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New Research Looks at the Cost of Reputational Crises

Building on her previous studies over the last twenty years, Deborah Pretty of Pentland Analytics has recently published new research looking at “Reputational Risk in the Cyber Age”.  The study analyses a sample of 125 reputational risk events over the last ten years including:

  • The Samsung Galaxy Note7 recall;
  • The Volkswagen emissions scandal; and
  • Cyber-attacks on TalkTalk and Home Depot.

The overall findings are consistent with Pretty’s previous studies:

  • The share prices of all firms fall immediately after an event becomes public;
  • Within days, investors make a judgement about how well the company is responding and this determines the trajectory of share price thereafter; and
  • After a year, there are two distinct groups – “winners” and “losers”.

In addition the 2018 study finds that:

  • The gap between “winner” and “loser” firms has increased with the average winner experiencing a 20% increase in share price whilst the average loser’s share price falls by nearly 30% in the year after the event; and
  • Contrary to some claims that cyber-attacks have no long-term effect on share price, analysis of the 23 cyber-attacks in this sample shows almost exactly the same pattern of winners and losers as the sample as a whole.

Once again, Pretty highlights the importance of prior planning; responding promptly and transparently; and communicating effectively across all regions as keys to success.