Boards of British companies are more concerned about the reputational damage resulting from a scandal than they are about an incident’s direct financial costs, influence on business contracts or impact on share prices.
The study, conducted by the Economist Intelligence Unit (EIU) and published by international law firm Clifford Chance, surveyed 320 board members of companies with over a half-billion dollars in revenue.
UK board members are notably more concerned about damage to their reputation than their global counterparts. 74% listed reputational damage as the most worrying outcome of a scandal, compared to the worldwide average of 57%.
UK executives are so concerned about damage to their brand’s image that 56% of it listed it among the top three risks posed to their company, topped only by financial risks such as funding issues and the breach of financial covenants.
Concern is driving in a boom in risk management investment among these firms, with 82% of board members reporting an increase in spending on risk management over the previous two years and 74% seeing an increase in time invested.
Risk management is also now encompassing new areas, taking in issues around corporate tax and executive pay. 27% of UK respondents are concerned about a scandal arising from their payment, or non-payment, or corporate tax, compared to the global average of 21% and just 10% in the US.
Meanwhile, nearly a third (32%) of UK respondents said the potential for brand damage had led to adjustments in executive remuneration at their firm.
Guy Norman, Global Head of Clifford Chance’s Corporate practice: “With tax and executive pay coming under greater scrutiny amongst press, public and politicians alike, UK boards are smart to take a stance on these issues; while not illegal, they may be considered by many as immoral, causing the kind of reputational damage that can be hard to bounce back from.”
However, two-thirds of executives are worried that an emphasis on risk management is inhibiting business growth.