BOARDS BEWARE: REPUTATION HAS FAST BECOME A MATERIAL STRATEGIC RISK
Consider this scenario: You are the independent board chairman of a global automaker that is winding down a recall in multiple countries. The CEO has received considerable praise from shareholders and media for the transparency and operational rigor of the recall process and the favourable terms of customer settlements, both of which have kept the automaker competitive throughout a highly public event. You have just received an email from an internal hacker with verified documentation that three years before the recall was initiated, the human resources department provided the CEO with results of a global compliance survey, which was not shared with the board. Most notably, the data reveals that 40 percent of the workforce would not report wilful misconduct to management, including major quality concerns both in production and sourcing, for fear of reprisal. The hacker is demanding that you fire the CEO in the next 24 hours or this information will be shared with the relevant exchanges and major media.
You have just arranged a special meeting of directors by phone to deal with this explosive risk to the company’s reputation and competitive standing. What does the board do?
This is an increasingly common scenario and mirrors several dicey entanglements involving a CEO and his or her board. In the last year, for instance, the CEO of a leading online travel agency resigned after a hidden affair with an employee triggered a board investigation led by independent directors.
Jul-Sep 2016 Issue