Navigating a New Wave of Reputational Risks

In the stakeholder economy—to paraphrase the poet John Donne—no corporation is an island.  

Whether private or public, corporations are deeply integrated into society. The decisions they make and the actions they take touch the lives of the people who invest in, buy from, work for, and essentially license their operations—which is to say, almost everyone. In part, this is accelerated by the evolution of modern marketing tactics, the ubiquity of social media, and the growing impact of generative artificial intelligence (AI)—not to mention the spread of mis- and disinformation, which have inserted brands into the social conscience and public dialogue of stakeholders as never before. 

And that means the risks to corporate reputation are everywhere. They grow out of volatile politics, swings in public policy, geopolitical anxiety, economic disruptions, technological transformations, and deeply emotive topics like abortion and immigration. In a sharply polarized society marked by a collapse of trust in government, media, and even what were previously considered the most respected and influential educational institutions, companies and their boards of directors are being called on more and more often to answer to–indeed, even to lead on–issues outside their four walls, whether they want to or not.

And yet, according to PwC’s 2024 Annual Corporate Directors Survey, nearly 6 in 10 directors say that social and public policy subjects never come up in the boardroom.

That’s a problem. Corporate governance requires the ability and willingness to grapple with these topics and how they will undoubtedly intersect with the board’s purview and oversight. And to that end, it requires new reserves of insight, resilience, and agility. Traditional board accountabilities—capital allocation, long-term strategy, risk oversight, compliance, and succession planning—are now simply table stakes. They are necessary but no longer sufficient requirements for managing risks to reputation.

As societal beliefs and expectations more viscerally divide, it’s harder to ensure a positive reputation simply with “good” corporate behavior or doing the “right” thing. In a divided society, the definition of good and the distinction between right and wrong are themselves matters of divisive debate.

We’ve seen this coming. In 2022, an NACD report described the “tipping point” in the rise of CEO activism resulting from the COVID-19 pandemic, George Floyd’s murder, the Black Lives Matter movement, gun violence, rising urgency to address climate change, and the Supreme Court’s ruling overturning Roe vs. Wade. In response, companies followed each other in a wave of progressive corporate positioning.

Three years on, many of those same companies, CEOs, and their boards are under attack. Critics decry, for example, “woke” DE&I policies and “wasteful” investments in climate mitigation, and no target is too large to be able to resist making changes, including Walmart.

In this fraught reputational environment, criticism can get personal. Individual board members have been targeted in proxy campaigns by shareholder activists leveraging the universal proxy card, by ideologues on social media, and even by elected politicians. President Donald Trump himself has been public and personal in his barbed criticism of business leaders and companies.

Directors might be forgiven for believing that they did not sign up to be public targets in the culture wars, but that is now an occupational hazard.

The risks are especially acute for public boards, but private company directors who might have thought they were immune to such scrutiny are finding that these controversies have found a path into their boardrooms as well.

The complexity of the reputational landscape demands more expansive and responsive corporate governance. Boards must be even more solidly grounded in the firm’s mission, purpose, and values–what the company stands for, and how that is integral to its current and future business. They will also need to assess carefully the “soft skills” of senior management candidates—political acumen, social insight, emotional intelligence, and personal resilience. And they will need to consider more robust ways to integrate reputational oversight into their enterprise risk management program.

Key Projections for 2025

As the next US administration and incoming Congress will bring a significant shift in government priorities and actions, some facts of corporate life in 2025 are already clear:

Extreme political divisions will persist, with business caught in the middle. Moving beyond the election results, Americans remain divided on hot-button issues, and polarization seems here to stay. A recent poll conducted by Johns Hopkins researchers showed that one in five partisan voters believe that their opponents are “downright evil.” The Washington Post has called polarization our new “default setting.”

In a Conference Board survey early in 2023, 89 percent of government relations executives and chief legal officers reported concerns about polarization and extremism among policymakers. They note that anti-corporate rhetoric and government favoritism is leading to large swings in policy, the use of government power to punish companies, and intensifying rhetoric from special interests. Forty-two percent of respondents expected it to get worse in the next three years. Their concerns have proved prescient.

Management teams will necessarily turn to their boards to seek the direction, support, and experience needed to help navigate this landscape.

Boards of directors, including individual members, will become lightning rods for social issues. The universal proxy card has created a new avenue for activist shareholders, dissidents, and even proxy advisors to identify vulnerable candidates for board refreshment. Grounds for attack can include not just the performance and qualifications of individual board members, but also their actual or perceived positions on a range of issues, or their personal characteristics and affiliations.

And social media campaigners demanding changes in company policies—for example, on DE&I—have learned that targeting a company’s board members or its executives by name on its own or as part of a more comprehensive outreach strategy can quickly result in the company walking those policies back.

Mis- and disinformation will complicate the task of protecting corporate reputation. A shared understanding of facts is now often missing in the competition for stakeholder hearts and minds—thanks partly to the self-reinforcing logic of social media algorithms, partly to partisan passions, and partly to the spread of “alternative facts” and deepfakes. Boards seeking to understand what stakeholders really think and how best to engage with them will need to contend with imprecise, conflicting, and often just flat-out wrong data. For example, the noisy, seemingly widespread social media backlash against corporations’ DE&I policies obscures the broad public and employee support for diversity and inclusion in the workplace.

As part of overseeing reputational risks, boards will need to pressure test management’s ability to detect and defend against misinformation and targeted disinformation.

Strategic and technical risks to reputation will continue to proliferate. A board member of a typical public company today must be conversant on a lengthening list of regulatory, technological, legal, and social topics—all of which have the potential to provoke controversy and invite reputational risk.

How companies and their board members address these issues will be closely scrutinized and critiqued. They may need access to expert, trustworthy, and objective advice across multiple domains in order to inform their own risk assessments and to judge management on theirs.

Culture change starts at home. A corporation’s brand and reputation manifests from the inside out. How external stakeholders view a company begins with how employees see it. The year 2025 will bring accelerating transformation in the workforce, with culture change driven by generational turnover, new communications and information technologies, and the push and pull over working practices—for example, remote work policies and ongoing unionization efforts.

All of this is further compounded by the complexities of labor dynamics in key sectors across the United States and other jurisdictions, including challenges in acquiring and retaining talent such as data scientists and technologists. Maintaining a culture that reflects the company’s brand and purpose in support of its business objectives is a management responsibility that the board must track and monitor.

The familiar truism that “culture eats strategy for breakfast” means that boards will need to be alert to the impact of these internal changes on how the organization operates and what risks these changes could bring to the reputation of the company, its management, and ultimately, the board itself.

Questions Directors Can Ask

• Does the board have an aligned view on all the elements of reputation—including how the company lives its values, strategy, operations, and policies and what position it takes on the most critical stakeholder issues? Do the board and the management team have consensus on these topics, or are there gaps? Boards can consider a facilitated, in-depth review of reputational risks and considerations, not only to anticipate potential stakeholder concerns but also to identify early where there may be differing views within the board itself. These factors can also be included in deliberations on corporate strategy. 
• Does the board have systematic processes and protocols for anticipating, identifying, and assessing reputational risks and issues? Companies should have clear mechanisms, similar to ethics and compliance hotlines, for identifying and escalating such risks to ensure that they are brought to the board’s attention in a timely fashion. A periodic review of the external issues landscape—supported with briefings by outside experts—can help the board identify and prepare for emerging trends. And scenario planning can help ensure that the board remains resilient in the face of a range of potential reputational developments while deflecting the risk of reputational flashpoints.
• Does the board maintain—and utilize—channels for engaging a range of stakeholders directly for a clear “read” of their expectations, concerns, perceptions, and beliefs? Hearing directly from outside thought leaders and influencers—especially critics—can enrich the board’s understanding of stakeholder points of view and expectations, and hone their ability to sense an emerging concern or change in direction. What’s more, building mutually respectful relationships with potential critics “in peacetime” can help mitigate strident public attacks when divisive issues erupt.
• Does the board have a consensus on what its role should be in reputation-defining situations, and does it have a playbook for addressing reputational issues early? A process for engaging with a cross-functional group of management in a timely fashion with the appropriate balance of support, challenging questions, and directive recommendations can build resilience in the face of emerging issues and in extended reputational challenges.

A seat on a corporate board can be one of the most rewarding and meaningful opportunities for senior business leaders to make an impact. It offers a platform for helping shape and guide a business and its role in society. Now more than ever, however, those rewards come with the pressure and challenge of navigating reputational risks both within and outside the four walls of the company.