The age of technology has worsened the financial impact of reputational hits on share prices
It’s easier than ever for companies’ fortunes to turn on a piece of bad news, according to a new report.
Conducted by Pentland Analytics with Aon plc, the 2018 Reputation Risk in the Cyber Age study looked at 125 reputation events that occurred over the last decade and their impact on shareholder value over the course of the following year.
The study found that since the introduction of social media, the negative effect of reputation events on stock prices has doubled. Cyber attacks have also become a major reputational risk; among all the reputational events documented in the study, 23 involved cyber attacks.
“New technologies continue to emerge, such as robotics, artificial intelligence and bionics, all requiring constant vigilance,” said Dr. Deborah Pretty, founding director of Pentland Analytics. “Technological developments have heightened reputation risk by making it easier, cheaper and faster for people to spread news.”
Even more concerning for companies, the size of an organization and strength of its reputation did little to soften the blow of shareholder panic triggered by information spread on the internet and over social media. But an organization’s response in the immediate aftermath of a crisis could make a difference; the report found that companies could add 20% of value or lose up to 30% of value, depending on their reputation risk preparedness and management behaviour.
Three factors were found to drive a company’s successful recovery from a reputation event:
- Instant and global crisis communications;
- Perceptions of honesty and transparency; and
- Active, social responsibility