The Crisis Response Index

Welcome to Bold Steps and Misses, presented by Hot Paper Lantern. In this series, we shine a light on those who push the communications industry forward, on digital marketing trends, on bold ideas that can be applied to your business, and misses to avoid. Today, we sit down with Ted Birkhahn, President of Hot Paper Lantern, to discuss the Crisis Response Index – a recently published study that explores the financial repercussions of proper and improper crisis communications.

What exactly is the CRI?

“The CRI stands for the ‘Crisis Response Index,’ which is something that our analytics team put together, trying to put a value on how a company responds to a crisis.

We looked at 45 companies that all went through a significant crisis event. Then, we analyzed over 400,000 media articles and 80,000 social media mentions about those crisis events. We did this analysis according to two criteria: speed and effectiveness. First, how quickly did these companies respond? We saw cases that ranged from minutes to months. Second, how effective was the response, as measured by sentiment analysis? Were companies being transparent, authentic, and empathetic in their responses? How were these responses resonating?

We then measured the impact of speed and effectiveness on what CEOs and boards care about most: shareholder value.”

What were the results?

“What we found was astounding. Of the 45 companies, those who were slower and less effective saw a decrease of 7% in the value of their stock price within the first three months following the crisis. Those same companies were still down 5% after the first year, and experienced an average loss of roughly five billion dollars in market cap value.

On the flip side of that, companies that responded effectively and quickly actually saw an increase of 4% in their stock price in the immediate aftermath of the crisis.

The speed of response also played a major role. Companies that responded to a crisis within days saw an average decrease of 2.4 billion dollars in market cap value, compared to a decrease of only 1.6 billion dollars when they responded within hours.”

What might prevent companies from communicating quickly and effectively during a crisis?

“One is the inability to really collect the right information. It’s hard to make business decisions in a crisis, and then communicate those decisions, if you don’t really know what’s going on. You need the facts.

Another major obstacle is bureaucracy. If the culture of the company is that it’s hard to make rapid decisions in high pressure situations, then what often occurs is gridlock. And while that gridlock takes place, the marketplace starts to form their own opinions and shape their own rumors.” 

What excites you about this?

“The Crisis Response Index doesn’t change what a lot of companies already know – the quicker you respond and the more effectively you respond, the faster you recover. What it does is put a price tag on it. It’s sort of a warning sign saying: ‘if you don’t have the ability to respond quickly and effectively, you’re putting your shareholders at risk.’ And, we have real dollar figures against that.”