Risk Insider: Nir Kossovsky

Reputation’s Going-Forward Effects

By: | October 26, 2017 • 3 min read

Nir Kossovsky is the Chief Executive Officer of Steel City Re. He has been developing solutions for measuring, managing, monetizing, and transferring risks to intangible assets since 1997. He is also a published author, and can be reached at [email protected]

While speaking at a gathering of insurance executives in late October, I asked who was aware of the event in early April when a United Airlines passenger was forcibly removed from his seat. All knew about the incident and agreed that it damaged United’s reputation.

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But only 20 percent thought that reputational damage threatened any material economic consequences to United Airlines. The other 80 percent thought of it as a cycle of bad press and nothing more. After all, said one attendee, the news outlets reported that United’s stock actually rose shortly after the event, despite its hamstrung crisis management efforts.

The disparity comes as no surprise. Companies traditionally view reputational crises as transitory events, with impacts that are mostly limited to temporary runs of bad press and are otherwise difficult to measure. What they don’t usually appreciate is the lasting going-forward effects of reputational crises.

It is true that when that UAL video went viral — followed by a less than sympathetic response by the company’s CEO — the company’s stock price dipped slightly for a short period of time, then rose significantly over the next two months.

Our data, which shows that the frequency and severity of economic damages connected to reputational injury increased by 461 percent over the past five years, also suggests that the real effects of that damage may take up to 13 weeks to first become evident and another 20 weeks to set in.

However, last week, United reported its 3Q results.

According to Bloomberg, Brandon Oglenski of Barclays Plc summarized it this way. ““When I look at your absolute earnings, they’re down more than your competitors’,” Oglenski said. “Your relative margin gap is widening, not narrowing. And more importantly for the investors on this call, the stock is now down, let’s call it, 20 to 25 percent versus the market this year.”

These results are not surprising.  Our data, which shows that the frequency and severity of economic damages connected to reputational injury increased by 461 percent over the past five years, also suggests that the real effects of that damage may take up to 13 weeks to first become evident and another 20 weeks to set in.

So, UAL’s disappointing results, months after their reputational incident, are completely in line with the after effects of other corporate reputational events.

What this scenario demonstrates is the importance of companies recognizing these impacts, deterring these attacks and protecting themselves when they do occur.

Reputation damage with material economic consequences occurs when stakeholders are disappointed, disillusioned and angry.  The reality is that no matter what protocols and best practices a company adopts, there is always a risk that something is going to go wrong.

Something could go amiss in the supply chain, a group in sales could overstep in an attempt to meet its targets, an executive could engage in inappropriate or illegal personal behavior — there is always that possibility.

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The question is: how prepared is your company to deal with events like these?  When the inevitable happens, will stakeholders consider it an atypical event in an otherwise sound company — or will they question whether it is symptomatic of larger issues?

The answer to those questions is the difference between the after-effects of the reputational incident passing quickly or being more long-lasting.

The best protection, of course, is deterrence.  Having third party warranties in place, in the form of insurance products, sends a clear signal that the company’s governance practices are strong.

They support the narrative that the incident is an isolated one.  And when that expressive value is not enough to repel the attack, they provide financial protection for the company, its board and executives.

As UAL demonstrates, the ability to deflect and recover from reputational crises is something that requires strategic thinking at the highest level of the organization and a clear organizational commitment over time.

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]