Why are corporate reputational crises on the rise?

Why are corporate reputational crises on the rise? | Insurance Business

Why are corporate reputational crises on the rise?

Reputational crises are increasingly a threat to business. Between 2011 and 2016, reputation-linked losses at public companies increased by a whopping 461%, according to research from reputational insurer Steel City Re.

In today’s world, an incident can become a viral sensation overnight – just ask United Airlines, or Pepsi. But what’s causing the surge in reputational crises in recent years? We asked Steel City Re’s CEO, Dr. Nir Kossovsky.

The growth in the overall frequency and severity of reputational losses has been driven by three factors, according to the chief executive.

The increasingly high expectations of stakeholders – resulting in a progressively low tolerance of failure – the rise in the use and ability of social media to spread both true and untrue stories, and a growing sense of anger and disappointment among the general populace, are creating a breeding ground for reputational disasters, according to Kossovsky.

A reputational crisis can manifest itself in two ways within an organisation: leadership – in which anger is directed at one or more executives – and operational – in which the company faces either reduced revenue or increased costs.

In today’s world, the average consumer has a smartphone in their pocket, and a platform to share any grievances with the world – bad news when it comes to PR.

“I’m not sure how much worse social media can get, in as much as it currently is able to communicate a message nearly at the speed of light,” Kossovsky said when asked if social media will increasingly pose problems for companies in 2018.

“I don’t think that the underlying technology is going to make the problem worse, nor do I think that the users of social media will become even more aggressive in their utilisation of the platform. They probably are about maxed out at this point,” he continued.

While it might already be at full throttle, social media will be further “weaponised” in the coming year, and will act as a funnel for consumer and stakeholder anger.

And after a year that saw a number of major names skewered on social media, companies are finally waking up to the reality that a reputational crisis is always just a tweet away.

“I believe that companies no longer doubt that reputation risk is material, but, more importantly, companies are appreciating that there’s something they can do about it other than merely being passive victims of technology,” Kossovsky said.

 

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