Study shows corporate social misbehavior hurts brands

In today's interconnected world, the actions of corporations can have far-reaching consequences. A new study, co-authored by two University of Akron (UA) faculty and published in the top ranked international business journal Global Strategy Journal, reveals that incident of corporate social irresponsibility (CSI) — like pollution, corruption, discrimination, or poor labor conditions in supply chains — significantly damage brand reputation and international sales growth.

Over nine years and across 109 countries, researchers tracked the performance of 335 company branches alongside reported CSI incidents involving their parent companies. The results clearly demonstrate that unethical behavior, no matter where it occurs, harms international sales.

Dr. Debmalya Mukherjee, professor and associate dean of the College of Business at UA, and one of the study's authors, explains, "Negative news about CSI incidents has a stronger impact on consumer perceptions compared to positive information like corporate social responsibility efforts. Consumers often trust third-party evaluations of CSI incidents, which further affects brand reputation."

The study identifies three main stages in how stakeholders react to corporate social misconduct:

Recognition: Stakeholders become aware of CSI incidents through media coverage, with global media playing a crucial role. Assessment: Stakeholders judge the severity and ethical implications of the incident based on their beliefs and the company's history. Action: Stakeholders may choose to boycott products or call for government intervention as a response.

"Despite being more costly, introducing new products often has a stronger positive effect than marketing campaigns, as consumers see them as genuine responses," notes co-author Dr. Erin Makarius, professor and chair of UA’s Department of Management.

Regardless of the tactic used, the study emphasizes the importance of clear communication and ethical standards across global operations to make a positive impression in the market.

"Global companies should prioritize transparent communication with their subsidiaries to swiftly address the fallout from socially irresponsible actions," urges Dr. Ajai Gaur, professor at Rutgers University and co-author of the study.

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