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Board Ruminations: Volume 3, Issue 1
The 21st Century Board: Compass and Keel
Recent headlines dominating the news have included allegations of all sorts of immoral, illegal and incompetent activities by the custodians of some of America’s largest companies. CEO’s are being accused of actions ranging from cover-ups to outright criminal behavior and shareholders are scratching their heads asking “Isn’t somebody supposed to be keeping an eye on the store so these kinds of things don’t happen?” Or if something has already happened, “Isn’t someone going to step up and make things right?” Good questions!
During the most recent rash of CEO misdeeds, some boards have acted swiftly and decisively while others have dithered, exposing the companies on whose boards they sit to serious reputational risk. Thanks to the marvels of modern technology, shareholders and the general public alike are tuning in to CNN, MSNBC, Twitter and YouTube 24 hours a day to catch up on corporate America’s latest shenanigans.
Surely, highly visible CEOs are aware that the chances of a transgression being discovered are almost inevitable; yet a few of them seem to insist on thinking that they are either bulletproof or wearing the cloak of invisibility. Unfortunately human nature is not going to change any time soon, so while trying to screen for deviant personality traits when interviewing a prospective CEO is a good idea, being prepared when the stuff hits the fan is an even better one.
As more boards begin to cope with the minefields of risk that their companies face, recognizing that reputational risk is a very real threat is the first step in developing a plan to deal with an embarrassing and potentially value-crushing revelation about unsavory behavior. It’s not an easy task, especially if the CEO is also the Chairman, but being prepared is the key.
Steps that need to be taken include choosing a spokesperson from the board, working with corporate communications to ensure that whatever message is delivered is done so at the right time and to the right audience. Since some recent incidents have led to dismissal, there should be a designee ready to step into the CEO role on an interim basis. From a mechanical standpoint, the planning is akin to disaster planning. Most important in a scenario that involves reputational risk, however, is that the board acts quickly and decisively to send a message that is straightforward and unequivocal.
The power of social media demands that any announcement by the board in a reputational situation be directed not only to the shareholders, but also to the general public. Given the viral nature of YouTube, Twitter and others, the comments from the board’s spokesperson can either begin the healing process immediately or create more consternation among the company’s stakeholders, including its customers.
Is it now the board’s job to be the company’s ultimate moral authority? Probably. In the post Sarbanes-Oxley world, corporate directors are supposed to be chosen for their independence from management, which would infer that they are chosen not only for their business acumen, but also for their good judgment. The board has the responsibility to act decisively and in the best interests of the shareholders in any situation, including one that involves reputational risk.
I have long thought of a company’s board as its keel, the part of the ship that rights the vessel when it is in danger of capsizing in turbulent waters, but is otherwise seldom seen. Perhaps it should also be the compass, steering away from trouble. The point is that the board may have to play both roles and should be increasingly prepared to do so. The amount of risk in any corporate action combined with the public’s appetite for spectacle demands well-reasoned and prudent decision making at the board level, now more than ever.
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