From Crisis to Change: Why Bad News Can Be Good News

Can bad news about companies be good news for them? How should companies turn crisis management to change management?

My recently published article, “Why bad news can be good news: The signaling feedback effect of negative media coverage of corporate irresponsibility,” published in Organization & Environment, explores these two questions using corporate social irresponsibility as the context. The study investigates how negative media coverage (signaling feedback) of corporate irresponsibility can elicit firms’ following positive corporate social responsibility (response signals).

Granted, no firms like bad media coverage. Bad news is absolutely bad news—think about angry customers, decreased sales, disinvestment, etc. However, what many firms tend to overlook is how bad media coverage also confers positive opportunities: it is a warning sign for the firm to initiate positive changes for its long-term success. Media coverage usually provides information that the focal firms did not normally have access to. For example, the media’s independent (free) research provides collected information from multiple stakeholders. These stakeholders even offer suggestions (again, free!). This is especially useful when it is about corporate social (ir)responsibility, which requires substantial stakeholder knowledge. Although not completely costless, all this information is invaluable feedback for the focal firms to understand what has gone wrong and where to move forward. Naturally, embedded in such media coverage crisis are great learning opportunities for firms’ long-term success.

Of course, not all firms can seize such learning opportunities, even if they know how invaluable these opportunities are. Firms need to know how to crack the code of the feedback. For example, what are the key needs behind all the reported stakeholder dissatisfaction? What is the relationship between different stakeholder demands? If a firm is a high-learning firm actively searching for new knowledge, typically in the form of research and development (R&D), it is in a better position to understand and exploit signaling feedback. This firm may be more capable of learning new information, inferring connections of seemingly unrelated information, and integrating new information into their existing knowledge. A case in point is my former company (Country Garden, a Fortune 500 property management company), which, in response to its workplace accident scandal, leveraged its R&D and developed robots to do dangerous activities.

Interestingly, my study also finds that for firms that do not have a strong learning capacity, negative media coverage can incentivize firms to learn in the form of R&D.  Some industry characteristics are also in play: firms that are already in R&D-intensive industries tend to increase their R&D more, considering the lower marginal costs. 

All the positive changes elicited by negative media coverage, be they small or large, suggest that firms can turn crisis management into change management, converting bad news to good news.

This study itself is a testimonial of learning from feedback. The editor and reviewers provided extremely insightful feedback, which gave me an incredible collaborative and learning experience. I certainly hope business and society can also engage in such collaborative learning to create a virtue cycle of business-society relationship.