Corporate reputational crises could have a massive financial impact in 2018, due to the potential for a market correction to expose firms that have suffered reputational losses but have remained artificially shielded by the umbrella of the recent stock market rise, according to research conducted by Steel City Re.
A number of firms have undergone reputational crises in the past year but have still seen their market caps rise, despite having significantly underperformed compared to their peers.
Steel City Re said that although this has temporarily reduced losses “when the equities markets go through an inevitable correction, those companies will likely sustain the biggest losses and, once again, become the focus of stakeholder hostility – leading to a potential avalanche of reputational attacks and related financial losses.
“Looking to 2018, a market correction will expose companies with reputational issues, compelling activists to attack and stakeholders, the media and political figures to unleash pent-up anger at corporate executives and board members.
“As a result, companies will experience losses in market cap, revenue, earnings and margins that could as much as double those experienced in the past year.”
Dr. Nir Kossovsky, Chief Executive Officer of Steel City Re, said; “Warren Buffet’s saying that you can only tell who’s been swimming naked when the tide goes out is an apt description of the current environment. After witnessing the reputational bloodbath of 2016, quality companies committed to emerging unscathed in 2018 must communicate the improved quality of their governance and build reputational defenses that will insulate them when the inevitable onslaught occurs.”
Factors leading to reputation related losses have become more extreme, including the weaponization of social media, a rising stock market that has created a false sense of security, and smaller activists that have emerged, targeting smaller companies.