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(originally published by Booz & Company)


A Helpful Prod from the Press Gallery

The media’s impact can be felt by boards and senior executives in three main ways, say the authors, any one of which can cause management to chart a new strategic course if the sting of the news is forceful enough. The first way the press can affect companies is when it shines a light on a firm’s tangible actions (such as laying off employees or launching a new initiative that is proving unsuccessful). The second way is by serving as a platform for stakeholders, even small groups, and amplifying their messages. As an example, the authors cite the Occupy Wall Street movement’s influence on the decision of several major banks in October 2011 to reconsider charging consumers a fee for using debit cards. Finally, the third way that the press can have an impact is by uncovering damning evidence of a company’s failures, such as managers’ making bribes to gain footholds in new markets or allowing unsafe working conditions in foreign plants. However, the researchers did find that the power of negative coverage to act as a catalyst for strategic change was lessened, to some extent, by the overall level of success the firm was enjoying—particularly when its stock price was flying high.

Although prior research has tended to focus on internal variables as portents of change, this study shows that external stakeholders, such as the media, can play a crucial role in prodding companies out of their inertia. CEOs and directors should pay close heed (yet not overreact) to media coverage, the authors write, because scrutiny from the press is often the wake-up call for needed change. Although positive performance in the stock market can soften the impact of bad news, executives should not use that cushion as an excuse to dismiss downbeat signals from the media.

“That can make us so focused on, ‘Hey, we’re doing fine, we don’t need to listen to outside voices,’” one of the authors said in the press release. “Well, that’s a situation that could pose a risk to firms as well.” Just being aware of the influence that the media can have on a board, and particularly on independent directors, can make senior managers more willing to assess problems cited by the media, the author added, and to respond when necessary. 

Bottom Line:
Negative media coverage can lead to strategic shifts for companies—especially those with more independent-minded directors on their boards. Positive stock performance can paper over bad news to an extent, but ignoring the warning signs is a missed opportunity to correct problems that could become even more damaging down the line. 

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