Poll Finds Directors Increasingly Worried About Reputational Risk

More CEOs are speaking out on political and social issues than ever before, but directors are worried about the potential impacts; boardroom fears about reputation are growing.

With the numbers of CEOs taking to the podium to speak on issues unrelated to corporate performance doubling in recent years, directors say they are increasingly concerned with having to monitor reputational risk among key stakeholders, according to a new survey by Corporate Board Member and Diligent Institute.

In the poll, conducted February 21-24, 2021, 54 percent of directors said their CEO had made a public statement to address social or political events occurring in 2020—more than double the rate we found four years ago.

In September2017, Corporate Board Member surveyed nearly 500 public company directors and found only a quarter of board members saying their CEO had issued a public statement on matters of politics or a social issue.

The numbers reflect the tumultuous year we just traveled though, a year in which many CEOs felt compelled to speak out—especially in the wake of George Floyd’s murder. But even if there is a growing desire among many consumers—especially younger ones—for corporate leaders to speak out, directors are not all enthusiastic about the idea. Only 16 percent of the directors we surveyed said they’d encourage their CEO to speak publicly “on any issue he or she deems appropriate.”

Still, a full 42 percent said they would encourage the CEO to speak out, but only “to the extent that the issue relates to the company’s mission or values”.

Some 32 percent said CEOs should remain silent on social issues because “companies represent all stakeholders and should therefore remain neutral on these issues,” and 15 percent didn’t want the CEO speaking out because of the potential for harming the company’s reputation.

As you’d expect, the proportion of directors tracking CEO statements has grown sharply over the past four years. In 2017, 20 percent of those we polled were unaware whether their CEO had taken a public stance on a social or political issue—compared to just 5 percent today.

“Controversial or political statements, unless in line with the company’s mission, should be held to a minimum,” said William Dawson, a director on the board of California-based B2B rental company McGrath RentCorp., echoing the sentiments of many of the directors we surveyed.

Keeping a Closer Watch

Those numbers come amid a surging focus among directors on protecting the company’s reputation—no surprise, given the politically divisive and turbulent period, as well as the rising influence of social media, proxy advisory firms and the growing demands of institutional investors — especially on ESG issues.

Overall, 57 percent of directors we surveyed say they are more concerned about reputational risk today than they had been in prior years. When asked how closely they monitor the company’s reputation, directors on average ranked it an 8 out of 10 on our 10-point scale, or “very closely” according to our 2021 survey scale.

“Greater attention from institutional shareholders has the board’s attention,” says Gary LeDonne, director at MVB Financial Corp. and executive in residence at West Virginia University College of Business and Economics.

“The stakeholders are watching closely how we cope with the pandemic and deliver on business objectives,” said the lead director of a consumer discretionary company.

The lead director of a REIT said this can also be attributed to the fact that the “role of ISS and Glass Lewis and activist shareholders has grown significantly,” which can help explain why, in his view, the board’s attention to these matters is now significantly greater.

To learn more about this study and our findings, contact Research@ChiefExecutive.net.

About the Director Confidence Index

The Director Confidence Index is a quarterly survey of public company board members on the state of the overall economy, the outlook for corporate finances and other topical issues impacting public companies. Conducted in collaboration between Corporate Board Member and Diligent Institute, the Index benchmarks confidence among the governance community and is a forward-looking indicator of market movements and corporate strategies. The January survey was fielded from January 13 through 21, 2021.

About Corporate Board Member

Corporate Board Member, a division of Chief Executive Group, has been the market leader in board education for 20 years. The quarterly publication provides public company board members, CEOs, general counsel and corporate secretaries decision-making tools to address the wide range of corporate governance, risk oversight and shareholder engagement issues facing their boards. Corporate Board Member further extends its thought leadership through online resources, webinars, timely research, conferences and peer-driven roundtables. The company maintains the most comprehensive database of directors and officers of publicly traded companies listed with NYSE, NYSE Amex and Nasdaq. Learn more at BoardMember.com.

About the Diligent Institute

Diligent Institute is the corporate governance research arm and think tank of Diligent Corporation. The Institute produces publicly available cutting-edge research on corporate governance practices by directors, for directors, with a global perspective. Learn more at diligeninstitute.com.

 

Corporate Board Member, a division of Chief Executive Group, LLC, takes nearly 20 years of corporate governance knowledge and provides today’s corporate leaders with the resources they need to add value to the boardroom and beyond. Diligent Institute is the corporate governance research arm and think tank of Diligent Corporation. The Institute produces publicly available cutting-edge research on corporate governance practices by directors, for directors, with a global perspective. Learn more at diligeninstitute.com.