TATIONAL crises such as a products recall or environmental disasters involving a listed companies are a bigger threat to shareholder value than loan defaults or rogue employee behaviour, a study out today reveals.
A survey of 16 global stock markets conducted by law firm Freshfields Bruckhaus Deringer shows operational crises – such as the Gulf of Mexico oil spill or the Marikana mine closure – threaten long-term shareholder value more than behavioural issues, such as money laundering or rogue trading.
The share price of firms hit by operational issues are still off the pace around 15 per cent six months after the incident, according to the data, but behavioural crises only hit prices in the short term and firms regain most of their value within six months, the survey shows.
Firms have been increasingly rocked by reputational crises over the past five years, from rogue trading scandals and Libor fixing to oil spills and customer IT failings.
“Crises that strike at a business’ core have a greater long-term impact on share price as markets are more likely to lose faith in a management team that cannot resolve a crisis that is intrinsic to its operations,” Chris Pugh, global head of disputes at Freshfields said.
The study also shows that markets delay their reaction to reputational crises by up to 24 hours.
Examining 78 instances of major reputational crises over the past five years, pollsters found 54 per cent of affected companies saw a drop in price two days after the event.
This compared to 48 per cent of share prices that fell just one day after.
“Executives at firms affected by a behavioural issue should typically prepare for an up-front hit on their share prices whereas those dealing with an operational matter are probably going to be in repair mode for the long term,” Pugh said.