Reputation risk: it is the board's ultimate responsibility

The purpose of this paper is to outline the major sources of risk to a company's reputation that a board of directors should take responsibility for monitoring.

The paper looks at numerous corporate scandals around the world in the last decade which have highlighted that many boards of directors were unaware of some deep‐seated problems in their companies. Thus, their lack of diligence contributed in part to their company's loss of reputation.

The paper finds that when a board of directors takes formal responsibility for the overall health of its company's reputation, two things generally happen. One is that the various board sub‐committees look for the impact on corporate reputation of their decisions. The other is that corporate reputation becomes a key performance indicator of the company's executive management team.

This paper acts as a “call to arms” to boards of directors to put corporate reputation on the formal corporate governance agenda. The significance of this “signal” is that it notifies all employees of the importance of creating and maintaining a good corporate reputation.