According to a study from Steel City Re, companies may see a significant increase in financial losses stemming from corporate reputation crises this year, potentially doubling those from 2017. Last year, the firm’s research showed a 461% increase in corporate reputation-related losses during the five years leading up to and ending in 2016.
While the type and frequency of reputation crises certainly did not decrease in 2017, the financial impact was not as large as expected. Instead, the rising stock market “disguised weaknesses and allowed gains to occur even at beleaguered companies,” Steel City Re asserted, citing the example of Wells Fargo, which experienced massive reputation crises and underperformed industry peers but still saw a market cap rise, “temporarily quelling stakeholder anger and reducing the severity of losses one might otherwise expect.”
As the market corrects, the firm expects companies that fail to manage their reputation risk will experience significantly more blowback, including public outrage, financial losses and attacks from activist investors.