Unethical firm behavior often unreported because of media interest
Recently, in the Netherlands, pharmaceutical giant Roche was accused for not releasing their corona test fluid recipe. Their test producing site in Almere even was defaced by the lyrics ‘how many death’? This scandal was soon overshadowed by the overwhelming other corona news, but corporate social irresponsibility (CSI) events such as human rights violations, corruption, and environmental scandals are increasingly moving into the forefront of society’s attention.
(Edited by Odette Bruls)
Nonetheless, news media do not report corporate misconduct consistently and independently. Instead, the media are often influenced by their own interests, such as advertising revenues. That is the result of a new study by Dr. Samuel Stäbler, Assistant Professor of Marketing at Tilburg University (Netherlands), and Dr. Marc Fischer, Professor of Marketing at the University of Cologne (Germany) that appears in the Journal of Marketing, the world’s leading academic journal in marketing.
Systematic news selection unraveled
Newspapers and magazines are restricted in terms of the number of articles they can publish and hence are not able to report every incident that happens in the world. Journalists may not choose which events to report about randomly, but rather select them systematically following a subtle editorial emphasis (e.g., covering only powerful brands). The authors adapt the theory of news value, an established paradigm to predict and explain when an event of unethical firm behavior becomes news.
Download the figure that illustrates the investigated drivers.
Analysis of large CSI dataset
For the current study, the two marketing professors examined media coverage of 1,054 CSI events in 77 leading media from five countries (USA, Mexico, Germany, Great Britain and France). They used multi-level logistic regressions to identify when corporate misconduct is reported – and when it is not. Additionally, the authors use the methodology of an event study to determine the financial consequences of unethical firm behavior.
Biased news reporting
The results are explosive because, the extent of the reporting is by no means impartial: in general, the examined online and offline newspapers and magazines frequently report on the ethical misconduct of popular companies with well-known brands. The number of media covering a CSI story can be up to 39% higher for salient and strong brands. News media also show a preference for events that happen in the home market and even more so for foreign brands. 80% more media report the event if a foreign brand is involved in a domestic CSI event.
On the other hand, media tend to cover CSI news less often for their advertising partners. When a brand advertises heavily or exclusively in a news medium, this reduces the likelihood of the news medium to cover negative stories about the brand.
Firms to stay below threshold
Furthermore, this research produces another important finding. If media coverage is not controlled for in the analysis, it suggests that investors do not care about unethical firm behavior. However, we do find evidence for a negative U.S. stock market effect when four or more U.S. media outlets cover a CSI event. The average stock market value loss is then $321 million.
So for firms it seems important not to exceed the threshold of four media outlets when involved in CSI activities. According to the authors, they can do so by e.g. smart advertising investments or strategically launch of other neutral or positive brand news simultaneously with the CSI news. Furthermore, if a CSI news outbreak is upcoming, firms could anticipate to meet increased need for information by investors.
Assistant Prof. Dr. Samuel Stäbler also notices an important ethical implication of his study results: ‘The media fulfill an important role in democratic societies in that they contribute to the formation of public opinions. Consumers have the right to be informed about potential firm misbehavior in a transparent and balanced manner. Our study shows that media coverage varies significantly when it comes to reporting about a CSI event. The more popular a brand is and the more the firm has to lose, the more likely are media to cover the story. News media also show a preference for events that happen in the home market and even more so for foreign brands. On the other hand, media tend to cover CSI news less often for their advertising partners.’ How this ethical issue must be handled goes beyond his own study, but is food for thought for ethical professionals.
Academic profile: Samuel Stäbler