The cost of corporate reputation disasters

Despite the best plans and crisis communication tactics, the inevitable occurs and organisations are left counting the cost of an errant email or a natural disaster.

In its 2012 Reputation Review Report, analytics and advisory firm Oxford Metrica took a closer look at the financial impact that damage to the corporate reputation can have.

"The evidence demonstrates that a reputation crisis, where a company might lose more than one-fifth of its value suddenly and unexpectedly, carries an 80% likelihood in a five-year period.

"In an age of instant and global communications, it is more important than ever to have in place a reputation monitoring system to identify emerging threats and provide senior management useful intelligence," states the report.

Fukushima nuclear disaster
The 2011 tsunami in Japan was catastrophic on many levels. From the loss of life to the economic effects on the country, the fallout was severe. It also had a significant impact on utility Tokyo Electric Power Company (Tepco). Its nuclear power plant at Fukushima was the site of a nuclear disaster that many experts consider to be the second-worst in history.

At the time, James Acton, an associate of the Nuclear Policy Program at the Carnegie Endowment for International Peace said: "Fukushima is not the worst nuclear accident ever, but it is the most complicated and the most dramatic."

In the 12 months following the closure of the nuclear plant (it had not taken the necessary steps to protect the facility adequately against such natural disasters), Tepco lost almost 90% of its value which translated to $37.368-million. Such was the damage to its reputation that the Japanese government agreed to inject $12.5-billion of fresh capital into the utility last year. It is estimated that the total cost of the disaster is in the region of $100-billion.

Deepwater Horizon oil spill
The 2010 BP oil disaster came as a result of the explosion and sinking of the Deepwater Horizon oil rig in the Gulf of Mexico. It had a massive impact on the corporate reputation of the multi-national oil and gas company headquartered in London.

In the 50 days following the oil spill, BP shares lost approximately half their value, which turned into a $100-billion loss in market value before the share price started to recover.

Additionally, BP and the US department of justice reached a $4-billion settlement of all federal and criminal charges related to the explosion and spill.

However, not all reputation challenges are due to natural disasters. Sony PlayStation hack In 2011, the personal details of approximately 77-million accounts on the Sony PlayStation network were stolen, forcing the consumer electronics company to suspend the online service for 24 days.

Sony drew the ire of its users for not communicating more pro-actively about the seriousness of the hack, only warning people a week after the initial attack. The outage cost Sony $171-million and it lost almost 36% of its company value before starting to show signs of recovery.

Associated Press hack
Earlier this year, the Twitter account of the Associated Press was hacked to falsely report explosions at the White House and an injured Barack Obama. This sparked a 143-point fall in the Dow Jones industrial average.

Even though the market recovered within a few minutes, it illustrated the impact that social media has on global business. It is therefore essential for organisations to not only take the necessary preventative steps to safeguard their corporate reputation, but to have plans in place to mitigate damage in the event of natural disasters or corporate negligence.

Given how important corporate reputation is to the value of an organisation, the cost impact of not doing so is significant and could result in company closures in extreme cases.

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