Reputation Risk

Fake News, Real Threat

Far more than a prank, the spread of fictitious news is wreaking havoc on businesses and institutions.
By: | February 20, 2017 • 5 min read

The phenomenon of fake news has been around for many years, making it hard for us to separate fact from fiction. One of the earliest examples was the “New York Sun” claiming to have discovered a civilization on the moon in 1835.

But it wasn’t until “Pizzagate” last December that the potential severity of its impact on individuals and companies really hit home.

On Dec. 4, Edgar M. Welch, a father of two from North Carolina, was arrested and charged with firing an assault rifle in the Comet Ping Pong pizzeria in Washington D.C.

Welch read online that the restaurant was harboring young children as sex slaves as part of a child-abuse ring led by Hillary Clinton.  Alarmed, he drove six hours from his home to see the situation for himself. Little did he know, he’d been reading fake news stories about the restaurant.

On a wider scale, many people believe that fake news impacted the outcome of the U.S. election. In November, Buzzfeed said it discovered more than 100 pro-Trump fake news sites operated by Macedonian teenagers as for-profit click-farms.

What Is Fake News?

Fake news, by definition, is a completely made-up story, manipulated to resemble a credible news report and to attract maximum attention and advertising revenue.

Given the power of the internet, and the fact that an estimated 62 percent of the U.S. population now gets the majority of their news from social media, fake news spreads wide and is hard to stop.

Elizabeth Carmichael, owner, Carmichael Associates LLC

“Fake news spreads faster than ever,” said Elizabeth Carmichael, owner of Carmichael Associates LLC, a firm that provides compliance and risk management services to educational institutions. “The authors make stories sensational to get as many clicks as possible by getting people to forward them and retweet them. The fact that many of these fake news sources are anonymous, and often passed on by millions of people, means it’s extremely difficult to stop or prosecute offenders.”

Despite Facebook’s plan to flag false news stories by using fact checkers, there’s still a long way to go to eliminate the problem altogether.

William Atak, CEO of SafeOnNet, an insurer specializing in online reputational risk, said the potential for reputational harm increased significantly in recent years. Along with it, the potential for millions in lost profits.

“Fake news has always existed. Only now, the perpetrators have the tools and knowledge to create stories at just the right moment and exploit social media and its algorithms,” he said.

Nir Kossovsky, CEO of Steel City Re, whose firm specializes in reputation insurance for publicly traded companies, said that fake news has the ability to undermine a company’s business model and the credibility of its leadership. Worse, it can impact any organizations it is associated with.

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“The specter of consequences arising from this post-fact type of communication can be far-reaching,” he said.

In the case of Pizzagate, Carmichael said, the restaurant’s owners faced not only reputational damage, but also the physical and psychological impact on its staff.

“The most worrying thing yet is that this has the potential to happen to almost any business in the world,” she said.

Pre-Emptive Strategy

In most circumstances where reputational damage has already occurred, a company would assess its losses and then take action, said Kossovsky. With fake news, however, he said, firms need to be proactive in dealing with the damaging misinformation that impairs their value as investors dump stock or threaten to sue directors for their actions.

“The general rule is lay low, shut up and say nothing until you have figured out what’s going on,” he said. But fake news can spread so rapidly that companies need to assess the potential consequences in advance.

Kossovsky said it is important to get all stakeholders on board from the outset, including investor relations, marketing and risk managers.

“Humans by their very nature tend to latch onto the first piece of information they find. Then it’s up to you to convince them otherwise,” he said.

“Therefore it’s key to take a position so that when fake news is circulated, stakeholders either don’t believe it or don’t pay any attention.”

Atak said that companies need to keep a watchful eye on the internet; act swiftly to communicate with customers, staff, boards of directors and investors; and utilize newsletters and social media.

“We have witnessed countless examples of companies that spent more than 25 years establishing a good reputation, only to see it ruined in an instant,” he said.

“The most worrying thing yet is that this has the potential to happen to almost any business in the world.” — Elizabeth Carmichael, owner, Carmichael Associates LLC

Carmichael said that denial is often the worst course of action once fake news is out. A better strategy is to put out an even bigger story to counter it.

She added that a company should include crisis communications in its disaster recovery or emergency response plan(s) and, once targeted, engage its communications team.

“That might be anything from putting out a disclaimer or a news story on their web page to getting the legitimate press to discredit the original fake news story,” she said.

“The big problem, however, is that once the fake news story has been banned or removed from one platform it quickly moves on to another.”

Reputation Insurance

Despite the viral nature of fake news, Kossovsky said, companies can take out insurance to cover themselves against reputational damage and losses to go alongside their risk mitigation strategy.

Nir Kossovsky, CEO, Steel City Re

“The whole point of the risk management process is firstly to pre-emptively mitigate against the impact of an assault of post-fact communication, and secondly to create a loss-absorption strategy to deal with the temporary panic that might arise.”

Carmichael added that while some insurers also offer crisis communications support, blanket specialized coverage for reputation risks is some way off.

“The best defense is to have good, well-monitored policies and procedures in the organization so the company can readily demonstrate with its own data the falsity of the story,” she said.

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A worrying recent development witnessed by Atak is the rise of criminal gangs that create fake news solely for blackmail purposes.

“It is easy to cover your tracks online and the authorities are not yet capable, nor do they have the tools, to fight this new type of digital crime,” he said.

In order to stem the flow of fake news, Kossovsky believes that large corporations need to partner with the media to develop a market-based solution.

“Social media firms have the technology to vet a lot of this content, but they can only attack pieces of information at one time,” he said.

“Having an industry-wide solution in the form of a panel that sets the standard for the quality of news would go much further towards tackling the problem.” &

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

This senior risk manager values his role in helping Varian Medical Systems support research and technologies in the fight against cancer.
By: | September 12, 2017 • 5 min read

R&I: What was your first job?

When I was 15 years old I had a summer job working for the city of Plentywood, mowing grass in the parks and ballfields, emptying garbage cans, hauling waste to the dump, painting crosswalk lines.  A great job for a teenager but I thought getting a college degree and working in an air-conditioned office would be a good plan long term.

R&I: How did you come to work in risk management?

I was enrolled in the University of Montana as a general business student, and I wanted to declare a more specialized major during my sophomore year. I was working for my dad at his insurance agency over the summer, and taking new agent training coursework on property/casualty risks in my spare time, so I had an appreciation for insurance. My dad suggested I research risk management for a career, and I transferred sight unseen to the University of Georgia to enroll in their risk management program. I did an internship as a senior with the risk management department at Sulzer Medica, and they offered me a full time job.

R&I: What could the risk management community be doing a better job of?

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We need to do a better job of saying yes. We tend to want to say no to many risks, but there are upside benefits to some risks. If we initiate a collaborative exercise with the risk owners — people who may have unique knowledge about that particular risk — and include a cross section of people from other corporate functions, you can do an effective job of taking the risk apart to analyze it, figure out a way to manage that exposure, and then reap the upside benefits while reducing the downside exposure. That can be done with new products and new service offerings, when there isn’t coverage available for a risk. It’s asking, is there anything we can do to reduce the risk without transferring it?

R&I: What emerging commercial risk most concerns you?

Cyber liability. There’s so much at stake and the bad guys are getting more resourceful every day. At Varian, our first approach is to try to make our systems and products more resilient, so we’re trying to direct resources to preventing it from happening in the first place. It’s a huge reputation risk if one of our products or systems were compromised, so we want to avoid that at all costs.

We need to do a better job of saying yes. We tend to want to say no to many risks, but there are upside benefits to some risks.

R&I: What insurance carrier do you have the highest opinion of?

I’ve worked with a number of great ones over the years. We’ve enjoyed a great property insurance relationship with Zurich. Their loss control services are very valuable to us. On the umbrella liability side, it’s been great partnering with companies like Swiss Re and Berkley Life Sciences because they’ve put in the time and effort to understand our unique risk exposures.

R&I: How much business do you do direct versus going through a broker?

One hundred percent through a broker. I view our broker as an extension of our risk management team. We benefit from each team member’s respective area of expertise and experience.

R&I: Is the contingent commission controversy overblown?

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I think so. The brokers were kind of villainized by Spitzer. I think it’s fair for brokers and insurers to make a reasonable profit, and if a portion of their profit came from contingent commissions, I’m fine with that. But I do appreciate the transparency and disclosure that came out as a result of the fiasco.

R&I: Are you optimistic about the US economy or pessimistic and why?

David Collins, Senior Manager, Risk Management, Varian Medical Systems Inc.

While we might be doing fine here in the U.S. from an economic perspective, the Middle East is a mess, and we’re living with nuclear threat from North Korea. But hope springs eternal, so I’m cautiously optimistic. I’m hoping saner minds prevail and our leaders throughout the world work together to make things better.

R&I: Who is your mentor and why?

My Dad got me started down the insurance and risk path. I’ve also been fortunate to work for or with a number of University of Georgia alumni who’ve been mentors for me. I’ve worked side by side with Karen Epermanis, Michael Rousseau, and Elisha Finney. And I’ve worked with Daniel Dean in his capacity as a broker.

R&I: What have you accomplished that you are proudest of?

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Raising my kids. I have a 15-year-old and 12-year-old, and they’re making mom and dad proud of the people they’re turning into.

On a professional level, a recent one would be the creation and implementation of our global travel risk program, which was a combined effort between security, travel and risk functions.

We have a huge team of service personnel around the world, traveling to customer sites to do maintenance and repair. We needed a way to track, monitor and communicate with them. We may need to make security arrangements or vet their lodging in some circumstances.

R&I: What do your friends and family think you do?

My 12-year-old son thought my job responsibilities could be summed up as a “professional worrier.” And that’s not too far off.

R&I: What about this work do you find the most fulfilling or rewarding?

Varian’s mission is to focus energy on saving lives. Proper administration of the risk function puts the company in a better position to financially support research that improves products and capabilities, helps to educate health care providers and support cancer care in general. It means more lives saved from a terrible disease. I’m proud to contribute toward that.

When you meet someone whose cancer has been successfully treated with one of our products, it’s a powerful reward.




Katie Siegel is an associate editor at Risk & Insurance®. She can be reached at [email protected]