Publicly-listed US companies that experienced a significant crisis lost an average of 15% of their stock value over the period of a year, according to a new study [download page] by Hot Paper Lantern. But the speed and effectiveness of a company’s response makes a significant difference to the outcome over 12 months.
Given that today’s consumers want brands to be transparent, responding to a PR crisis within hours as opposed to days appears to make a substantial difference. The companies analyzed that responded within hours typically experienced a lesser 4% decline in stock price value. But those that responded within days saw a 10% decline, while waiting weeks resulted in a 14% fall.
However, speed is not the sole factor. Effectiveness – as measured by the impact on sentiment across media articles and social media mentions – appears to be more important in the long term. Companies that responded within hours, but did so ineffectively, saw a 1% uplift in stock price. By comparison, those that responded within several weeks but did so effectively saw a 9% stock price rise.
Looking solely at effectiveness illustrates that the difference is even more pronounced. On a 1-year timescale, companies with ineffective responses lost almost 21% of their value over a year, but those with an effective response actually experienced a 6% rise. While this gap shrinks after 2 years (-14% ineffective, 0% effective), it is still pronounced.
Overall, 4 in 10 (41%) organizations were determined to have had an effective response, with the remainder (59%) being classified as ineffective.
One other finding that CEOs may be relieved to hear is that while a resignation has a positive impact in the short term (stock prices up 1% a month post-crisis), there is a negative impact long term, with values down by 12% after the event.
The report can be downloaded here.
About the Data: Figures are based on an analysis of 80 companies’ response to 105 crisis, measured by analysis of 450,000 media articles and 85,000 social mentions.
