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Harassment and Reputation Risk

risk-against-compass-arrowAfter many months of data breach disclosures and sexual harassment scandals, of frustration about perceived pay inequality and insular boardrooms, the largest financial institutions in the world have finally had enough. Larry Fink, CEO of BlackRock, fired the first warning shot this year, when in January he issued his annual letter to CEOs, titled “A Sense of Purpose.” In the letter, Fink asked public companies not only to deliver increasing returns but to demonstrate how they make a “positive contribution to society.” And in March, the Council of Institutional Investors (CII), which represents 130 pension funds managing more than $3.5 trillion in assets, called for corporate boards to adopt stricter guidelines for executives violating sexual harassment codes.

At first glance, Fink’s call for corporations to display a global purpose and the CII’s recommendations on board oversight might not appear to be related. But in investors’ minds, they represent risks that stem from the same source: a corporate culture lacking in oversight and integrity. What investors are telling companies is that having sound company values matters, because it can prevent these risks from becoming reputation-damaging and value-killing crises.

How do you create the type of culture investors are seeking? And how do you communicate the positive aspects of the work environment in a manner that gives the investment community comfort about potential risks? Here are four tips to get you started.

  • Create an active and engaged board. Perhaps the most common criticism of Equifax, Uber, Weinstein Co., Wells Fargo, Wynn Resorts and others is that their boards were not aware of the environment that enabled the respective crises. They were oblivious to the warning signs – and in all likelihood, there were signs. To combat this problem, encourage board members not just to attend sanctioned board activities, such as meetings and dinners, but to visit job sites and corporate offices. Have them talk to employees at least one level down from management, so they can get to know more about the corporate culture. This understanding will allow directors to develop their own views and not simply rely on the management team’s interpretations. The goal is to create a basis on which board members can hold management accountable. On the organizational level, provide members with insight between board meetings, such as brief updates on company initiatives. Board members should be engaged regularly through meetings, emails and telephone calls, and this engagement must highlight industry news, business challenges and organizational successes.
  • Provide targeted board training that addresses potential risks. Many companies give board members an onboarding orientation yet never revisit the training, or provide only annual updates. The best organizations do more. Creating a high-performing board requires having a clear set of expectations that can be shared with prospective candidates, as well as existing directors. The most qualified directors will want to know your specific expectations for their performance, so capitalize on this by offering advanced training on corporate behaviors that may signal cultural red flags. By teaching directors how to spot bad behaviors, they will be better equipped to provide the accountability investors are clamoring for.
  • Execute your plan. Fink’s letter to CEOs indicates that BlackRock expects corporate issuers to demonstrate their social purpose, not merely discuss it. Likewise, investors will want to know how companies are preventing potential harassment lawsuits or data breaches, among other crisis risks. For example, in the CII report, the group of investors said, “Healthy companies have clear and consistent policies, open lines of communication for employees to report bad behavior and established methods of responding.” Such activities may include anti-harassment policies or reporting protocols, results of internal culture audits, and legitimate social programs or volunteering activities in which employees are involved.
  • Communicate your progress. Once you determine an action plan for protecting the company from potential risks, you need to proactively communicate both the plan – and subsequent plan activities – externally. Do not wait for a crisis to publicly inform investors of your policies, procedures and actions. Instead, consider describing the plan and related activities in the annual proxy filing. You also may post relevant policies to your investor relations website and create a Community or Culture section of the IR site in which you describe the company’s culture and plan activities for easy investor access.

This cannot be emphasized enough: The largest institutions in the world are focused on corporate culture. They want to invest in companies that have a policy and are very public in how they address cultural-spawning risks. Gone are the days when positive financial results smoothed over management impropriety or employee malfeasance. This is a new era, in which the most favored companies will demonstrate long-term financial health combined with beneficial company values that inform corporate action. By doing the work to shore up your corporate culture now, you will both mitigate potential risk and improve your standing with the investment community.

To discuss steps your company can take to address culture-related risk, please contact Maureen Wolff at Sharon Merrill Associates at mwolff@investorrelations.com.

Maureen Wolff is CEO at Sharon Merrill Associates. She is a National Investor Relations Institute Fellow, Former Chairman, Senior Roundtable Member and Honorary NIRI Boston Director. She is a trusted advisor to CEOs, CFOs and boards of directors on critical communications issues, including corporate governance, shareholder engagement and activism, CEO succession planning and disclosure issues.

Strategic Messaging, Corporate Governance, Board of Directors, Reputation Management, Investor Relations, Corporate Communications, crisis communication plan, crisis preparation, Culture risk

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