The cost of mishandling a crisis is high – and getting higher!

     

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Let’s give you even more arguments for why an updated crisis plan must be one of your organization’s budget priorities for 2019.

In our previous blog, we looked at the terrifying examples of Wells Fargo and Papa John’s. Two brands which, until recently, had enjoyed robust, positive reputations, but when confronted by adverse events and criticism, reacted badly and ignored best practices.

Lots of bad things have happened to both brands as a result of their calamitous crisis management – they both replaced their CEOs, for one thing.

But let’s take a closer look at one specific outcome, the stock price.

On July 25th of this year, CNBC reported that Papa John’s stock price had fallen more than 33 percent since November the previous year, when CEO John Schnatter began the firestorm by criticizing the NFL for not responding more aggressively to players who were kneeling during the national anthem.

Wells Fargo’s ‘fake account’ scandal first became visible on September 8th, 2016, with news of a $185m fine.

That began a stock price slide, which accelerated when a Federal investigation was announced on the 14th. By September 26th, the stock was at a six-month low, with 10% of Wells Fargo’s valuation having been wiped out.

These were not one-off events.

A recent study revealed that the adverse impact of reputation crises on stock prices is getting worse in the age of digital media. It looked at 125 reputation events in the past decade, measuring the impact on shareholder value over the following year.

One of the study’s sponsors, Aon, wanted to look more closely at how reputation risk has amplified in the age of instant communication and connectivity as reputation risk has consistently occupied one of the top spots in another of its surveys, the Global Risk Management Survey.

What the new study discovered was that the impact of reputation events on stock prices has DOUBLED in the digital age!

And the size of the company and the strength of its previous reputation provided little protection.

In a news release, the enterprise client leader at AON, Randy Nornes, underlined what will protect organizations from adverse consequences:

“Savvy companies that develop and use a robust risk management framework can not only navigate reputation events but often see a net gain in value post-event.”

The report found that companies could ADD 20% of value or LOSE up to 30% of value depending on their reputation risk preparedness and the management behavior in the immediate aftermath of a crisis.

Are you having troubles convincing people that NOW is the time to invest in updating your own organization’s crisis preparedness plans?

These could be the shocking numbers that convince them to fund a crisis plan project in 2019!

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About The Author

Mike Hatcliffe is founder and president of The Hatcliffe Group, a reputation, issues and crisis consultancy. Previously, Mike spent nearly 25 years with two of the world's leading PR agencies. Most recently, he spent 10 years at Ogilvy, as managing director of its US corporate practice, and before that 14 years with Ketchum in both the US and the UK. Mike has worked on crisis and reputation assignments with a range of blue chip companies, leaders in their fields, including LG Electronics, Wells Fargo, Carlsberg, Zebra Technologies, CDW, Quintiles, Rockwell Automation, Unilever, Pepsico, Deloitte, Grant Thornton and HSBC.