Loss of good name, major risks concern for organisations now

Corporate scandals of the past few years have sullied many businesses. Environmental incidents, workplace casualties, litigation and more have dragged the names of others through the media, destroyed shareholder value and ended careers. “As recently as the 1970s, the value of a company lay primarily in physical items, such as ships and cargo, that fostered global trade,” explains Susan Crabtree, regional head of Product Development, Financial Lines and Entertainment, at AGCS.

“But in the 21st century, the value of companies is less about solid objects than of intangibles such as intellectual property (IP), data and reputation.”

Such assets are hard to define, let alone value in dollar terms. But when bad news comes and a company suffers a blow to its reputation, their value becomes obvious – market value can collapse with astonishing speed. For example, credit bureau giant, Equifax, to date has spent $1.4bn on clean-up costs and updating its IT security in the wake of its devastating 2017 data breach that affected half of all US residents.

In the age of social media, what starts as a small incident or even as ‘fake news’ can reverberate rapidly around the world wiping out brand value in seconds.

The company’s 2018 earnings of $300m were a 49 percent decrease from 2017  and its stock price tumbled 31 percent in just a week after it first announced the breach, erasing $5bn in market capital was down 60 percent a year later in the third-quarter 2018 and was still trading at about 15 percent less than that by the end of the first-quarter 2019.

Negative compliance events can quickly turn into a reputational risk – a cyber-attack that compromises user data now leaves firms open to eye-watering fines under the European General Data Protection Regulation (GDPR) – for example, the UK Information Commissioner’s Office (ICO) fined British Airways a proposed $230mn for the data compromise of half a million customers. It also fined Marriott a proposed $123mn for the loss of 339 million guest records, both companies plan to appeal the fines.

Those proposed fines may pale in comparison to what the Irish Data Protection Commission could levy against Facebook, Google and Apple later in 2019, rumored to be in the billions of dollars. Businesses are also finding that, as they rely more on outsourcing, they may be held responsible for the sins of subcontractors. Major clothing labels and retailers found themselves in the press in 2012 due to sub-standard garment manufacturing after a fire in a Bangladesh factory killed 112 workers.