Scandals may lead to better business performance
Crisis management has become increasingly difficult for communication professionals to handle, especially as they face new communications channels that mean crises are communicated instantly to a wide audience. However, experiencing a crisis may actually lead to long-term success for an organisation, at least according to recent research from the University of Sussex. In a study,…
Crisis management has become increasingly difficult for communication professionals to handle, especially as they face new communications channels that mean crises are communicated instantly to a wide audience.
However, experiencing a crisis may actually lead to long-term success for an organisation, at least according to recent research from the University of Sussex.
In a study, academics from the university analysed the long-term effect of a significant crisis on the performance of an organisation, including the impact on share prices and the result of new strategies that are put in place.
The types of issues the study surveyed were focussed at the CEO level, and consisted of both professional misconduct and personal misdemeanours like lying on a resume.
The research, based on the experiences of 80 US companies, found that within the first month of a scandal, the average company had lost between 6.5 and 9.5 per cent of its share value. This represents an average shareholder loss of US$1.9 billion.
However, within three years these figures had recovered, with no long-term impact on the company’s share price. In fact, the companies involved were found to actually be performing better as a result of the scandal, as the changes put in place reduced the chance of a repeat.
In fact, these companies had on average a 10 per cent higher return on assets compared to their competitors.
The study’s author, Dr Surendranath Jory, suggested this improvement was down to the new strategies which companies developed in response to a scandal.
“Corporate scandals can act as a catalyst to implement changes that benefit investors. The companies put in place safeguards to protect against future abuses, and they seem to work,” he said.
For communication professionals, this research highlights the importance of communicating the safeguards that are put in place following a scandal, especially with shareholders. Ensuring these changes are widely understood can ensure that any damage inflicted is kept to a minimum and doesn’t become a long-term burden.
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