State of crisis preparedness: is your business ready?
The Crisis Value Erosion research paper by SenateSHJ Australia analysed 30 notable business crises over the past 40 years to reveal the magnitude of reputational and financial damage some companies have sustained. The crises studied included the 2010 BP Deepwater Horizon explosion and oil spill, the 2014 Malaysian Airlines MH370 flight disappearance and multiple Facebook privacy issues. The research showed:
- 70% of listed companies studied experienced a drop in share price as a result of a crisis.
- Crises involving environmental damage resulted in an average share price drop of 35.1%.
- The average drop in share price was 19.0%.
In addition, accompanying qualitative interviews with Australian executives found that with regards to identifying a crisis in advance, only 31% said the organisation had planned and was prepared, while 24% said the risk was pre-identified but no plans were implemented.
One executive interviewed said: “Act early, quickly and proactively. Have an established crisis management structure and principles and adhere to them.”
Another said: “Understanding your risks, planning your response, putting supports in place, and seeking good external advice is key to crisis and reputation management.”
The analysts developed a bespoke modelling tool that can be used to assess trends across companies, sectors and types of crises, and inform business planning and responses.
Craig Badings, Partner at SenateSHJ Australia, said that a company’s state of crisis preparedness is vital to its ability to survive a crisis with minimal loses. “Not surprisingly, the financial cost of a crisis is overwhelmingly the biggest impact felt by business leaders and it can last years. But we can also see that those who have the right crisis preparation and management systems, tools and support teams in place are in the best position to minimise the damage.”
Of the crises analysed, the greatest impact was felt by BP in the wake of the Deepwater Horizon explosion and oil spill. BP’s share price more than halved in the wake of the crisis and took more than three years to recover.
While also measuring the impact, the research categorised the nature of each crisis and aspects of the response to it, together with identifying relevant background information such as the industry involved.
Data shows mining and materials businesses experienced the highest average share price drop (37.5%) by industry. Crises involving environmental damage resulted in an average share price drop of 35.1% — a greater drop than crises involving casualties which saw an average drop of 24.4%.
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