Report: One in 10 directors leave within a year of share price crisis

The ability to recover a share price of a company following a crisis has a major correlation with the likelihood its senior executives will leave the firm, according to a study from international law firm Freshfields Bruckhaus Deringer.

Mon, 3 Dec 2012
The ability to recover a share price of a company following a crisis has a major correlation with the likelihood its senior executives will leave the firm, according to a study from international law firm Freshfields Bruckhaus Deringer.

Just under 10% of senior executives of listed companies leave their firm within 12 months of a crisis that hits the company’s share price – with the average annual boardroom attrition rate standing slightly lower at 8%, the study says.This increases to 15% among executives who were unable to steer their company’s share prices back to pre-crisis levels within six months of the crisis, and drops to just 4% among companies that do.

Investor confidence and share prices are most likely to be hit by behaviour-based crises triggered by companies acting illegally or questionably, or by rogue employees, the report also shows.

Such crises can causes share prices to crash by 50% or more on the day they become public, in contrast to what the report terms ‘operational’ crises impairing a company’s ability to function, such as significant product recalls or environmental disasters, which have a modest impact in the first 48 hours of a crisis breaking but typically cause the greatest long-term effect on shares.

Meanwhile ‘corporate’ crises affecting the corporate and financial well-being of a company, including financing covenant breaches or material litigation, are the fastest to recover, while ‘informational’ crises, often impairing a company’s IT, such as system failures or hacking, have only a moderate effect on shares.

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