Private Company Boards Step up to the New Reputation Realities
Private company boards have traditionally been seen as “less work” than public company boards. For example, because of their ownership structure, they are not required to meet the same standards on financial disclosures or deal with activist investors. But those differences are quickly eroding.
Nowhere is this more evident than in the stewardship of company reputation.
Take the 2013 Target data breach as a case in point. As the extent of the breach became known, consumer confidence in this public company plummeted. And, you can bet that ALDI, Lidl and Meijer (three privately held retailers) took note and took action in order to avoid Target’s mistakes.
Similarly, when I was with Kraft Foods and U.S. chocolate sales were under pressure as a result of allegations of child labor on cocoa farms, it wasn’t just the public companies (Kraft, Nestle, Hershey, etc.) that joined together to address the situation. Mars, Ferrero, and other private candy purveyors were right there with us.
Why? Because they understood that consumers didn’t care about ownership structures. They cared about being able to buy their favorite chocolate brands guilt-free.
I would argue that any distinctions that previously existed regarding consumer/customer/societal expectations for private versus public companies are gone.
How did we get here? Increased transparency, due in large part to technological advances and the rise of social media, broke down the barriers to accessing information — institutionally and individually. That, coupled with today’s heightened scrutiny over personal and corporate character, has eliminated whatever reputational protection private companies might have previously had. The result: a new reality for private company reputation management.
The first big change this has wrought is the need to recruit directors with new skills and experiences, most obviously in areas like privacy, data security, cybersecurity etc.
As Diana Nelson, the board chair at Carlson — a travel-related company and one of the biggest family-owned businesses in the world — says: “Cyber doesn’t differentiate. We feel the same intense pressure as a public company. So, while there is no ‘perfect protection,’ we’ve ramped up our audit committee to ensure our board is able to help us do everything we can to protect customer data — and to ensure that if something does go wrong, we are prepared to handle it effectively and efficiently in order to maintain customer trust.”
Indeed, the institutional bar for private companies has been raised. And, it’s unlikely that it will be going anywhere but up from here — even more so if that private company is a family business, where the owner’s name is literally on the door, thereby making it near impossible to separate personal from business reputational impacts.
But that’s just half the story. Adding the right skills and experiences to address these new risks is critical but not sufficient. Many companies report, off the record, that they are now also doing much deeper dives into the personal lives of all prospective board members. They’re now asking questions like:
• What organizations does the prospective board member belong to?
• What causes do they support?
• What are their views on key societal issues and where and how do they express them?
• And, of course, how do the answers to these questions relate to the company’s expressed values, cultural and brand proposition?
I consider this heightened attention to board character a good thing — good for consumers, good for society and ultimately good for the companies themselves.
As the Target example demonstrates, any industry can face a crisis of confidence when one of its members makes a critical mistake. But, while it may be a customer acquisition opportunity for some in the short term, it still erodes trust longer-term — in the industry and in business more broadly.
So, more than ever, private companies will benefit by attracting the best outside talent they can to help ensure their boards not only support growth and innovation but also protect and enhance overall reputation — both through their professional expertise and their more personal activities.
Perry Yeatman has been a senior executive in two Fortune 100 companies and a key advisor to business leaders around the world. She is also the co-author of Creating Lives of Impact and Meaning on the Road to the C-suite and a sought-after counselor on corporate reputation.