While attending the Responsible Business Summit last week in New York, I came across this interesting weekly publication called Agenda (http://www.agendaweek.com) which ran a very intersting article on why the CEO’s personal conduct is a board matter.
The article highlights the work of Jonathan Low from Predictive Consulting (which specializes in measuring the financial impact of intangibles such as reputation) which has conducted research that suggests that a CEO’s reputation accounts for about 40% of a company’s overall reputation value.
The article is written by Nir Kossovky, CEO and director of Steel City Re, the reputation insurance intermediary. He highlights that they have “applied an actuarial reputation-at-risk formula to Low’s results and found that the CEO’s behavior can move a company’s market capitization by a much as 6%. That impact explains why two thirds of corporate directors in a recent survey from the accounting firm EisnerAmper stated that reputational risk is the second-most impotant risk to them after financial risk.”
I would suggest that most financial analysts would agree with the above noted, however until now, we’ve had very little tools and research to confirm these reseach results. It also confirms the growing need for financial analysts to look beyond just financial risks and opportunities!