AOM Press Releases

Medium: You May Not Hear About Bad Corporate Actions

29 Sep 2020
AOM researchers say that external oversight is failing to monitor companies’ behavior.

Research shows that companies benefit from having a good reputation. But what about when a company is known for doing bad?

Texas McCombs Associate Professor of Management Francisco Polidoro Jr. wanted to find out. Polidoro and his co-authors, McCombs alumni David Chandler, Ph.D. '11, of the University of Colorado Denver, and Wei Yang, Ph.D. '19, of George Mason University, considered 113 examples of major oil spills by 23 oil and gas companies in the U.S. between 1985 and 2016. They discovered that while the impact of a bad reputation can be complex, the media are less likely to cover repeat offenders who are responsible for larger oil spills. Polidoro says coverage of these events is influenced by the need for the news to be new, "resulting in the media ignoring behavior by firms with the worst track record in terms of a specific task, but penalizing those firms that perform relatively better by exposing their errors."

Polidoro recently discussed why, in some cases, companies can benefit from being bad.

In your paper, you differentiate between a company’s character and its capability. What’s the difference?

An organization may engage in activities that turn out to be bad. That’s not necessarily reflective of a deliberate attempt to be bad. We distinguish between a track record in prior oil spills that may be due to the organization failing and eventually causing that oil spill. That’s not to say the company is deliberately ignoring — or deliberately engaged in — activities that cause the oil spill. On the other hand, if the company is systematically being fined for environmental regulations they are not complying with, that’s about an organization’s character.

What else did you learn from this research?

We can’t just rely on external entities to monitor companies’ behavior. This may also be an eye opener for monitors, who can ask themselves whether they should be paying better attention. I don’t know what other news events are competing for their attention at the same time. But that’s definitely something they can ponder

Continue reading the original article at Medium.

Read the original research in Academy of Management Journal.

Also read this AOM Insights summary citing this research.

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