Everybody makes mistakes. And that includes the biggest companies in the world, which are prone to gaffes, misjudgments and wrongdoing.
Some of these moments might even qualify as corporate scandals – the kind of incident that puts companies in the spotlight and puts their activities under intense public scrutiny.
But do these events cause lasting damage? Does an oil spill, fraudulent activity, or other unethical behavior really affect high-value reputations, sales, and market value?
Our research suggests not. In reality, our analysis of the effects of a wide variety of trade scandals shows that the effect is rarely as severe as one might imagine.
Instead, it seems audiences have a strong tendency to forget and move on. And even initial unplanned (and at the time unwanted) attention can lead to greater brand awareness, proving the old adage that all publicity is good publicity.
Take the recent rage on Spotify. In early 2022, the world’s largest music streaming service was accused by science and health professionals of offering a platform for misinformation about COVID.
So what happened next? At first there was a drop in the stock price about 12% when artists such as Neil Young, Joni Mitchell and Graham Nash announced they were removing their music from the service. This financial hiccup was followed by an immediate crisis stock price rebound which is likely to climb beyond pre-scandal levels. Spotify has moved to add disclaimers to its COVID-related content and removed some content.
So in the long run, this will probably be nothing more than a slight bump in the road for Spotify. As a company, it provides an extremely popular service and has 172 million premium subscribers worldwide, including 28 million in 2020. How many of them will cancel their subscription and give up access to their playlists carefully organized because Young and Mitchell decided to walk?
And while it’s true that the company’s business model relies on musicians and other content providers, the reality is that most artists can’t afford not to be on the platform. Giving Spotify the benefit of the doubt, it’s entirely possible that it made an honest mistake and underestimated how sensitive some people have become to discussions of the pandemic. Customers will probably make peace with this.
Similarly, Netflix will undoubtedly survive the recent controversies over some of its content, such as the British comedian Jimmy Carr’s comments on the Holocaust. With so many subscribers around the world drawn to the service’s wide range of content, Netflix is another example of an industry giant that can ignore things.
And remember Facebook’s Market Crash after being linked to the personal data of millions of users collected by political consultancy Cambridge Analytica? Don’t feel bad if you don’t, it lasted about seven seconds (OK, maybe seven days). The company then recovered all $134 billion (£102bn) it had previously lost in market value.
law and disorder
So what makes certain scandals persist? In our research, we have found that only certain scandals tend to have significant negative effects on corporate reputation and performance. A seemingly vital element is that a company be found liable by a court. The court process lends weight and depth to a scandal that might otherwise have quickly faded away.
the Volkswagen emissions scandal for example, began in 2015. Seven years later, the company is still negotiating settlements in class action lawsuits filed against it for cheating in emissions testing.
It’s the court that counts. Shutterstock/chrisdorney
The company’s stock price fell 30% immediately after the scandal (it has improved since the switch to electric vehicles) and Volkswagen’s reputation is still tarnished by the event as it continues to attract significant regulatory scrutiny, affecting its status with investors.
Similarly, years after being found responsible for the Deepwater Horizon Disaster in the Gulf of Mexico in 2010, BP is still paying the price for its negligence as it continues to be implicated in many lawsuits. And following regulatory intervention, German financial services provider Wirecard isn’t even here to tell how €1.9bn (£1.6bn) has disappeared from its balance sheet.
Yet without the companies’ guilt determined by the court, very few charges hold up, even in the face of intense media scrutiny. Without clear evidence of harm to a group of people, there is very little measurable negative impact or claim for compensation for the damage caused.
As consumers, we often like to point out moral superiority and enjoy the drama provided by the corporate discomfort of a juicy scandal. But our research found that people’s response to a business is driven by more mundane considerations. They’re price, convenience, loyalty, ease of use and habit – and there aren’t many scandals considered outrageous enough to make us change any of these.