According to Aon’s 2019 Global Risk Management Survey (GRMS), organisations, industries and economies around the world are confronting more risks than ever before. Considering this landscape, it’s troubling that many organisations surveyed in 2019 GRMS said that they may be less prepared than they’ve ever been before. A key insight from Aon’s 2019 GRMS is that organisations need to be more prepared than ever for the broad range of risks that threaten their ability to protect their brand, clients and stakeholders. Significantly, the risk that generates the most concern amongst business leaders in Australia is damage to reputation and brand.
For 2019, damage to reputation and brand remains the top risk in Asia Pacific and the second highest risk in North America. Ominously, this is a fact that may shortly change. Each year Aon offers Global Risk Management Survey respondents the chance to assess their future risk landscape and project the top five risks that their organisations will face in three years’ time. For 2022, there is one drop that might be considered surprising. Damage to reputation and brand, which has consistently maintained its high rankings in past surveys, is predicted to fall to number 10 globally.
Speaking as part of a panel session at Aon’s 2019 Insights Series conference in Melbourne, John Borghetti AO, company director and former CEO, Virgin Australia; Nathan Birch, CEO, Interbrand; and Laurie Joyce, Senior IT Security and Compliance Manager, Australian Red Cross Blood Service, discussed how in a market where levers like product and price are less effective, there is an emboldened emphasis on brand and brand experience.
During the session, Nathan Birch defined an organisation’s brand as a strategic asset that must be treated as a long-term business goal and discussed the process of brand building through engaging directly with stakeholders to create brand recognition and trust.
Whether it is the threat of cyber-attacks or a major project failure, the prevalence of social media and the 24/7 news cycle has the potential to create rapid contagion, which can have an immediate and lasting impact on an organisation’s shareholder value and reputation. Due to the intangible and uninsurable nature of this risk, companies tend to underrate it. However, Pentland Analytics’ reputational risk research shows a direct correlation between a hit to a company’s reputation and shareholder valuei. While brand and reputation can be considered intangible, a reputational crisis can have a substantial impact on a company’s financial future.
Examples given throughout the panel discussion made evident that there is a direct correlation between the impact and nature of how a crisis has been handled and the resulting movements of company share price. They noted that a company’s positive handling of a crisis can often lead to a 10% increase in share price. In Samsung’s case, a year after they recalled 2.5 million Galaxy Note 7 devices their shareholder value increased by over 20%. Samsung was decisive and transparent. They outlined the issue, halted production of the flawed device permanently and announced a global responseii.
Conversely, a poorly handled crisis can see a significant depreciation in share value. The panel gave the example of Volkswagen’s emissions software scandal. Stories of Volkswagen obstructing official investigations filled the headlines as internal files and emails were allegedly destroyed or withheld from regulators. A year after the incident Volkswagen had lost approximately 25% of its pre-crisis value. When a company’s apparent intention has been to deceive, any perceived opacity in the response will only make matters worseii.
Pentland Analytics’ research
also shows that the widespread use of social media has doubled the impact on shareholder value from 2000 to 2018i.
In the instance that the crisis is a cyber-attack, the ramifications are even greater.
In 2015 when TalkTalk, a UK telecommunications company, found themselves victim to a cyber-attack, they responded immediately. The day after the attack they announced that there was a chance that the personal data of over 4 million customers had been compromised. The story spread quickly on social media. However, it was later determined that only 150,000 customers had been hacked. While well-intentioned and immediate, the company’s response grossly overstated the threat and thus became a hot-button issue on social media. Following the attack TalkTalk lost over 100,000 customers and by the end of the post-crisis year one third of company value had been lostii.
To end the session, the panel spoke to the important of owning crises, and a business environment where reputation management increasingly looks to strong community management, both online and offline. The panellists discussed that when brands manage the share of conversation, and issue strong and factual statements that bring their community on a journey, the community is informed enough to self-manage.
They panellists referred back to their belief in regular crisis training simulations and the way that creating regular value exchanges with clients and customers will build a brand that can bounce back from potentially damaging scenarios. The panellists also delved into the importance of brand preservation through business continuity planning.
The key takeaway from the panellists in this session was that, in a digital age that is always on, it is imperative that organisations deliver on preparedness, leadership, communication, action and change in order to manage reputational crises that arise. Strong and successful brand reputation management is crucial to a company’s ability to pull through a crisis, and can be achieved through building recognition, trust and engagement with both clients and customers.
The views and opinions expressed in this blog are those of the author(s) and do not necessarily reflect that of Aon. We make no representations (express or implied) as to accuracy, completeness, correctness or validity of any information in this blog and accept no responsibility or liability for any errors, omissions or misstatements of whatever nature and however caused.
ii Report: Reputation Risk in the Cyber Age: The Impact on Shareholder Value https://www.aon.com/getmedia/2882e8b3-2aa0-4726-9efa-005af9176496/Aon-Pentland-Analytics-Reputation-Report-2018-07-18.pdf