Reputation events such as cyber attacks have a direct impact on share price, according to the findings of a new report released by Pentland Analytics with Aon plc.
The report looked at 125 reputation events during the last decade, measuring the impact on shareholder value over the course of the following year. The report found that since the introduction of social media, the impact of reputation events on stock prices has doubled. In the wake of a crisis, the size of a company and the strength of its reputation did little to protect against the loss of value.
“Although risk management awareness and tools have evolved, reputation risk continues to weigh on corporate executives as one of their leading concerns,” said Randy Nornes, enterprise client leader at Aon. “Savvy companies that develop and use a robust risk management framework can not only better navigate reputation events but can often see a net gain in value post-event.”
At times of crisis, investors often use information about a company shared on social media to reassess their expectations of future cash flow, which can positively or negatively impact a company's share price. Report findings showed that companies could add 20 percent of value or lose up to 30 percent of value depending on their reputation risk preparedness and management behavior in the immediate aftermath of a crisis.
The study identified key drivers of successful recovery from a reputation event, including:
- Crisis communications must be instant and global;
- Perceptions of honesty and transparency are essential; and
- Active, social responsibility is critical.
“New technologies continue to emerge, such as robotics, artificial intelligence, and bionics, all requiring constant vigilance,” added 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.”