Damage to reputation and brand has been consistently voted as the number one risk in Aon’s Global Risk Management Survey.
In recent years that risk has been amplified by the threat of cyber-attacks and the exposure through social media, creating a potentially unstoppable contagion that can shred an organisation’s reputation, or even end it completely.
With only 15% of the value of the S&P 500 now attributable to tangible assets, intangible assets such as brand are highly valued, and hence coming into greater consideration in terms of their protection.
Speaking as part of a panel session at Aon’s Advanced Risk Conference 2018 in Melbourne, the founding director of advisory firm Pentland Analytics, Dr Deborah Pretty, shared her latest research commissioned by Aon, Reputation Risk in the Cyber Age: The Impact On Shareholder Value. Dr Pretty described how the advent of camera phones, wearable devices and social media had come together to make the spread of news – be it true or otherwise – cheaper, easier and faster than ever before. And that in turn had significant consequences for reputational risk, with the damage to shareholder value from reputation crises now double what was suffered at the start of the century.
While the average long-term impact of crises on shareholder value was shown to be in the single digits, closer analysis revealed two distinct groups of clear ‘winners’ and ‘losers’. While winners would often go on to outperform market expectations by as much as 20% – proving that it is possible to benefit from a crisis – losers would underperform on average up to 30%.
Interestingly, when Dr Pretty compared her research from 2018 with the same research she conducted in 2000, we saw the impact on shareholder value from reputational crises has doubled with the introduction of social media and other technology.
Also clear was how quickly the market was able to make its assessment, the divergence between winners and losers becoming clear in the first few trading days following an event. Dr Pretty said this is because crises prompt intense periods of scrutiny and disclosure for a company, revealing much about the quality of management that simply was not available previously. Investors and analysts then use this new information to re-evaluate their expectations of future cashflow, reflecting their revised confidence in the ability of management to generate value.