PITTSBURGH--(EON: Enhanced Online News)--Losses linked to reputational damage at public companies have increased by 461% over the past five years, according to new research conducted by Steel City Re in partnership with Hanover Stone Partners, which finds that a large spike in anger among the general public, along with the weaponization of social media, are among the primary causes.
“In a world of emerging risks, hyper-transparency, and reduced stakeholder tolerances, organizations that have implemented strong governance practices, superior controls and effective signaling strategies will see their directors and officers fair far better in the courts of law.”
Steel City Re, which offers proprietary solutions for protecting companies, officers and directors against reputational risk, conducted an actuarially sound analysis of reputation-related losses for approximately 7,500 companies over the five-year period from 2011 to 2016. That analysis included more than 60 million data points.
Among its finding were that:
- Losses experienced due to reputational issues directly correlate to increases in generalized public anger as demonstrated by angry posts on social media;
- Social media has become weaponized as a result of its speed and penetration, combined with the heightened level of generalized societal anger seeking outlets on which to vent;
- Outsized expectations by investors about corporate performance have created increased vulnerability and potential for losses when companies are attacked;
- Corporate directors and executives are personally at greater risk than ever before when detractors swarm and seek vulnerable targets.
A white paper published by Steel City Re and Hanover Stone, which is available here, describes the cost of reputational damage and tracks the frequency and severity of reputational events since 2011. It also charts expressions of public anger on social media and correlates them against the prevalence of corporate attacks.
Dr. Nir Kossovsky, CEO of Steel City Re, said: “In a world where anger, false news and unrealistic expectations all battle with truth for the minds of stakeholders, companies need a strategy for defending themselves before negative tweets and rumors start to circulate. Anger directed at companies is being personalized, placing directors and executives at greater risk than ever before. Companies need to communicate the quality of their governance with tools that insulate their brands and their leadership teams before damaging insinuations, moves by activist investors, and potential governmental involvement erode stakeholder confidence and depress share price.”
John J. Kelly, Founder and Managing Partner of Hanover Stone, which helps companies implement governance and risk best practices, said: “In a world of emerging risks, hyper-transparency, and reduced stakeholder tolerances, organizations that have implemented strong governance practices, superior controls and effective signaling strategies will see their directors and officers fair far better in the courts of law.”