Can negative publicity and a lower level of reputation paradoxically offer benefits for CEOs in stigmatized industries? Professors Mohamad Sadri, ESSEC Business School, and Caterina Moschieri, IE Business School, explain why the conventional rule that negative publicity is bad for business does not hold true in sin industries.
Stigmatized industries such as arms producers and tobacco companies are characterized more so by their social contestation and hostile audiences than their products and services. As the bad guys of business, the frequent negative publicity in the forms of media trials and social activism usually condemning the morally deviant nature of these industries is neither surprising nor personally affecting for those working in such firms.
From the outside, it also seems reasonable to assume that such consistent negative publicity would take a toll professionally on people involved in the industry and its companies. However, the world of stigmatized industries is more nuanced than that. Moreover, Sadri and Moschieri explain how such negative publicity might actually be beneficial for the CEOs of companies in stigmatized industries.
Can negative publicity have positive outcomes?
In today’s economy, a firm’s actions and behaviors are, at least partially, attributed to its CEO. With the hustle culture and social media booming, CEOs have become celebrities, and with more fame comes more scrutiny. Especially in a stigmatized industry like the global arms industry, CEOs are more often than not the focal point of negative publicity. However, is it bad for them? Apparently not.
Sadri and Moschieri find that actors within stigmatized industries actually value such negative publicity and use it as a signal of belonging to the industry. While negative stigma is normally received by those in an industry distancing themselves from the sinner, in stigmatized industries people tend to embrace the person associated with the stigma.
In fact, according to the research carried out, CEOs responsible for negative publicity for their firms are often rewarded with more opportunities within the industry. Indeed, such CEOs are found to gain more opportunities to join the inner circle of the directors or board members of other firms as a direct result of the negative publicity their firm generated.
Negative publicity as a sign of belonging
In the usual context of business, there are positive traits for CEOs that may earn them brownie points when they want to join the board of another firm. Similarly, there are also traits for CEOs in sin industries that earn them brownie points when they join another firm within the stigmatized industry (as far as we can call them positive traits, remains questionable).
When CEOs have high reputational capital, it is beneficial for them to join the board of another firm in the same industry, this capital being seen as an indication of the valuable capabilities and expertise that the CEO can bring to the firm. Here again, we encounter the exception of stigmatized industries to the rule. Here, low levels of reputational capital open more opportunities for them.
In addition, Sadri and Moschieri also observe an inverse relationship between a firm’s negative publicity and the likelihood of its CEO joining the board of other firms within the stigmatized industry. As CEOs with higher visibility are already earmarked, the marginal benefits of negative publicity are more pronounced for CEOs with low visibility as this increases the ingroup members’ attention on the targeted firm and its sinful CEO.
Of paradox and the need to rethink strategies
All in all, the way things work in stigmatized industries is atypical of the general way in which things work. The rules and customs within such industries are generally against conventional wisdom, demonstrated by the benefits of garnering negative publicity. As there is a high incentive for CEOs to deliberately involve in controversial practices and behavior in an attempt to gain negative publicity, both internal and external control of CEOs becomes essential in such contexts.
Internally, board members can implement measures to constrain CEOs and prevent them from engaging in practices that invite negative publicity. For instance, tying and limiting their level of compensation to negative publicity received by the firm. Externally, the paradox extends to social and environmental activists. They might want to reconsider their strategies of boycotting and targeting firms in stigmatized industries as – more often than not – this provides paradoxical positive outcomes for CEOs.
Related research: The Perverse Consequence of Firms’ Negative Publicity in Stigmatized Industries: CEOs’ Board Appointments, Mohamad Sadri, Caterina Moschieri, Journal of Management 1-36; DOI: 10.1177/01492063221133744.