) Decyk, Roxanne
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