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Companies that are transparent about issues during a public crisis are more likely to save themselves from falling stock prices than those that attempt to hide certain information, according to a report published earlier this week by Aon and Pentland Analytics.

The study, titled “Reputation Risk in the Cyber Age: The Impact on Shareholder Value,” states that crisis communication must be “instant and global” for a company's stock to survive something such as a data breach or a bad public relations event such as a scandal involving executives within the company. With the impact of social media, the impact of a crisis event means that a company's stock may decline even more quickly. For the past 10 years, reputation risk has occupied one of the top spots on Aon's biannual Global Risk Management Survey.

Aon, a global professional services firm, collaborated with Deborah Pretty, founding director of Pentland Analytics, to examine “ how reputation risk has changed in an age of instant communication and connectivity,” according to the report. The study looked at 125 reputation crises in the last decade, measured their impact on stock prices and examined key drivers of share recovery, with special attention to both the growth in social media and the impact on shareholder value of cyberattacks.

Randy Nornes, executive vice president of Aon, said that companies should be more concerned with their immediate reputation than pending litigation when it comes to maintaining their stock.

“Samsung is a great example because you look at the Galaxy Note 7 and you see that they reacted fairly decisively and they kept escalating the reaction to the point where they halted the whole model and basically took back every phone,” Nornes explained. “They made the right operational decisions and since that event, they've actually outperformed their competitors by almost 20 percent.”

Nornes explained that the perception over that period is that Samsung had a resilient management team and because of that, they were able to maintain their stock because their business model was still working.

“The basis of an analysis is to look at the future value of cash flow. Litigation is really a onetime negative in cash flow, but the real question is what happens to the underlying business. The valuation is based on that future cash flow. You want to make sure you come out of the other side with your business model still working,” Nornes explained. “It's really about the business and the perception of the business.”

Preparation for such events, Nornes said, is key.

“There are two things that a company can do and the way that lawyers engage within a company,” Nornes said.

He explained that a company should identify potential crisis scenarios and then do extensive tabletop exercises on those scenarios.

“The issue of how to disclose and what to disclose is work that is done in advance,” Nornes said. “Even if the issue that pops up is different than the one you planned for, all of that planning  will create a muscle memory so that you have a fast reaction.”

Finally, Nornes said that companies that invest in social responsibility seem to have some insulation from an event.

“If the perception going into that event is that it is an ethical company that cares about the community and its customers and something bad happens, they're given the benefit of the doubt and a little more leeway,” Nornes said.