April 8, 2013
Bad press can spur companies to make wide-ranging strategic changes for the better, new research suggests. As Strategy + Business reports, researchers from the University of Illinois at Urbana-Champaign and the University of Arizona randomly selected 250 firms from the 2001 S&P 500 and tracked their media coverage for five years, gauging the tone of about 40,000 articles from leading business publications. Negative language cropped up in multiple ways, often directly from the writers of the articles, but also in quotations from company CEOs or spokespeople.
“Negative media coverage about a firm is a salient trigger that suggests to top managers that the current strategy needs to be changed,” the study’s authors concluded. That impetus is most forceful in companies with higher numbers of independent directors on their boards, who may rely more heavily on external evaluations to inform their decisions.
Press scrutiny can highlight a firm’s failures or misdeeds, and amplify the criticisms of stakeholders, even small groups. Ignoring the warning signs, the study’s authors said, is a missed opportunity to correct problems that might become even more damaging in the future. — Greg Beaubien