Crisis: Why Your Clients Need to Prepare – NOW!

August 26, 2013

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Things go wrong!

A basic premise of humanity is that that we can’t possibly cruise from success to success without hitting a bump along the way. This bump can take many forms but, if it is severe and especially if it is mismanaged, it can test the very foundations that a company or a business is based on.

One of the biggest and most frequently forgotten long-term casualties of a crisis is a company’s corporate reputation. A company’s reputation is hard earned and can take years to build and maintain. However, one slip can have devastating consequences for both the company’s reputation and even its future viability, especially if that company was not prepared for the crisis.

While there are ‘Acts of God’ or similar events that can cause a crisis, the majority of crises are actually created by the activity of the company itself. Despite this, very few companies actually examine the relationship between reputation risk and its corporate strategy. While this relationship is difficult to quantify, the share value can be a useful guide to help analyse and visualise the reaction to a breach in this association.

There have been some spectacular share price reactions to corporate crises including when Toyota announced a major vehicle recall. The impact of this event, which initially gained global publicity via social media, resulted in the share value falling by 30 billion USD over four weeks. The BP share value dropped by over STG£50bn (80 bn USD) following the Deepwater Horizon oil spill, and speculation about the health of Steve Jobs after taking a medical leave of absence knocked STG£5bn (8 bn USD) off the Apple share price.

The common thread between these three disparate examples? They did not effectively manage the communications at the time of the crisis.

Recent research from the international law firm, Freshfields Bruckhaus Deringer, found that behavioural crisis (e.g. money laundering or anti-competitive conduct) has the greatest effect on share price and can cause shares to collapse by 50% or more on the first day. Interestingly, operational crises (e.g. accidents) have the least effect on the immediate share price but have the potential to have the longest lasting effect on shares.

A crisis can be a challenging time for any company, but by preparing in advance and having a robust and tested crisis communications programme in place, a company can mitigate against the possible effects of the impending crisis. A crisis will hit your organisation… it is only a matter of time. Are you prepared?

“A crisis is an opportunity riding the dangerous wind” — Chinese Proverbs quotes