Answer to Lunch Time Teaser 15

The correct multiple choice answer to LTT-15 is option E.

Research undertaken by Rory F. Knight and Deborah J. Pretty of the Oxford University, examined the effects of varying responses to a corporate crisis. They found the impact on shareholder value of having an ineffective versus effective response to a corporate crisis can be as much as (-15% to +7% ) = 22% a calendar year after the event.  In this excellent research paper, they examine “man-made” corporate catastrophes, rather than ones caused by natural disasters, of publicly quoted companies, since 1980. Each company received headline news after the event.

Figure 4 on page 5 of this paper highlights the impact on shareholder value. The diagram also shows how management teams can in fact increase shareholder value after a crisis by demonstrating to the markets they have robust plans in place, and can respond effectively to a crisis. This should of course be good news to their investors/shareholders. For any aspiring ERM professional, this document is well worth a read.

Since this question was posted on 28 June 2015, there has been a major corporate crisis involving Volkswagen AG, and their share price dropped over 30% in a matter of days. And MTN Group has seen 20% wiped off its share price because it failed to comply with Nigerian law. Only time will tell if the markets judge whether the response of both corporations has been effective or not.

Lee Scargall
Lee Scargall
Lee is a senior risk management professional. He has extensive experience of managing both ERM and RAFM teams in telcos around the world, having worked for Ooredoo Group, Cable & Wireless and T‑Mobile UK.

Lee earned a PhD in Electrical and Electronic Engineering from the University of Newcastle upon Tyne, UK, for advanced research in to 3G video-telephony.