The Importance of Director Reputation
A new article published in the Harvard Business Review confirms that the preservation of reputation continues to be a significant motivating concern for individual board members. This is a factor that should be taken seriously as boards work to establish a reasonable risk profile for the organization.
The article suggests that directors are more likely to resign their board seats when the corporation—and their governance service—experiences negative attention (e.g., some form of material public corporate controversy, media criticism or investigation). The related suggestion is that a primary motivation for individuals to serve on corporate boards is to build and service their personal reputations. Directors most likely to resign when their reputations are threatened include those who are senior executives at other companies, who serve on several boards, or who have a long board tenure at the particular corporation. (While many nonprofit directors undoubtedly join nonprofit health system boards to support mission goals, preservation of personal reputation is likely a significant consideration for them nevertheless.)
The authors also recommend using board service as a way to help burnish individual reputation and thus enhance engagement; and to recognize how reputation influences the market for director talent.
The potential for reputational risk to board members should be considered in connection with both director recruitment and retention efforts; and also when evaluating the risks associated with corporate strategies. Indeed, in the nonprofit sector, state attorney generals have recently been more willing to incorporate director resignation and a ban on future board service within settlement agreements intended to address allegations of corporate and/or board misconduct.