CEOs Going Viral. Starbucks founder Howard Schultz recently clashed with Sen. Bernie Sanders “There being nothing to surprise their respective stakeholders, raise their emotional states, and shift their prior expectations, I don’t think there was any material reputational impact to anyone,” Kossovsky wrote.
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The U.S. Department of Labor has now launched an investigation and said it will hold not only companies that employ child labor accountable, but the larger, better known companies that have child labor in their supply chains. The new regulatory stakeholders in companies’ supply chains bring with them investors and litigators, who had material financial consequences to activities already being followed by activists.
“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.
Southwest Airlines Reputation Crisis Day 60. Equity returns at 60 days normalized to the S&P500 returns are -10.2% (predicted -3.8%). The implied loss to shareholders is $4bn.
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.
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.
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.”
Delayed maintenance creates reputation risk. In the aftermath of a meltdown that led to 16,700 flight cancellations and may cost the airline more than $800 million, blame has fallen on an outmoded crew scheduling system and an unusual point-to-point route network. […] Southwest has acknowledged putting updates to its crew scheduling system behind other improvements, despite long-standing complaints from pilots and flight attendants.
Culture limits risk strategy. Southwest was overwhelmed and unable to adapt as a severe storm swept the US. But behind those specific issues is an insular management team that critics say lacks the imagination and technology expertise to help avoid such crises. […] The carrier has a long-standing reputation of being slow to adopt new technology, and spent years implementing a new reservation system and updating its maintenance operations.