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Sydney, Sept 16: New research has shone a light on the magnitude of some of the greatest business crises of a generation, with some companies taking years to recover from the financial and reputational damage caused.
SenateSHJ’s research paper Crisis Value Erosion analysed the financial impact of 30 notable business crises over the past 40 years, including the 2010 BP Deepwater Horizon explosion and oil spill, the 2014 Malaysian Airlines MH370 flight disappearance and multiple Facebook privacy issues.
Further, SenateSHJ analysts have developed a bespoke modelling tool that can be used to assess trends across companies, sectors, and types of crises, and inform business planning and responses.
The modelling used metrics such as share price drop, earnings per share drop, days to recover to pre-crisis levels and trend-adjusted recovery to gain in-depth insight into just how these crises impacted the companies involved.
Seventy per cent of companies studied experienced a drop in share price, with an average drop of 19.0 per cent.
On average, the share value took 147 days to recover.
Of the crises analysed, the greatest impact was felt by BP in the wake of the Deepwater Horizon explosion and oil spill. BP’s share price more than halved in the wake of the crisis and took more than three years to recover.
While also measuring the impact, the researchers categorised the nature of each crisis and aspects of the response to it, together with identifying relevant background information such as the industry involved.
Data shows mining and materials businesses experienced the highest average share price drop (37.5 per cent) by industry. Crises involving environmental damage resulted in an average share price drop of 35.1 per cent – a greater drop than crises involving casualties which saw an average drop of 24.4 per cent.
“It’s also interesting to look into the effect of different responses, including resignations, fines, compensation and communication strategies,” Craig Badings, Partner, SenateSHJ said.
“For example, in cases where company CEOs resigned, the share price dropped by an average of 36.6 per cent.
“However, when they did not resign, the drop was only 11.1 per cent.
“In saying that, the nature of the crisis itself impacts the likelihood of the CEO resigning, and resignation may also trigger a greater reaction from shareholders.
“Analysts have always relied on educated guesses and anecdotal comparisons of crises to predict how businesses might be impacted and how they should respond, but this new tool gives us a much greater ability to gauge the effects of different strategies,” Badings added.
In a separate study, SenateSHJ undertook a qualitative survey of Australian and New Zealand executives on their experience managing a crisis. The Crisis Executive Experience report surveyed 30 CEOs.
With regards to identifying a crisis in advance, only 31 per cent said the organisation had planned and was prepared, while 24 per cent said the risk was pre-identified but not planned for.
While the majority (64 per cent) of respondents agreed that the crisis set the business back financially, many also called out ‘internal’ impacts such as the ability to retain talent (36 per cent) and the negative impact on culture (32 per cent). Some respondents also called out the mental health impacts.
“It is clear from the two studies that the personal experience of CEOs in our region aligns with the statistical findings we’ve made from international case studies,” Badings said.
“Not surprisingly, the financial cost of a crisis is overwhelmingly the biggest impact felt by business leaders and it can last years.
But we can also see that those who have the right crisis preparation and management systems, tools and support teams in place are in the best position to minimise the damage.”
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