The study, conducted by Oxford Metrica and unveiled by Edelman, demonstrated that mass fatality events have double the impact on shareholder value than corporate catastrophes in general. In addition, the ability of senior management to show strong leadership and communicate with honesty is crucial.
In Asia, the study looked at the impact of last year's tsunami on 19 listed multinationals while, globally, the impact of aviation disasters, fires and explosions, terrorist attacks and natural catastrophes was gauged. "When you have a crisis, the economic impact on your share price far exceeds the cost on the books," explained Oxford Metrica chairman Rory Knight. "Companies should not see it in terms of cost, but in quantum value terms."
He added that while companies often have procedures in place to deal with a crisis of this nature, communication res-ponses are often too muted. "We have a tendency to communicate more effectively about good news than bad news," said Knight. "The lawyers are slightly responsible, as they tend to tell you not to say much." According to the research, the market makes a rapid judgement on whether it expects an organisation's reputation to be damaged or enhanced by a crisis. However, in the case of mass fatality events, the true effect on value takes, on average, 100 days to emerge prominently.
Aviation disasters are seen to have the biggest effect on value, while fires and explosions, terrorist attacks and natural catastrophes have less severe value reactions. For the latter two categories, furthermore, management is not seen as being responsible -- but a sensitive response is still viewed as crucial to restoring confidence. "You should get professional help and you cannot possibly delegate the responsibility," Knight noted. "Senior management has to be seen to be fully upfront -- if the CEO seems to be ducking responsibility, it doesn't go too well. The worst example of this is the Exxon Valdez case." Edelman regional corporate managing director Charles Lankester concurred and said: "It is clear that both doing the right thing and then communicating this is not only an essential part of a corporation's ethical responsibility, it is also the best way to protect shareholders' interests."
