Every Second Counts
A recent article in the Financial Times analysed Samsung’s response to the Galaxy Note 7 Crisis.
The conclusion was simple:
In a Corporate Crisis, the longer you delay, the bigger the cost.
The Historical Perspective
There are two famous and powerful historical examples that illustrate the point: Johnson and Johnson’s response to the Tylenol Crisis of 1982, and Merck’s response to their Vioxx Crisis of 2000.
Johnson & Johnson made the decision to withdraw its entire stock of Tylenol from shelves within just 5 days of discovering that a small sample of the product had been tampered with cyanide.
The company’s share price declined by 9.5%.
On the other hand, Merck took 1,065 days of obfuscation and regulatory negotiation between 2000-2004 before it eventually confessed to safety issues with its Vioxx pain drug and activated a global recall.
Throughout that 3-year period, Merck stock lost an enormous 46% of its value.
All the textbooks and PhD Theses use these two case studies to prove that fast actions reduce financial impact.
But do those principles still apply today?
Crisis Response Today
Several recent and ongoing Corporate Crises give us good opportunities to compare the impact of speed versus hesitation.
VW is an excellent, live example.
It took VW 476 days after the first evidence of its diesel emissions tests emerged in 2014, before it admitted that 11 million cars were actually equipped with illegal engine software.
Over that ridiculously prolonged period, VW’s share price collapsed by 45%.
Takata, the world’s largest suppliers of automotive air bags, took 194 days after the first report of fatal defects appeared in the New York Times in November 2014, before it confirmed the potentially fatal defects.
That was long enough for its share price to fall by 30%.
Despite all the hype, Samsung has actually handled its Galaxy Note 7 Crisis relatively well.
After first reports of its exploding problem emerged in September 2016, it took Samsung just 42 days to manage their way through 9 different phases of Crisis Management, resulting in the final closure of the entire product line.
The fall in share price was only 5%.
Target moved even faster in 2013. They told 40 million customers that their data had been compromised just 29 days after discovering the breach.
Their share price declined just 3%.
GM’s Mary Barra set a new standard in 2014. It took only 13 days for GM’s new CEO to admit to faulty ignition systems and start recalling vehicles.
As a result, GM’s shares lost only 6% in the next quarter.
On the other hand, Yahoo waited 55 days after discovering their data breach to tell 500 million customers in September 2016.
That delay could just have cost them US$5 billion of Verizon’s money.
The Speed of a Tweet
Social Media and Digital News make the need for speed greater than ever.
According to recent research by Freshfields Bruckhaus Deringer LLP, 28% of Corporate Crises have become international news within 1 hour.
Yet it normally takes companies at least 21 hours to formulate an official response.
And one year later, 53% of companies had not seen their share price regain pre-crisis levels.
So it’s truly amazing that companies like VW and Takata still think that procrastination can save them.
When it’s most likely to destroy them.
At Reputation, we help listed Corporations get prepared for potential Reputation Risks.
If you are a CEO of a listed Corporation, and you would like to discuss how to minimise the impact of a Reputation Crisis, please connect via our website or by email to Connect@TheReputationPartnership.com – and we will reply, in strictest confidence, by return.