Reputation is not the only thing at stake with rise of mistrust

Businesses are facing increased challenges in managing reputational threats amid a rapidly evolving risk landscape marked by global shocks and the rise of AI-driven disinformation. According to insights from Gallagher, these developments make crisis management more difficult, particularly as many corporate communicators are already experiencing fatigue.

The past few years have brought a series of disruptive events, highlighting the need for businesses to mitigate reputational risks. Key events in the past four years include the global COVID-19 pandemic, an increase in wars and trade conflicts, rising geopolitical tensions, disinformation campaigns, and the proliferation of AI-generated fake news.

This period of frequent and interconnected crises is sometimes referred to as “poly-crisis” or “perma-crisis.”

These global shocks have created ripple effects far beyond their points of origin, affecting supply chains, financial markets, and public sentiment on a broader scale. The uncertainty surrounding where the next crisis may emerge has heightened concerns about how companies can manage these unpredictable risks.

Reputation, while not a standalone risk, is the outcome of other risk events, such as cyberattacks, product recalls, criminal activity, and negative media coverage. Gallagher emphasizes that it is difficult for companies to effectively monitor the financial impact of reputational damage, as few organizations have the metrics in place to manage it within an enterprise risk management (ERM) framework. This challenge leaves many companies vulnerable to the consequences of reputational harm.

A 2020 study provides context for understanding the financial threat posed by reputational damage, suggesting that intangible assets, including brand and reputation, account for as much as 90% of the market value of companies in the S&P 500. This underscores the potential damage that reputational risks can have on a company’s financial strength.

Mistrust stemming from disinformation

The rise of disinformation, particularly AI-fueled disinformation, has compounded these challenges. While propaganda has long been a tool in politics and conflict, the increasing reliance on fake news, often accepted as fact, poses a growing threat. This trend has been further intensified by the widespread use of generative AI to create written, audio, and visual content, distorting the narrative around politics, institutions, and individuals.

Laura Hawkes (pictured above, right), head of intelligence at AnotherDay, a Gallagher company, points to the growing prevalence of misinformation on social media, which is affecting businesses and conflict zones alike.

“The concern for our corporate clients is that, because of the way social media is now being used and digested, anything posted online about their organization may be taken as truth. It almost doesn’t matter anymore whether it is true or not,” Hawkes said.

Jake Hernandez (pictured above, left), chief executive at AnotherDay, also notes the rapid advancement of AI technologies, which have become widely accessible. He references how troll farms, notably the Internet Research Agency in St. Petersburg, attempted to influence the 2016 US elections.

“In 2024, the largest election year in history, there is potential for disinformation to be a lot worse, especially if there are no proactive measures in place to deal with it,” Hernandez said.

In light of these challenges, businesses are rethinking their approach to crisis management. The COVID-19 pandemic exposed gaps in crisis management strategies, including unclear roles and responsibilities, insufficient preparedness, and a lack of agility in returning to normal operations. As a result, many companies have found themselves stuck in a continuous loop of crisis response.

International SOS reports that 80% of senior risk professionals expect burnout to significantly impact their businesses in the coming year, while only 40% feel equipped to manage this challenge. As business leaders work to protect their companies’ reputations and market value, they are contending with the added strain of ongoing crises.

Eroding trust – how should firms address it?

In a world where algorithms create echo chambers and news cycles grow increasingly sensational, trust in institutions has eroded. However, Gallagher’s findings, supported by the 2024 Edelman Trust Barometer, indicate that people are increasingly placing their trust in their personal experiences, including their workplace and interactions with familiar organizations.

The business sector, according to the Edelman survey, ranks as the most trusted institution globally, ahead of NGOs, governments, and the media. In 27 of 28 countries surveyed, respondents reported higher levels of trust in their own CEOs than in other business or political leaders.

As a result, reputation risk management strategies are shifting from an “outside-in” approach, which focuses on external perception, to an “inside-out” model that emphasizes internal communication and company culture. In this new era of crisis management, organizations are increasingly adopting decentralized communications, with greater emphasis on two-way dialogue between employees and management.

By improving internal communication channels, businesses can strengthen their culture and bolster trust within their organizations. Virtual town halls, for instance, allow companies to gather feedback from employees and engage in meaningful discussions on various topics.

Lisanne Sison (pictured above, middle), managing director of enterprise risk management at Gallagher, stresses the importance of building relationships and preparing for crisis events through established networks.

“If you have already established relationships with key people, know what needs to be escalated, and have your network of partners in place, you will be much more nimble in responding. That muscle memory and connective tissue are really what’s going to help the organization respond effectively,” Sison said.

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