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This study examines the heterogeneity of firms’ responses to environmental, social and governance (ESG) incidents across 89 countries. The results reveal strong divergent reactions to the incidents between two distinct groups of firms. ESG-oriented companies implement more ESG practices after the incidents, which in turn helps resolve future ESG incidents leading to a virtuous circle. ESG-neutral firms by contrast decrease ESG practices after the incidents, leading to a vicious circle of accelerating ESG incidents. This discrepancy of actions is more pronounced in more intensely competitive markets. In contrast to prior hypotheses, ESG practices as competitive strategies are most critical for ESG-oriented firms in B2B/G sectors, and a negative feedback loop is also less severe for ESG-neutral firms in B2B/G rather than B2C sectors.
Despite ubiquitous recognition of the importance of sustainability–related policies among corporate leaders, our findings reveal that firms are likely to diverge in their responses to public criticism regarding ESG issues, whereby some firms embrace sustainability–driven innovation while others compromise such innovation. We demonstrate that this divergence is due to reputational imprints that were formed during a period of global crisis. Such negative disparities, however, can be overcome by coupling public criticism with additional supply–chain related scrutiny. Our findings offer a cautionary tale for stakeholders looking to use public criticism as a tactic for compelling corporate reforms. Although meant to create accountability and induce organizational learning during crisis, such criticism can have unintended effects by externally constraining organizations’ sustainability–driven innovation.
Prevent from Failing or Promote to Correct? CEO Regulatory Focus and Product-harm Crises
CEIBS Bin Zhao,
Simon Fraser University Taiyuan Wang,
Product-harm crises can pose great risks to customers and society, especially those that can have life or death consequences. Prior research has examined operational challenges associated with product failures, but less attention has been paid to the role of leadership in affecting the occurrence and correction of serious product failures. To address this issue, we investigate whether and how regulatory foci of a chief executive officers (CEO) may influence the hazard levels of the firm’s product failures and its correction speed when fixing serious product failures. We analyze data of 9,685 medical device recalls made by U.S. firms during 2003-2016 and find overall evidence for our hypotheses.
Hunted and Haunted: The Process of How Organizations are Stigmatized for Corporate Social Irresponsibility
Some firms receive repetitive media coverage on socially irresponsible events while others are forgotten. This study claims that the repetitive media coverage is an effect of organizational stigma and it is important for firms to prevent its development. The study then examines through what process organizations are stigmatized for the wrongdoings in their global supply chains. The findings of the study suggest that denial as a reaction to the initial media coverage significantly contributes to proactive and critical investigations and intense public discussions. Through the process, the firm and the event are registered as strongly linked in stakeholders’ minds, and the firm gets stigmatized. On the other hand, immediate admission and appropriate measures reduce recurring media reporting and the chance of stigmatization.
Keeping Up with the (Socially Responsible) Neighbors: the Adoption of Commercial Solar Photovoltaics
University of Iowa Arturs Kalnins,
University of Iowa
We develop and test a model that examines the role of community-level dynamics that influence companies’ decision to adopt CSR initiatives. We identify four processes that operate at the level of geographic communities. First, the pro-social competition effect focuses on the adoption of CSR activities by a competitor in a geographic community. Second, the natural resources effect centers on the abundance of natural resources in a geographic community for the adoption of CSR activities. Third, the political climate dimension emphasizes how a favorable political context can contribute to the adoption. Finally, the social movement activism dimension highlights the role of past activism in specific location. This is tested empirically by examining the adoption of solar panels at Walmart and Target locations.