Reputational Risk

Social Media Has Doubled the Cost of Reputational Blows

A new study by Aon and Pentland Analytics shows the adverse affects social media has had on reputational threats, doubling the cost of a incident and placing the company in the global spotlight.
By: | September 28, 2018 • 4 min read

In the aftermath of a reputational crisis, most companies suffer a noticeable drop in stock value. A new study offers evidence that company response has a direct bearing on whether that initial dip has a lasting impact on shareholder value.

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Aon collaborated with Dr. Deborah Pretty of Pentland Analytics for the “2018 Reputation Risk in the Cyber Age Report.” The study looked at 125 reputation events over the last decade, measuring the impact on shareholder value for a year after the event.

The 2018 report builds on prior reputation studies published in 1993 and 2000. The biggest takeaway from the latest work is that since the introduction of social media, the impact of reputation events on stock prices has doubled — regardless of company size.

It’s also worth noting the strength of a company’s reputation prior to an event did little to insulate it against the loss of value. This suggests that while building up a solid reputation is obviously important, it isn’t enough in the face of a crisis to ensure an effective recovery. That said, companies that invested in corporate social responsibility did appear to enjoy a halo effect.

“The perception is these are just good guys who something bad has happened to,” said Randy Nornes, enterprise client leader, Aon.

Why the Galaxy Note7 Crisis Matters

The report included case studies illustrating the impact of a strong response vs. an inadequate response.

After Volkswagen’s vehicle emissions scandal, for example, estimates of direct costs, customer compensation and environmental repayments exceeded $20 billion. A year later, the company’s loss in value is also more than $20 billion — approximately 25 percent of the company’s pre-crisis value.

Randy Nornes, enterprise client leader, Aon

Compare that to the Samsung Galaxy Note7 crisis when phones began to spontaneously combust. This led to a recall of not only the original product but also the faulty replacement units. A year later, the company’s shareholder value is up by $50 billion.

The difference: Samsung sprang into action. It halted production of the Galaxy Note7 and announced a full global recall. The company was transparent, remaining open about the design flaw in the original batteries and the manufacturing defect in the replacements.

The company incurred significant cost to address the problem, and took ownership of the environmental implications of the wasted product, minimizing the impact by recycling or reusing materials unaffected by the previous problems.

“If you look at their behavior,” said Nornes, “they took it seriously. They bit the bullet from a cost standpoint, they took responsibility, they did the right things. They may have made some mistakes, but they were on the right trajectory.

“They’ve actually gained value, and the perception of them as a brand has grown.”

Fast and Focused Response

Nornes said one of the top takeaways of the report is that, in the age of social media, companies must respond to adverse events faster than ever before, swiftly and decisively, and on a global level.

Information is able to span the world in the bat of an eyelash; the public has come to expect corporate responsiveness will move at the same speed. Public statements a day or a few days after the fact are perceived as foot-dragging.

“The #1 lesson learned is that you have to respond instantly — it’s got to be global, it’s got to be one message, one focused response,” said Nornes.

Having a crisis plan in place is essential, he said. And it’s important to remember you don’t have to foresee every possible event that could befall the company. Many of the elements of a crisis plan are likely to apply to other situations.

“The #1 lesson learned is that you have to respond instantly — it’s got to be global, it’s got to be one message, one focused response.” — Randy Nornes, enterprise client leader, Aon

“This doesn’t require a huge effort,” he added, “just some purposeful organization, someone has to say ‘This is really important — what does it mean to us?’ ”

Key decisions include who should be the company spokesperson and what the lines of communications should look like between the legal team, the communications team and that spokesperson.

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A unified front is essential, said Nornes, and risk managers are in an ideal position to take the lead: “A risk manager could actually serve as a catalyst to have this conversation internally around what are the reputation events we could possibly face, and create a cross functional team to develop a response [plan].”

Risk managers bring additional value to the discussion, because they’re most familiar with the services afforded by their existing insurance programs, as there are often embedded elements of crisis response or event response, which include access to professional providers.

“A cyber policy might have that, a D&O policy might have that … understanding and integrating the things you already have access to into the [response] plan would be key.”

Too often, said Nornes, companies don’t put a crisis plan in place until the company itself has had a problem. Taking a more proactive approach is the best way to ensure the company can not only survive but also potentially thrive in the wake of a crisis.

“When you step up into the spotlight and you perform well, you show yourself as a leader and a strong team,” said Nornes. “That’s what people are investing in. When you step up into the spotlight and you stumble, people say, ‘what else are they not up to the task for?’ ” &

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

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]