Reputation insurer Steel City Re is offering boards of directors access to its proprietary reputation volatility metrics (RVM) reports as a standalone product in response to recent bank crises. Reputation value volatility case studies. “Volatility can indicate shifting stakeholder expectations preceding stock price collapses.”
“For the first time since its landmark Caremark decision, the Delaware Chancery Court has allowed a breach of oversight claim to proceed against a corporate officer when it declined to dismiss claims brought by stockholders against David Fairhurst, McDonald’s former head of human resources…”.[kos] The bottom line is that law and society are expecting better management and oversight—a touch of common sense many would say—and that disappointment (read, shift in expectations leading to anger and disappointment, aka, reputation crisis) is playing out in the courts….Companies and boards need a solid, universally applicable management and oversight process that is forward-looking to manage risk strategically. The quality of that process needs to be proactively authenticated with insurance. Compliance-focused controls, which by design are backward looking—and the audits that authenticate them—are necessary but with the evolving expectations of society, apparently no longer sufficient.
Mission critical risk denial can be costly. A holiday flight cancellation fiasco by Southwest Airlines crushed the company’s market capitalization and caused the company to take an $800 million dollar write-down for Q4 and record losses three times greater than analysts had expected. Equity returns 42 days into the crisis show Southwest trailing the Dow Jones U.S. Airlines Index by 18.4%. Had it merely kept pace with that index, Southwest’s market cap would have been more than $3.3 billion higher.
All risk is connected. As in Dirk Gently’s world, everything in the risk world is now connected, but without the humor of Douglas Adams. The consequences of operational perils between and among employees—the sorts of things that might have triggered coverage with Employment Practice Liability insurance, is now a matter for derivative litigation and the SEC.
Southwest Airlines Reputation Crisis Day 35. Equity returns at 35 days normalized to the S&P500 returns are -6.2% (predicted -5.7%). It is under performing the Dow Jones US Airlines Index (DJUSAR) by 15.4%. The regression technology powering the equity impact model was derived from a study by Steel City Re, an ESG and reputation insurer.
Liquidity Issues at Blackstone. [There are now] questions about whether the people actually knew the risks, from higher fees than stock and bond funds to the illiquidity of the assets, and even the incentives advisers might get to push certain products. “Blackstone has to prevent a catastrophic shift in stakeholder expectations,” says Kossovsky.
Angry Reactions From Stakeholders. Southwest Airlines promoted five executives as the budget air carrier continues to reel from an operational meltdown that resulted in nearly 17,000 canceled flights over the chaotic holiday travel season. The company said … the moves would “strengthen our operational execution.” […] Nir Kossovsky, an expert on corporate risk and CEO of Steel City Re, told FOX Business that the angry reactions from apparent stakeholders is further evidence that Southwest is going through a “reputational crisis.”
“There is a standard pattern after a major reputational event. It begins with the event that is usually emotionally charged and leaves a lot of people disappointed, and thereafter every different stakeholder group will have their say. Customers will obviously be disappointed, employees will be disappointed, and shareholders will be disappointed,” said Nir Kossovsky, a reputation risk expert. “
Southwest Airlines canceled between Dec. 22 and Jan. 1 around 37% of its schedule. […] The holiday flight disruption is likely to have lasting consequences for Southwest’s reputation, Nir Kossovsky, CEO of reputation risk insurer Steel City Re, said. “In addition to the large swath of customers who are angry and disappointed and likely to act on those feelings in the future, reputational damage of this magnitude often triggers a pile-on of regulators, litigators, and activists,” he said. “It’s no surprise Southwest’s shares are now underperforming the airline index.”
The velocity of reputational risk is approaching the speed of a nuclear assault on a nation, said Nir Kossovsky, Steel City Re CEO. A “Military grade” response to sped up reputational crises requires cold war game theory strategy and preemption.