Companies are having a harder time controlling reputational risks in a risk environment that is changing quickly due to the rise of AI-driven misinformation and worldwide shocks. Gallagher’s findings indicate that these developments complicate crisis management, especially given the fact that a lot of corporate communicators are already worn out.
A number of unsettling occurrences over the last few years have brought attention to the necessity for organizations to reduce reputational risks. The global COVID-19 pandemic, a rise in trade disputes and wars, escalating geopolitical tensions, disinformation campaigns, and the spread of artificial intelligence (AI)-generated fake news are some of the major events of the last four years.
The terms “poly-crisis” and “perma-crisis” are occasionally used to describe this era of recurring and interrelated crises. These worldwide shocks have had an impact on supply networks, financial markets, and public opinion on a much larger scale than they did at the places of origin. Concerns regarding how businesses might handle these erratic risks have intensified due to the ambiguity around the potential location of the next crisis.
Although not a risk in and of itself, reputation is the result of other risk events including product recalls, cyberattacks, criminal behavior, and bad press. Gallagher notes that few businesses have the metrics in place to manage reputational damage within an enterprise risk management (ERM) framework, making it challenging for businesses to adequately monitor the financial impact of reputational harm. Due to this issue, a lot of businesses are at risk of suffering reputational damage.
According to a 2020 study, intangible assets like brand and reputation can make up as much as 90% of the market value of S&P 500 firms, which puts the financial threat posed by reputational damage in context. This emphasizes the possible harm that reputational concerns may do to the financial stability of an organization.
Mistrust brought on by false information
These difficulties have been exacerbated by the spread of misinformation, especially misinformation powered by AI. Propaganda has traditionally been used in politics and conflicts, but there is growing danger associated with the growing reliance on fake news, which is frequently taken at face value. The extensive use of generative AI to produce textual, audio, and visual material has exacerbated this tendency by warping perceptions of people, places, and politics.
Head of intelligence at AnotherDay, a Gallagher company, Laura Hawkes (shown above, right), draws attention to the increasing amount of false material on social media that is negatively impacting both businesses and conflict areas.
“What worries our corporate clients is that anything put online about their company could be interpreted as fact due to the way social media is being used and interpreted. Whether it is true or not is almost irrelevant now, according to Hawkes. The CEO of AnotherDay, Jake Hernandez (shown above, left), also highlights the quick development of AI technology and how easily accessible they have become. He makes reference to the efforts made by troll farms, most notably the St. Petersburg-based Internet Research Agency, to sway the results of the 2016 US elections.
Hernandez stated, “There is potential for disinformation to be much worse in 2024, the largest election year in history, especially if there are no proactive measures in place to deal with it.”
Businesses are reconsidering their approach to crisis management in light of these difficulties. The COVID-19 pandemic revealed flaws in crisis management plans, such as imprecise roles and duties, inadequate readiness, and a slow recovery from the pandemic to regular operations. As a result, a lot of businesses have discovered that they are caught in an ongoing crisis management cycle.
According to International SOS, only 40% of senior risk professionals feel prepared to handle the challenge of burnout, while 80% of them anticipate it having a major impact on their businesses in the upcoming year. Business executives are under more pressure to safeguard their organizations’ market worth and reputations while also juggling ongoing crises.
How should businesses deal with the erosion of trust?
Institutions are losing the trust of the public in a world where algorithms produce echo chambers and news cycles are getting more dramatic. Gallagher’s findings, however, show that people are increasingly putting their faith in their personal experiences—including their job and interactions with well-known organizations—as corroborated by the 2024 Edelman faith Barometer.
NGOs, governments, and the media are ranked lower on the global trust scale than the corporate sector, according to the Edelman survey. Respondents expressed more faith in their own CEOs than in other corporate or governmental leaders in 27 out of the 28 nations studied.
An “inside-out” paradigm that prioritizes internal communication and corporate culture is replacing the “outside-in” approach, which concentrates on outward perception, in reputation risk management techniques. Organizations are embracing decentralized communications more and more in this new era of crisis management, placing more of a focus on two-way communication between management and staff.
Businesses can fortify their organizational culture and increase trust by enhancing internal communication channels. For example, virtual town halls give businesses the chance to hear from staff members and have in-depth conversations about a range of subjects.
Lisanne Sison (middle in the above photo), managing director of enterprise risk management at Gallagher, emphasizes the value of forming connections and getting ready for crisis situations through established networks. You’ll be able to respond much more quickly if you already have strong relationships with important individuals, are aware of what needs to be escalated, and have your network of partners in place. The organization will be able to react more successfully because of its connective tissue and muscle memory, according to Sison.
