Businesses can suffer immense financial damage due to controversies, scandals, and data breaches. Firms in the US have lost up to $1.3 trillion due to cyber-attack-related incidents since 2004. As a result of data breaches, companies are typically hit with immediate costs such as notification processes, legal and regulatory fines, and penalties, not to mention any reputational damage that may occur.
The reputational damage is brutal to quantify but can be as significant as the monetary loss due to the data breach itself. According to IBM’s 2018 Cost of Data Breach Study, regulatory fines and penalties account for only 4% of the total cost associated with a data breach. It is estimated that around 1 in 4 companies experience a material decline in their share prices after a data breach is made public.
In addition to financial losses from cyber-attacks, businesses also take a severe hit from controversies or scandals involving the company or its executives. For example, when Volkswagen’s emissions scandal broke in 2015, it resulted in an estimated $30 billion loss for the company. Similarly, Wells Fargo faced millions of dollars in fines due to their fraudulent accounts scandal, which led them to lose their CEO and Chairman positions and develop an expensive consumer remediation plan of over three billion dollars.
Overall, businesses should be aware of both external and internal risks associated with controversies, scandals and data breaches because they can cause severe damage not only financially but also reputationally if proper measures aren’t taken on time when faced with such situations. Here are a few tips to help with damage control when facing a scandal or data breach.
Understanding the Situation
The first step in damage control is to gain an understanding of the situation. It’s vital to quickly assess the root cause and impact of the scandal or data breach on customers, employees, partners, and shareholders. You should also identify the affected parties accurately.
The process involves a series of steps that you should take to get a proper understanding of the incident. These include reviewing the history and background of the company, interviewing key stakeholders, analyzing documents related to the case, and searching for any regulatory or legal violations that may have occurred.
By understanding how the scandal or breach happened, the company can implement measures to prevent similar incidents.
Once the situation is understood correctly, the next step is prioritizing recovery. This involves ensuring that any losses are minimized and damages are repaired quickly.
Companies should focus on restoring public trust and repairing their reputation to prevent financial losses from occurring due to a decrease in customer loyalty or sales. They should also focus on improving internal processes and procedures to ensure compliance with laws and regulations and prevent similar incidents from happening again.
Recovering finances can be challenging, as it may take time for the company to get back up and running. Companies can take advantage of financial assistance programs offered by the government or other organizations, such as tax incentives, grants, and loans.
Finally, companies should conduct risk management assessments regularly to identify potential risks and evaluate their strategies to ensure they can mitigate any losses in the future.
Fixing Relationships with People
The last step in damage control is restoring relationships with people. Companies should focus on rebuilding trust and loyalty among affected stakeholders, such as customers, employees, partners, and shareholders. This may involve setting up a customer advisory board to gain feedback from customers or offering incentives to existing ones.
It’s also essential for companies to communicate openly and honestly about the incident and any steps taken to rectify it. Companies can use social media campaigns and other marketing methods to spread awareness of their efforts in restoring public trust. Moreover, businesses should invest in pay-as-you-go public relations services to help them manage their reputation and help with damage control.
Avoiding the Same Problem
The controversy or breach must be a lesson learned for the company, so they should take measures to ensure that similar incidents don’t happen again. Companies can do this by conducting regular risk assessments, investing in cybersecurity tools, implementing better data privacy policies, and more.
Companies should also regularly review their organizational structures and processes to ensure that all employees know the protocols for handling sensitive data. By educating employees on best practices for data security, companies can reduce the chances of future breaches or scandals.
When faced with controversy or data breaches, businesses must have a damage control protocol. By taking the proper steps at the right time and understanding the situation correctly, companies can limit financial losses and maintain customer loyalty while restoring their reputation. It might take a while before your company recovers, but it remains possible.