Bad PR Sparks Fire of Change in U.S. Businesses
Want to get a company's attention? Go public with your gripes. Few things prompt change in U.S. businesses as much as bad media attention does, new research shows.
A study by University of Illinois business professor Michael Bednar found that negative media coverage prompts firms to engage in greater levels of strategic change than previously thought.
"As the news media reports negatively about firms, that registers with executives," Bednar said. "And that, in turn, prompts executives to engage in larger-scale strategic change."
As part of the study, Bednar and co-authors Steven Boivie, a professor at the University of Arizona, and Nicholas Prince, a doctoral student at Illinois, used computer-aided content analysis to determine how favorable the media coverage was for 250 firms over the course of five years. They examined 40,000 articles, and were able to quantify how positive or negative the coverage of the firm was.
"After we controlled for performance and several other variables that could affect media coverage, we found evidence for the main effect, that negative media coverage may act as a trigger for strategic change," Bednar said.
The researchers identified three main ways in which the media influences change among businesses, including by simply reporting about the actions of a firm.
"By shining a light on certain issues, and by the choices that journalists and editors make about what to cover, that has an influence," he said. "So if you have two firms who do essentially the same thing, the one that captures the media's eye is going to be amplified."
Another way the media can have an effect on a company is that it can act as the voice for different stakeholder groups who seek are looking for a way to spread their message.
"That means that even smaller groups can enact change or have outsize influence because now the media has given them a platform to voice their views," Bednar said.
The study shows the final way media can influence change is through investigative reporting, such as that by Bethany McLean, who helped to expose Enron in 2001.
"Through investigative reporting, she discovered that their financial statements didn't make much sense," he said.
Not all bad publicity prompts change, however. The researchers said companies that are generally successful don't run into as many problems with negative media attention. One example they point to is Apple, which came under fire for the working conditions of its factories in China but still manages to be one of the most valued companies in terms of market capitalization.
"If the firm is doing well financially, that certainly makes it easier to tune out the negative chatter from the outside," Bednar said. "The flip side, of course, is that when things are going poorly, the negative media coverage becomes that much louder, and makes that negative performance stand out that much more, which then acts as a strong trigger for strategic change."
Bednar said the key takeaway from the research is that the media is a powerful force that can easily influence the perception of most companies. He warns CEOs not to make biased decisions if they're overly influenced by negative coverage
"Just being aware of that potential influence can help you make better decisions, because there will probably come a time when it will be a good thing to respond to the media scrutiny," he said. "But there also may be other times when it makes sense to ignore the chatter and continue with a strategy that could pay dividends down the road."
The researchers also caution business leaders to not discount negative media attention when the company is performing well.
"That can make us so focused on, 'Hey, we're doing fine, we don't need to listen to outside voices,' " Bednar said. "Well, that's a situation that could pose a risk to firms as well."
The study is scheduled to appear in an upcoming issue of the journal Organization Science.