The following guest article, by crisis consultant Tony Jacques, puts some hard figures behind the constant warnings us crisis managers give to plan for and protect against reputation damage.
When Share Price Puts a Value on Brand Reputation
Share price might not be everything – but for many organizations there is nothing but daylight way back to whatever is coming second.
Yet new research shows decision makers at many companies don’t seem to be focused on branding issues and threats, and the impact those threats can have on reputation and share value.
Polling conducted with more than 1,100 executives around the USA by Deloitte revealed that a scant 24% of the companies formally measure and report on brand value. Moreover, fewer than 22% thought it was likely that negative information about their brand would show up on social media such as Twitter, Facebook or YouTube in the coming year. (Some hope!)
At the same time, a fresh study has reinforced the impact of a crisis on share price and reputation. Statistical analysis of ten corporate crises in South Africa* found that the greater the speed and number of positive steps taken in the two weeks after a crisis, the less the company share price fell. It also found that the more the company share price increased six months after the crisis, the greater the perception of its corporate reputation and brand strength.
Cause and effect is sometimes hard to assess when it comes to the share market, but the cost of mismanagement can be brutal. For example, Google has long been one of the world’s most valuable brands (ranked fourth in the latest Interbrand rankings), and earlier this year new CEO Larry Page was expected to explain to an analyst’s conference why quarterly revenue was well under forecast. Instead the CEO spoke less than 400 words of general optimism, then signed off. Wall Street hammered the stock, wiping $US15 billion off the value of Google in a single day.
Plenty of other high profile company brands have also suffered the awful impact of real world events on the slightly unreal world of stock market value.
- After an adverse review of iPhone 4, Apple shares lost $US5.08 bn in one day
- Following failure to cap its Gulf of Mexico oil well, BP shares lost £12 bn in one day
- When Goldman Sachs was accused of fraud, its shares lost $US12.4 bn in just one afternoon and $US20 bn in a week
- After Toyota announced a major vehicle recall, the carmaker’s shares on Tokyo Exchange fell $US30 bn over four weeks
- UBS disclosed a $2.3 billion rogue trading scandal in September and their shares fell about $4 bn in one day and the Chairman resigned a week later
As the Deloitte report concluded, very few companies proactively manage the link between reputation risk and company strategy, and it’s a role which should be led by senior executive management, not delegated to public relations or marketing. Share price might not be everything, but raw numbers such as shown here are a stark reminder that proactive risk management for crisis prevention and reputation protection isn’t a cost – it’s an investment in the future.
FOOTNOTE: Late in 2010, Business Insider graphed the share impact of 12 PR crises, some contemporary, some classic. The results are very sobering.
*Source: Coldwell and Joosub, African Journal of Business Management. 5(24), 14 October, 2011
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For more resources, see the Free Management Library topic: Crisis Management
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Tony Jacques is Director of Issue Outcomes, a full-service crisis management firm.
Jonathan L. Bernstein, president of Bernstein Crisis Management, Inc. has more than 25 years of experience in all aspects of crisis management – crisis response, vulnerability assessment, planning, training and simulations.
Erik Bernstein is vice president of Bernstein Crisis Management. Erik started with BCM in 2009 as a writer and subsequently became social media manager for the consultancy itself as well as for a number of BCM clients before moving to the VP position.