Fake news can soon erode trust in a company

I think there are two themes that come from this that companies need to be considering. They are particularly important for companies listed on the stock market.

As I have said in this column before, cyber crime is on the increase. It is now very easy for criminals to disrupt businesses by hacking into customer databases and stealing intellectual property. This can have a catastrophic impact on people’s perceptions of the quality of customer service or a product’s efficacy. It also calls into question the trust that customers have in the company. In short, businesses can be destroyed if they do not take the risk of cyber attack seriously.

Fake news about a company delivered through social media and other means is just part of this increasing risk. The whispers, rumours and innuendo that can be levelled at companies, can gradually, or very swiftly, erode confidence in a product or service.

Companies listed on public markets have a real challenge concerning fake news. Do they address it or ignore it?

We do a regular survey on market reputation, which we will be updating in the next few months. Last time round our survey said that the reputation element in a company’s value amounted to nearly one-third of that value.

The total value of all the securities on the London Stock Exchange is over £6 trillion. Small and mid-cap companies believe that 28 per cent of their value is accounted for by reputation.

Extrapolating this, the total value of corporate reputation for all UK listed companies could be worth as much as £1.7 trillion!

So how did companies respond when they had been subject of a rumour or allegation? Our survey told us that nearly half ignored the rumour or allegation, 26 per cent took legal action and others put out a press release or reported the issue to a regulator. When asked whether their approach stopped the rumours or helped with the situation over half said that either it hadn’t or they were uncertain of the outcome. I think this reflects that there is huge uncertainty when dealing with fast moving social media.

I am not a lawyer and it seems to me that if fake news is having an effect on a share price then it is a very difficult decision as to whether a company responds to it. If you respond to one allegation or rumour, do you then have to respond to every other subsequent rumour, otherwise silence may be taken as acceptance?

Recently we have been subject to a new law, the Market Abuse Regulation. This increases the pressure on companies to ensure that all relevant information to create a fair market in their share price is made available. But just as importantly there are consequences for those that spread allegations and rumours. The law makes it clear that any person putting out fake news through the media, internet or any other means, including circulating rumours, is committing a crime.

The criminal sanctions for insider dealing and market manipulation can incur custodial sentences of up to 7 years and unlimited fines.

So putting out fake news can create false markets for companies and can affect share prices. The consequences for those that do so are severe, and quite rightly so.

We pride ourselves on the quality and integrity of our public markets and we need to ensure that it remains that way.

But when politicians or newspapers put out fake news that affects an entire economy what happens then? I guess we’ll find out over the coming months and years.