Research this month from law firm Freshfields Bruckhaus Deringer shows just how much impact different types of crisis can have on a company’s share price, and how quickly directors need to convince the markets they are taking the right action – typically within less than 48 hours. Freshfields analysed 78 corporate crises since August 2007, and concluded that operational crises such as significant product recalls or environmental disasters have the biggest impact in the long term. Illegal corporate activity or the actions of rogue traders have a bigger initial impact, often sending the company’s share price crashing by up to 50% on the day the news is revealed, but companies typically regain most of their value within six months. The research suggests directors typically benefit from a window of just 24 to 48 hours, during which financial market reaction to news of a major reputational crisis will be relatively restrained. This is often their last chance to be seen to be taking quick and decisive action before financial news bulletins take centre stage.
Of course, the media handling of a crisis can frequently have as big an effect on sentiment as the steps the company actually takes.Of course, the media handling of a crisis can frequently have as big an effect on sentiment as the steps the company actually takes. Recent events at the BBC bear witness to this; the Corporation’s actions drew strong criticism, but it was then-DG George Entwistle’s badly-handled interview on Radio 4’s Today programme that forced his resignation. The lesson is clear; organisations need to have effective crisis planning, but they also need to be primed and ready so that particularly in that vital 48 hours, they can clearly convey to markets and other stakeholders that they are in control of events, not being controlled by them.
