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ACTS OF MAN REPLACE ACTS OF GOD AS MAJOR BUSINESS RISK WARNS INSURER
Tuesday 31 May 2011
Author: Russell Group
 

From CEOs to famous footballers the actions and words of a business celebrity is having a profound effect on its success.

As the reputation of a firms hangs on the actions of the management and those celebrities they hire to endorse their goods or services a study has found that over a third of people in the UK have decided not to purchase products or services from a company following negative comments from a CEO or celebrity ambassador.

The poll, carried out by ComRes on behalf of international specialist insurance and reinsurance underwriting group Kiln showed that 37 per cent of people report having previously been put off buying from companies following negative comments from senior executives or celebrity endorsers.

The poll also revealed that more than half of people (52%) changed their mind about buying from companies they had previously purchased from following negative media coverage.

Paul Culham, active underwriter, who leads the enterprise risks division at Kiln, said:

“Businesses today have never had their reputations so exposed to comment or attack from such a wide variety of sources. A local incident can very quickly be amplified to a global crisis, and empowered consumers now have a range of tools to voice their opinions, negative or otherwise, much more widely to online communities. These polling results demonstrate the wider impact of negative media coverage or an ill-thought senior executive comment can make to a company’s bottom line.”

The underwriter said the results of the poll are testament to the power of the media to affect purchasing decisions, particularly online sites. The rapid rise in social and digital networking sites such as Twitter and Facebook have meant that CEO gaffes or celebrity misdemeanours can now be shared across a massively wider national and global audience instantly, seriously affecting a company’s reputation with the potential to undermine sales and adversely impact share price.

The famous Gerald Ratner gaffe about the worthlessness of his company’s jewellery has been followed more recently by other CEO comments which have had a negative impact on consumer and stakeholder trust. These include well-documented quotes from Tony Hayward, CEO of BP, following the Deepwater Horizon explosion and Nokia CEO Stephen Elop, whose leaked internal memo criticised his own company’s performance.

Additionally, the exposure of number of celebrities’ private lives through the media has resulted in them losing lucrative endorsement deals, as companies were concerned about the negative knock-on impact on their brands.

Kiln today launched an innovative reputational harm insurance product which is designed to protect businesses’ revenue streams and brand credibility following a crisis. The product will cover the cost of hiring crisis PR and legal experts following negative media coverage as well as covering the revenue loss that arises as a direct result of an insurable event which triggers thereputational harm policy.

Mr Culham added: “From an insurance perspective traditional business continuity cover has broadly focused around areas defined as “Acts of God‟such as fire, floods or extreme weather which are outside of human control.

“However, the new media landscape is transforming corporate risk, and businesses need to take account of a more common and sophisticated wave of threats in today’s operating environment. Acts of Man is beginning to replace Acts of God in terms of likely threats to business’ licence to operate, and shareholders are increasingly voicing concern over the need to better protect intangible assets such as a company’s reputation or brand. CEO and celebrity ambassador behaviour clearly falls into this category. Our focus on developing innovative, specialist insurance products that respond to these challenges is a critical step in helping to address these emerging threats to businesses.

“Picking up the pieces of a shattered corporate reputation following negative media or online coverage requires decisive and expert consultancy and insurance is increasingly playing a vital role in this area. “