Blindsided by Social Risk: How Do Companies Survive a Storm of Their Own Making?

11 Pages Posted: 21 Jul 2020 Last revised: 23 Jul 2020

See all articles by David F. Larcker

David F. Larcker

Stanford University - Graduate School of Business

Brian Tayan

Stanford University - Graduate School of Business

Date Written: July 21, 2020

Abstract

Our concept of risk continues to broaden and now includes instances in which representatives of a company make statements, actions, or decisions that damage the firm by inviting public scrutiny, sparking a reaction among customers, employees, regulators, or the public. This risk, which we describe as “social risk,” is more amorphous than the standard risks included in a company’s risk-management framework—and harder to plan for. We use proprietary data from Marketing Scenario Analytica (MSA) to examine how social risk manifests itself and what actions boards and companies can take to mitigate its impact.

We ask:
Given the sheer diversity of social risk, how can boards of directors prioritize their focus?
How can a company gauge at the onset whether a social risk will be major or minor?
What actions can senior officers take to mitigate the life of social risk?
How can social risk be incorporated into risk management frameworks?
What roles do management, audit, legal, and human resources play in this process?
How can boards evaluate how company culture and leadership influence the risk profile of the company?
What actions should they take if culture and leadership are deemed to increase risk?

Keywords: Corporate governance, activism, CEO activism, social risk, political risk, advocacy, corporate social responsibility, ESG, social issues, environmental issues, corporate reputation, reputation management, boards of directors, risk management, corporate governance research

Suggested Citation

Larcker, David F. and Tayan, Brian, Blindsided by Social Risk: How Do Companies Survive a Storm of Their Own Making? (July 21, 2020). Rock Center for Corporate Governance at Stanford University Closer Look Series: Topics, Issues and Controversies in Corporate Governance No. CGRP-85, Available at SSRN: https://ssrn.com/abstract=3655261

David F. Larcker (Contact Author)

Stanford University - Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

Brian Tayan

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
39
Abstract Views
145
PlumX Metrics