Reputational Damage After a Cyber-Breach

Reputational damage after a cyber-breach: how does it manifest, and what can your organization do to circumvent it?

Reports show that the victims of cyber-attacks suffer high direct costs due to the price of IT recovery services, lost revenue due to downtime, potential fines, and legal action. Skepticism and lack of trust directed toward an organization can be severe.

However, if leaders can understand how reputational damage manifests, they can analyze their business operations to identify high-risk areas and take proactive measures to secure them such as implementing access security controls and encryption to protect sensitive data and implementing vulnerability management programs to reduce the likelihood of becoming a victim.

Consumers are paying attention to the security of their personal information more than ever. At the same time, partners that depend on an organization's supply chain could be left feeling abandoned if the cyber-breach of a partner impacts their own ability to do business. In the long run, the impact of reputational damage could prove to be the proverbial straw that breaks the camel's back leading to loss of brand position and or even insolvency in the long term.

This article seeks to uncover various ways that reputational damage can manifest in the wake of a cybersecurity breach, and discover strategies to safeguard against it:

What Is Reputational Damage?

While it's it may be obvious to simply say that reputational damage is a critical aspect that organizations must consider and protect against; What is reputational damage exactly? 

In the "always-on" highly connected digital world we live in a company’s reputation can receive a damaging blow instantly.  Disgruntled customers can easily post on social media about perceived unethical behavior and in a highly agile business world, key partners can quickly refactor their supply chain. Other potential sources of reputational damage includes brand impersonation scams and even internal personnel. 

In the context of cybersecurity breaches, reputational damage often arises due to the mishandling or exposure of sensitive data, security vulnerabilities, or perceived negligence in safeguarding customer information. Media coverage, public opinion, and social media play significant roles in shaping the narrative surrounding the entity and can magnify the consequences of reputational harm.

Reputational damage should be considered one of the strongest motivating factors behind efforts to implement a formal cybersecurity program that includes proactive threat-hunting activities and auditing. The 2022 enactment of legislation in the US requiring the formal disclosure of cybersecurity breaches puts additional pressure on companies to avoid the public shame that disclosure would impose.

Ways That Reputational Damage Manifests

The consequences of reputational damage after a cybersecurity breach or incident are far-reaching and can have a lasting impact on an organization's overall success and viability. The first step to mitigating the potential impact of reputational damage is to understand how it manifests in order to map the most high-risk areas within your organization. Once leaders understand all the ways that reputational damage could impact them, the value of implementing robust cybersecurity controls and developing a well-prepared incident response becomes more obvious.

Customer Relationships And Trust

In recent years, consumers have become more aware and concerned about the impact that stolen private data can have on their lives. The Equifax breach is a clear example of how hackers can impact the privacy and security of consumers. But privacy concerns are not the only nuances of a cyber-attack that could potentially sour consumers. A high number of hacks against Healthcare companies has also led to chaos in hospitals and potential life-or-death situations for patients, and the Colonial Pipeline hack caused gas shortages for many in the east-coast United States.

Customers are willing to vote with their loyalty and this has been consistently evidenced in reports from major consultancy agencies. One report shows that up to 93% of consumers are willing to move away from a particular company after a data breach, while another indicates that US customers are the most likely to stop spending money with an exploited brand.   

Internal Company Culture

A cyber breach is likely to cause drastic changes to work culture and put additional pressure on employees impacting morale and productivity. If cybersecurity was not a part of the work culture before a major breach, it will have an even bigger impact after a breach has wreaked havoc. Sudden and disruptive changes to workplace culture can change employees' views of their employer and their job satisfaction, and may even cause critical employees to leave the company. With a tarnished reputation, companies may find it more difficult to attract new talent at a time when highly skilled workers are already increasingly harder to retain. For these reasons, it's better to include formal cyber-security policies as a consistent part of workplace culture before a breach happens.

Business Partnerships

Existing business partners are certain to suffer from prolonged or even short-term supply chain disruption caused by a supplier's cyber breach. In the short term, this will send them scrambling to find alternative sources - potentially leading to withered or even severed business ties. The increased competition can also force a company to reduce its prices to attract business opportunities.

Protective attention to cybersecurity is evidence that an organization cares about the success of its partners.  Also, well-defined and practiced Incident Response Plans (IRP) and Disaster Recovery Plans (DRP) ensure that business continuity can be sustained indefinitely, marking a company as a beacon of strength and winning the trust of its partners.

Investors and Donors

Once a company has been hit with a cyber breach, investors know the bottom line is going to take a hit which shakes investor confidence and has been shown to consistently lead to a short-term drop in stock price. Research shows that larger corporations are able to weather the reputational storm more easily than small companies, but it seems obvious that larger companies should have been in an even better position had they not experienced a breach, to begin with. Start-ups facing a cyber-breach, are most likely to sour investor sentiment and face insolvency.

Donors also have an expectation of privacy with respect to any financial records held by the recipient of funds.  If hackers are able to expose this information, key investors and donors could flee, leaving an organization without its key sources of support and growth. 

Institutional Scrutiny From Regulators, Lenders, And Insurers

A cyber-breach can also sour institutional sentiment crippling an organization's ability to secure loans and essential liability insurance. Legal actions and settlements can also uncover hidden truths about how an organization operates leading to increased scrutiny from exchange regulators.

Reputational damage with either of these institutional entities imposes significant costs on a company including the overhead of getting a loan, and increased insurance premiums. 

Conclusion

In the wake of cyber-breach, the threat of reputational damage looms large for organizations, and understanding its manifestations is vital to managing the risks. Consumers' awareness of data security is growing, leading to increased risk. Another potential ground zero for reputational disruption is internal company culture, affecting productivity and employee retention. 

Furthermore, business partnerships that suffer supply chain disruptions may prompt partners to seek alternatives, investors may lose confidence, leading to short-term stock price drops, and donors might retreat due to exposed financial records that put their privacy at risk. 

Finally, some of the most critical institutional entities, such as regulators and insurers, have increased scrutiny towards exploited organizations, impacting loan and insurance availability. To counter reputational damage, organizations need to protect their stakeholder's data, employ proactive cybersecurity practices and create tested incident response plans to reduce the likelihood of suffering a breach and ensure they can quickly recover if a breach does happen.