The notion of crisis management is well known to entrepreneurs in the modern age, with the last 15 years having seen a global recession, stagnant growth, and (more recently) rampant inflation of 9.9%.
During this time, effective crisis management has proven crucial for businesses, while it continues to create a significant opportunity for companies during challenging economic and market conditions.
But what do we mean by ‘crisis management and how can businesses safeguard their stock value during challenging times?
What is Crisis Management?
In simple terms, crisis management describes the process of dealing with crises in a manner that minimise damage and enables businesses to recover as quickly as possible.
This has numerous advantages, aside from the fact that it helps to minimise financial loss and optimise performance during various macroeconomic or geopolitical challenges.
Of course, the term ‘crisis’ is also quite nebulous in itself, as this can also apply to internal challenges such as product recalls or high-profile marketing misjudgments.
Make no mistake; dealing effectively with such crises may prove crucial to your reputation, with an ability to be proactive when confronting challenges and a willingness to resolve any subsequent issues helping you to minimise potential damage over time.
What Types of Crises Are Common?
We’ve already touched on some of the most usual corporate crises, with high-profile product or safety failures particularly damaging from a financial and reputational perspective.
But what other types of crises are common? Well, technological disasters are increasingly common in the digital age, especially as ventures now operate more exclusively online than ever before.
For example, businesses have continued to experience so-called “cyber breaches” of late, which leave sensitive consumer data exposed to the machinations of hackers. There were more than 400,000 reports of fraud and cybercrime in the UK last year alone, with some 60,111 of these being made by businesses and commercial enterprises.
Other crisis may be the result of an accident rather than design, from natural disasters to those that occur as a result of fire. Such crises place both your business’s assets and its staff members at risk, so it’s important to take preventative measures to safeguard against such impacts.
How Can Your Business Protect its Stock Value During a Crisis?
The latter point is a key consideration, as being proactive and identifying potential risks often provides the best insulation against stock value depreciation during times of crisis.
For example, your business may be at a higher risk of experiencing a natural disaster based on its physical location. In this case, you’ll need to corporeally protect your premises where possible while also seeking out bespoke and relevant insurance coverage.
When reacting to a crisis that affects your business, speed and efficiency are also key. Studies have shown that brands which were slower and less effective in their crisis response saw their stock value decline by 7% on average, usually within the first three months after an incident occurred.
The same companies were also 5% down on average in the first year following a crisis, with investors regularly appraising the response of companies when targeting suddenly devalued and crisis-ridden stocks.
Conversely, businesses that responded with speed, openness, and greater efficacy saw their stock price increase by 4%, with this measured through sentiment and analysis of media and social media coverage.