Cost of Loss

Reputation value loss and crises comprise widespread stakeholder disappointment and diminished trust, causing go-forward economic losses that Steel City Re has been measuring accurately for nearly two decades.

It is impossible to predict or prevent every possible reputational incident.

No matter what systems are in place, a group of rogue employees can ignore them or override them. Reputation value loss in a crisis can be caused by a failure far down the supply chain or by political or cultural changes that upend the status quo. Privacy issues facing social media companies and sexual harassment issues being elevated by the #metoo movement are two such issues that sometimes can appear seemingly out of nowhere.

Disappointed stakeholders destroy value by becoming disloyal customers, disengaged employees, distracted suppliers, distrustful creditors, dismissive investors, and determined litigators & regulators. When stakeholders are disappointed, the additional costs will amplify the operational losses by 200% to 700%.

The most severe losses are associated with regulatory action. The losses will register immediately in market cap and potentially in bond downgrading. All go-forward losses eventually become apparent in a company’s profit and loss statement and the bottom line, net income. Corporate finance executives should be able to model reputational value at risk.

Case STudy 3: UAL Flt 3411 April 2017

DOJ’s new policy heightens risks to individual reputations and likely will make finger pointing and individual blame far more common.”

Nir Kossovsky, CEO, Steel City Re

Large organizations can usually recover from reputational crises, given enough time and money. Individual reputations are not as resilient.

In our current culture, with weaponized social media, and angry public and political figures anxious to direct that anger, and easy access by a mass audience to information on corporate finances and leadership – corporate reputational crises often turn into personal ones for officers and directors.

These individuals could lose millions of dollars in future income as a result of a spotlight being shone and fingers being pointed in their direction – an increasing risk now as the Department of Justice adopts a policy of rewarding companies that identify individual misdeeds.

Anyone in a corporate leadership position needs to ask themselves: “If I am asked – by a government agent, in a deposition or in a Congressional hearing – whether I did everything reasonable to properly set or meet my stakeholders’ expectations, what will my answer be? Will I be able to point to independent, third-party analysis and underwriting that validates my actions?”

Relevant Articles

Investors are not good predictors of reputation value loss. At crisis day 155 for Crowdstrike, Boeing, and Southwest, the firms' equities were -1.4%, -36.4%, and -26.8%. vs S&P500.
Investors are not good predictors of reputation value loss. At crisis day 155 for Crowdstrike,…
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Boeing Company reputation crisis day 351. Equity is down 50.9% to peers; Steel City Re's average observed losses on day 351 is 8.2%.
Boeing Company reputation crisis day 351. Equity is down 50.9% to peers; Steel City Re’s…
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Southwest Airlines reputation crisis. AAt crisis day 725, Southwest equity is under performing the S&P500 index by 62% and the US airlines index by 66.9%. Steel City Re' Resilience Monitor warned that an operational failure was likely to trigger a reputation crisis.
Southwest Airlines reputation crisis. AAt crisis day 725, Southwest equity is under performing the S&P500…
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Governance experts including the National Association of Corporate Directors and other authorities are encouraging boards to support management more closely in an "uncertain — and possibly volatile — environment," even at the risk of appearing to micromanage. But with engagement comes culpability for the reactions of already-angry stakeholders. Simply put, the costs of leaning into a reputation crisis may include the dispensation of board members whose personal losses will not be covered by D&O liability insurance. Board members need personal reputation insurance.
Governance experts including the National Association of Corporate Directors and other authorities are encouraging boards…
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An industry that is using parametric technology to insure losses from natural disasters caused by wrathful deities can now also provide meaningful insurance for losses from reputation disasters caused by emotional mortals. The 4-M parametric framework of metric, model, monitor and market for natural earthquakes disclosed at the 2023 Hawaii Captives Insurance Conference makes parametric insurance for metaphorical earthquakes easy to back, underwrite, broker and bind.
An industry that is using parametric technology to insure losses from natural disasters caused by…
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We often talk about how the essence of reputation risk is the risk of economic damage from a list of emotional disappointed stakeholders, usually wrapping up with social license holders. Here is a story of one such aggrieved group from Rockdale County, GA, which is trying to oust BioLab from its site after a devastating industrial fire. […] “We can no longer stand by and allow a corporation to continuously affect our current and future physical health, our mental health and our overall quality of life,” Rockdale County Commissioner Sherri Washington said.
We often talk about how the essence of reputation risk is the risk of economic…
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