Using Early-warning Risk Intelligence to Determine Disruptive Risks

Posted by Emma Monks on

Using Early-warning Risk Intelligence to Determine Disruptive Risks

When a crisis is brewing, the public looks to the top of a company for leadership. When handled poorly or completely ignored by the leadership team, an issue can quickly become a full-blown crisis, resulting in boycotts, loss of sales—or worse.

Today’s corporate leaders simply aren’t prepared to respond to a crisis in real-time, let alone 24 or 48 hours later. A report released by the National Association of Corporate Directors shows that executives view disruptive risks as “much more important” to their organizations today than just five years ago. Yet, nearly half of the respondents said they tend to focus on oversight of known risks instead of understanding “disruptive, atypical risks.” The report also shows that less than 20% are ‘extremely’ or ‘very confident’ in management’s ability to address these types of risks.

A similar study from Aon shows global businesses see “reputation damage” as their top risk management concern. This worry has a firm foundation: not only do crises have damaging, short-term effects on brand value, they also affect long-term sales and share prices. On average, 5% of shareholder value is lost in the year following a crisis.

The digital age has amplified how crises affect brands, and leadership is struggling to keep pace with the trends. Recent analysis shows brands that handle a crisis well gain 20% in market capitalization. On the flip side, brands that handle their crisis poorly can lose nearly 30%. Because disruptive, atypical risks tend to be unknown and intangible, the only way to make them tangible is to resort to early-warning risk intelligence.

The Events that Create a Disruptive, Atypical Risk

Two weeks ago, President Trump tweeted, “Don’t buy GOODYEAR TIRES - They announced a BAN ON MAGA HATS. Get better tires for far less!”

 

Though many organizations today may have a tweet from the President in their crisis scenario planning, an outright call for a boycott is an example of a disruptive, atypical risk the NACD report suggests most leaders ignore.

There has been a profound change in how disruptive, atypical risks surface publicly to harm an enterprise today. Certainly, four years ago, the idea that a tweet from the President could cause a stock price crash was unheard of. Yet here we are...and no one is immune.

On the web today, incidents occur—good, bad, and ugly. In some cases, those incidences are harmless and even fun. In others, though, they catch fire and become flaming issues that, if not handled properly, can become a damaging, full-blown crise.

Without proper risk intelligence to counter these unknown and disruptive, atypical risks once they emerge, leadership teams are left asking: why did this happen? Where did it come from? How bad is it? Meanwhile, their business operations, brand reputations, and market value suffer public scrutiny as they go into crisis mode to perform triage.

How the Atypical Risk Goodyear Faced Impacted Business Operations and Market Value

In the instance of Goodyear, an employee who attended the company-led diversity training sparked an incident by leaking an image of a slide that says MAGA attire is not acceptable in the Goodyear stores.

President Trump amplified the image of the slide and called for the boycott. The media then fanned the flames as they told the story over and over again. Which brings us to the issue in this case: the slide is bogus, according to the Goodyear corporate office. “It was not created or distributed by Goodyear corporate, nor was it part of a diversity training class,” they said in a statement.

The long-term impact is yet to be seen, but their stock price dropped 3.1% following the tweet, while shares of competitors rose between 1.2% and 1.5%.

The implications certainly are that the Goodyear corporate offices had to make a swift announcement (just a little more than an hour later) distancing themselves from the leaked slide and it’s alleged guidelines. They may well have to continue to deal with the repercussions for months to come.

Early-warning Risk Intelligence Is Essential

When proper early-warning risk intelligence is employed, leadership teams are able to quickly understand and evaluate the disruptive, atypical risk—and even be prepared to manage it before it happens. The instigator, who is working to disrupt, detract, or damage the organization is found early on. Armed with that information, you’re able to see the different kinds of incidents that might be created and whether they’ll be issues or crises.

Now you can divide and conquer. Who are the influencers who will deliberately amplify the incident—and who will innocently do so? What is the business impact of the issues if they surface and we aren’t prepared? What are the personal and emotional implications for each board member and executive? How do you counter the effect of the influencers through your own communications?

Knowing all this will allow you to plan for issues and begin crisis scenario practice based on the information the risk intelligence has provided. It is critical that you are always first to know and, if need be, first to act against the surge of disruptive, atypical risks. Your company’s future health depends on it.

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