Michael D. Moberly January 2, 2012
It used to take years of consistent mismanagement to destroy a company. Today, a company’s downward spiral to an ultimate and premature demise can occur almost overnight. It’s not just due to a broader range of global and asymmetric risks and hazards either, e.g., fraud, financial calamities, terrorism, and/or failures in supply chains, etc., that can threaten a company.
Rather, a company’s demise is often linked to the speed which unchecked, dismissed, or overlooked reputational risks can materialize, escalate, and cascade throughout an enterprise and its stakeholders! (Adapted by Michael D. Moberly from remarks of Sir John Bond, Chairman of UK based HSBC)
Risks to business continuity and its underlying intangible assets, particularly brand, reputation, image, and goodwill are rising. In many respects they represent – are reflective of the consequences of a hyper-competitive, aggressively predatorial, and winner-take-all-business environment that is integral to global knowledge-based enterprises that are underwritten by intensive and valuable portfolios of intellectual property and other intangible assets.
One favorable consequence to this, in my view, is that more attention is being directed to the role and fiduciary responsibilities of company boards and c-suites relative to routinely including (addressing) business reputational risks as action items on their agendas, sometimes through ‘risk committees’ and:
- accepting the economic fact that 65+% of most company’s sources of revenue, value, and building blocks for growth evolved directly from intangible assets
- understanding the necessity to sustain control, use, ownership, and monitor the value and materiality of those assets.
An initial step toward achieving these essential responsibilities lies in ensuring c-suites, boards, and management teams regularly receive objective and actionable briefings, absent any ‘personal’ agenda other than providing strategic and tactical insights, perspectives, and guidance about intangibles in advance.
In 2005, Lloyds and The Economist Intelligence Unit collaborated to create a briefing paper (study) titled ‘Taking Risk On Board: How Business Leaders View Risk’. The report:
- described what boards see as their risk-related priorities
- explored the extent to which reputation risk is now a board-level responsibility
- identified what boards should do to implement effective risk management strategies
This report concluded that most boards are taking risk, particularly reputational risk, more seriously, but sometimes in somewhat of a back-handed manner. That is, in many instances, a board’s rationale for doing so is prompted more by the imposition of governance and regulatory mandates and not necessarily by a genuine recognition that their company would benefit from fully integrated (reputational) risk management practices as part of board oversight, stewardship, and decision-making.
Somewhat disconcerting however, was the additional finding that board’s frequently characterized the act of addressing risk in their boardrooms as constituting:
- constraints
- diversion of resources, and/or
- obstacles (impediments) to necessary business risk-taking.
(Perspective and insight for the above was gleaned from – adapted by Mr. Moberly from a 2005 report produced by Lloyds and The Economist Intelligent Unit titled ‘Taking Risk On Board’.)
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