When Do News Media Cover Corporate Sustainability Problems?

Different corporate sustainability problems get different amounts of attention from news media. Specific factors predict coverage – and financial consequences for companies

The recent Volkswagen emission scandal received broad worldwide press coverage. In contrast, only a few outlets reported on the accused misappropriation of funds by Banorte, a leading bank in Mexico, in 2012.

What explains the gap? It’s not unusual: different instances of corporate misconduct often get very different news coverage. Researchers  Samuel Stäbler (Tilburg University) and Marc Fischer (University of Cologne) set out to understand why.

News media coverage matters because reporting on corporate misconduct drives both investor action – potentially causing hundreds of millions of dollars in losses of stock value — and societal awareness.

When the news media cover corporate sustainability problems

Stäbler and Fischer examined media coverage of 1,054 corporate misconduct events in 77 leading media from five countries (USA, Mexico, Germany, Great Britain and France). These events involved environmental, social, and governance issues: everything from human rights violations to oil leaks to financial misreporting. Product recalls were not included

They found that corporate misconduct receives coverage from more media outlets under these conditions:

  1. The brand is well-known. The number of media outlets covering a misconduct incident can be up to 39% higher for salient and strong brands. For example: Goldman Sachs and J.P. Morgan were accused of fraud in 2012 and 2010, respectively. Nine of the 15 leading U.S. media outlets reported on Goldman Sachs, but only 3 outlets covered J. P. Morgan. Why the difference? Goldman Sachs is by far the stronger and more salient brand.

  2. The event happens in the media outlet’s home country (especially with a foreign brand). 80% more media report the event if a foreign brand is involved in a domestic misconduct event. For example: The Volkswagen pollution scandal was covered in 100% of the leading U.S. media.

  3. The issue is environmental or governance-related rather than social. Social issues receive approximately 10% less coverage than environmental and governance-related issues. For example: Apple’s use of underage interns in India received little U.S. coverage, perhaps because it occurred in a foreign country and involved a social issue. Despite the high popularity of the brand, only 13% of U.S. media covered the story.

On the other hand, corporate misconduct receives less coverage if the company is an advertising partner of a media outlet. When a brand advertises heavily or exclusively in a news outlet, the news outlet is less likely to cover negative stories about the brand.[1] 

The figure shows these patterns:

 
 

How media coverage drives financial consequences for companies

Major media coverage has major financial consequences.

When four U.S. media outlets cover an instance of corporate misconduct, the company’s stock market value loss is $321 million on average one day after the event, the researchers found. They examined corporate misconduct incidents where U.S. stock market data were available: a subsample of 97 brands/firms and 347 incidents.

Four U.S. media outlets seem to be a critical threshold: Coverage from fewer outlets does not have a significant impact on stock value.

Under certain conditions, the losses can be even greater. For strong brands, stock market value falls by an additional US$114 million on average. Problems that happen domestically have the most significant financial costs.  A domestic brand involved in an event in the US sees an additional US$246 million loss. A foreign brand involved in an event in the US sees an additional US$426 million loss: for a total of US$747 million.

What media coverage of corporate misconduct means for companies and society

Companies can use these insights to prepare for media coverage of corporate misconduct, and perhaps to shield themselves. International brand managers should be aware of the higher likelihood of media coverage if their brand is involved in a local sustainability problem, for example.

Companies could also certainly use their advertising dollars to invest in selective partnerships, as a way of decreasing future coverage of a CSI event.

But there are broader implications for media and society, the researchers say. The media is an imperfect watchdog for corporate misconduct: their reporting clearly isn’t impartial.

“The media fulfill an important role in democratic societies by shaping public opinion,” said Stabler. “Consumers have the right to be informed about potential firm misbehavior in a transparent and balanced manner.”

The influence of advertising dollars may be particularly concerning. “It seems that media companies themselves do not always adhere to the high ethical standards they demand of others,” said Fischer.

Editors may not even be aware of their own biases. The researchers interviewed four newspaper editors about factors influencing their coverage; the editors dismissed a connection between advertising dollars and reporting.

“I see a broader lesson for all of us,” Staebler told NBS. “The lesson for all of us may be that we can’t rely on media alone to police company action.

“Our study does not enable us to make any specific recommendations about the usefulness of additional regulations. But it contributes to creating transparency about the issue and hopefully initiates a discussion about proper measures.”

Read the article: Stäbler, S., & Fischer, M. 2020. When does corporate social irresponsibility become news? Evidence from more than 1,000 brand transgressions across five countries. Journal of Marketing, 84(3): 46-67.

 

[1] Ebiquity, an international market research company, provided advertising data across offline and online media (note, however, that advertising data were only available for the United Kingdom, France, and Germany).

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  • Maya Fischhoff

    Maya Fischhoff is the Knowledge Manager for the Network for Business Sustainability. Maya develops and oversees NBS’s knowledge products, and is obsessed with communicating complex things in clear terms (when possible).

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