Prof. Jung-Hoon Han of Sungkyunkwan University’s SKK GSB(Graduate School of Business) has published a paper in the prestigious Academy of Management Journal, shedding light on when misconduct by high-status firms escalates into scandals.

Prof. Han and Professors Timothy G. Pollock (University of Tennessee, Knoxville) and Scott Graffin (University of Georgia) analyzed 2015–2018 data breaches involving publicly traded U.S. firms.

They question the widely held assumption that scandals usually stem from high-status firms’ misconduct and demonstrate that the development of scandals depends on the perpetrating companies’ surrounding environment.

For example, if several large tech companies such as Google, Meta (owner of Facebook) and X (formerly Twitter), and the supermarket chain Walmart engaged in the same misconduct, the media would be less likely to report on and scandalize Walmart’s misconduct as it is easier to tell a story based on tech companies’ all doing the wrong thing than to try to crowbar a retail firm into the narrative.

The key takeaway is that journalists are more likely to report on and scandalize corporate misconduct when there is a clear industry-based pattern. The harder it is to identify a set of similarities that helps journalists tell a simple story, the lower the likelihood that any one firm’s misconduct will be scandalized.

These findings have significant implications for companies’ crisis management strategies. When facing misconduct allegations, firms should address public concerns by highlighting how they differ from other industry leaders who have engaged in misconduct and by stressing that their actions do not reflect an industry-wide failure.

From a preventive standpoint, firms should exercise caution when adopting practices from other high-status firms to avoid scandalization.

Journal: Academy of Management Journal

Title: Now you see me: How status and categorical proximity shape misconduct scandalization

DOI: https://doi.org/10.5465/amj.2022.0365 

First Author: Prof. Jung-Hoon Han of Sungkyunkwan University’s SKK GSB(Graduate School of Business)

The figure above illustrates that while high-status firms’ misconduct is more likely to become scandalized, such tendency is amplified when high-status firms’ misconduct has been prevalent within the same industry (a). In contrast, the prevalence of high-status firms’ misconduct outside an industry attenuates the scandalizing effect of focal firm’s status (b).