The Intersection of Risk, Culture and Crisis and at What Price
Published: February 20, 2023
Read Time: 5 minutes
Much is said and written about personal, brand and company reputations, but when all is said and done reputation rests on three pillars: context, stakeholders, and culture.
Context because what happens around a business from a government, social, environment and economic perspective dictates the level of risk associated with your operations and your business decisions.
What was right or acceptable 20 years ago may not be right today. What is right according to the letter of the law may not be perceived as right by the society in which you operate.
And, if you aren’t engaging with stakeholders, listening to them, tapping into their zeitgeist then you are also incrementally increasing your risks.
You can have the best reputation management practices in the world but if your culture doesn’t align with your values or purpose, you dramatically increase your organisation’s risk exposure. Almost every crisis in which I have been involved, and most I’ve read about, stem from poor culture.
The mark of culture is often defined by the smallest behaviours management is prepared to accept. Get it wrong and you could end up in a crisis which not only costs money but they also scar, if not permanently damage, brand and sometimes personal reputations.
What is the cost of a crisis?
We wanted to find out how much a crisis does cost so we analysed 30 globally listed companies who had suffered a crisis.
The study, Crisis Value Erosion v2, included crises suffered by companies listed on stock exchanges around the world with some experiencing a crisis going as far back as the 1980s.
What we found was:
Companies suffered a share price drop between 2.1% to 50.4%.
The average days to share price recovery (considering normalised performance across five similar sector stocks) was 147 days.
Companies suffered; on average an EPS drop of 77%.
The sectors most impacted by share price drops were the mining and minerals, and the entertainment sectors (37.5% and (31%) respectively.
The category of crisis experiencing the biggest impact was environmental damage (with an average share price drop of 35.1%) and crises where human casualties were suffered (an average share price drop of 24.4%).
Those companies with the largest share price impact took the longest time to recover to pre-crisis share prices.
Culture and its role in a crisis
Most of these crises could be attributed to culture. Specifically, they could be attributed to one or more of the following: an imbalanced focus on shareholder value versus the customer or other stakeholders, poor governance, under-reporting, under-staffing, unrealistic deadlines, poor training and staff development, a lack of accountability and measurement, and management style.
The mark of culture is defined by the smallest behaviours management is prepared to accept. Misjudgement or mismanagement in this regard can land them in a crisis.
It costs money, and damages reputation equity which, according to studies, accounts for a large portion of an organisation’s intangible asset value; a Cap Gemini EY study in 2003 found 80%-85% of market value of S&P 500 comprises intangible value.
While corporate culture is being tested in new ways during the pandemic, a much larger culture test awaits as companies consider the behavioural trade-offs required for a quick recovery and quick returns.
Corporate behaviour and, by implication, culture will be severely challenged and with it looms reputational risks. In the interim, management’s challenge is how tightly they manage the behaviours that shape their culture and how closely it aligns with the values and purpose of the organisation now and into the future.
A strong culture is a powerful differentiator, it’s difficult for competitors to replicate, it’s one of the best magnets for new talent and a great retention strategy for existing employees, and it is ultimately very attractive for suppliers and customers alike. But businesses need to act now to make sure the culture it creates reinforces and rewards behaviour that begets their best reputation post pandemic.
The companies who get this right will end up with the most powerful risk and reputation shield.
Decades of crisis experience has taught us the following:
- Use your values, vision or mission statement to guide your decisions.
- Honesty, transparency and a willingness to communicate quickly should underpin your approach.
- Prepare prior to the crisis i.e. have a crisis plan, make sure you have initiated and approved messaging, have a crisis comms team in place with clear responsibilities, and make sure you have conducted a number of crisis simulations with that team so they know what to do.
- Empathy is critical if the situation requires it – your audience will judge you on how you respond as much as what you say and how you say it. A lack of empathy can quickly see you cast as the villain.
- An apology does not make you legally liable. If you need to apologise do so in a way that does not admit fault, but which shows genuine concern.
- Don’t let fear or confusion interfere with your moral compass or cloud your decision making.
- Ensure there is clear leadership for the crisis comms team as well as leadership to run the business. A crisis sucks up an inordinate amount of management time and the execs in charge of the crisis will not have time to run the business.
- Leaders need to be visible – to staff, key stakeholders, and the media if required.
- If it’s a cost decision over reputation always go with reputation no matter the cost – you need to be seen to be doing everything possible to make good on the situation otherwise you will be judged harshly.
- Listen to advice from your crisis communication consultants, your lawyers and your team so when you settle on a path you have weighed up all your options.
Finally, when, in the heat of the moment you are deciding, always ask: “In the future, when I am asked when did you know about this and what did you do about it at the time, can I hand on heart say I made the right decision?” If the answer is no, don’t do it.
This article was first published in the 2022 Better Boards Conference Magazine.
Why Crisis Management is a Boardroom Responsibility
Disaster and Crisis: Dilemmas and Challenges for Boards
What Are Your Leadership Anchors?
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Craig has over 30 years’ experience counselling major corporations and senior executives on issues and crisis management, reputation protection and recovery, media relations and profile management as well as thought leadership in the healthcare, financial and professional services, biotech, medical devices, education, property, construction, FMCG, telecoms, manufacturing, not for profit, IT and government sectors. He has worked with numerous legal firms and in-house legal counsel across a range of crises. He recently contributed to Dr Tony Jaques’ latest crisis communication book: Crisis Counsel: Navigating Legal and Communication Conflict.
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