‘Chairman contagion’ highlighted

as growing reputational risk

BY GAVIN HINKS ON MAY 21, 2020

Negative fallout from one organisation can seep into another via
“chairman contagion”, according to a report on reputational
risk.

Image: ImageFlow/Shutterstock

“Chairman contagion”—the process of trouble afflicting a shared chair spreading

from one portfolio company to another—is among the key reputational risks
identified by chief executives and communications specialists in a new report.
In research that ranges across a host of reputational issues faced by companies and
their public relations experts, headhunting firm Cayhill Partners also suggests that
the Covid-19 pandemic has created its own reputational risk and highlighted the
necessity of good communications.

Based on the assumption that reputation is a significant corporate asset—even

though it doesn’t appear on balance sheets—the research examines the way
corporate reputation is managed among FTSE 250 firms.

Among the other results was that almost three-quarters (73%) of communications
leaders believe their chief executive fails to “appreciate” what corporate reputation
management is and the role it plays. That will probably come as no surprise to
many in PR still contending with executives using “old media” command-and-
control thinking in a social media age.

But the report’s listing of “chairman contagion” as a key risk adds a new spin on
the problems face by reputation managers. “The likelihood of reputation damage
from chairmen, CEOs and their leadership teams has increased significantly,” the
report said.

“Their personal standing is now inextricably linked with that of their organisations.
‘Chairman contamination contagion’ is also on the increase amongst companies
that share a chair with another organisations, as negative fallout from one firm can
seep into the other company via association.”

One FTSE 250 chief executive executive told researchers: “The reputation of the
chair, independent directors and the board in general tends to send strong signals
about a reputation.”

Increased scrutiny
These days communications professionals are on alert for the unintended
consequences of a shared leadership figures findings themselves in hot water.

According to Neil Boom, managing director at Gresham PR, a specialist in

financial communications, the old City adage about being “careful with the
company you keep” is more pertinent in an age when bad news can move instantly
through the internet.

And it isn’t just the journalists companies have to worry about. Scrutiny in the
social media age comes from customers, suppliers, staff as well as investors.
“A careless comment by a non-executive chair who sits on more than one board can
inadvertently import trouble to an entirely innocent company who suffers guilt by
association,” said Boom.

“These days customers can start a boycott and demand a head at the drop of a hat. It
may be grossly unfair to the innocent company, but the risks are nonetheless real.”

Among the other reputational risks found to be of concern by Cayhill researchers

are geopolitical issues, among them human rights. One chief executive told
researchers that a potentially lucrative line of business in an emerging market was
abandoned because of the country’s stance on human rights.

“Our guiding compass has to be moral not just financial,” the chief executive said.

Regulation was also identified as a key reputational risk, in particular

environmental, social and governance (ESG) topics. Cayhill noted that investment
funds increasingly look for ESG credentials, as do ratings agencies.

Covid-19: a reputational risk?

While Cayhill’s research took place before the pandemic, they believe Covid-19 is
having an impact on reputation, especially in the way companies manage the
welfare of their staff. Communications staff can play in role in helping chief
executives understand expectations outside their organisations.

“The reputational pivot of ‘people, purpose and values’ has been thrust into the
spotlight by Covid-19.
While some commentators see this signalling the coming of age of the Human
Resources director, it could equally point to enhanced recognition for the
communications leaders,” the report said.

There is broad agreement that Covid-19 may be a game changer in the way many
companies are viewed publicly. In the early stages of the crisis some companies
took a reputational battering as a result of the way they treated employees. Others
benefited after switching their resources to not only supporting staff, but providing
services that contributed to efforts against the virus.

Prof Colin Mayer, a corporate governance expert at Oxford University,

recently told Board Agenda that the pandemic would “fundamentally change”
business.