According to the Aon and Pentland Analytics report Reputation Risk in the Cyber Age, reputation-damaging crises arising from issues like cyberattacks, product recalls and executive misconduct have a direct impact on share prices and that impact has doubled since the introduction of social media.
After examining 125 reputation events from the past decade, they found that neither the size of a company nor the strength of its reputation significantly protected against this loss of value. Rather, the three keys to successful recovery were: instant and global crisis communications, perceptions of honesty and transparency, and taking active social responsibility.
In the immediate aftermath of such a crisis, reputation risk preparedness and management behavior could result in a company adding up to 20% of its value or losing as much as 30%. Indeed, according to 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.”