Is all publicity good publicity? The impact of direct and indirect media pressure on the adoption of governance practices

• Date: 01 September 2019
• Author: Henrich R. Greve,Timothy J. Rowley,Andrew V. Shipilov
• DOI: http://doi.org/10.1002/smj.3030
• Published date: 01 September 2019

RESEARCH ARTICLE

Is all publicity good publicity? The impact of direct

and indirect media pressure on the adoption of

governance practices

Andrew V. Shipilov

1

| Henrich R. Greve

2

| Timothy J. Rowley

3

1

Strategy Area, INSEAD, Fontainebleau,

France

2

Entrepreneurship and Family

Enterprise Area, INSEAD, Singapore

3

Rotman School of Management,

University of Toronto, Toronto, Ontario,

Canada

Correspondence

Andrew V. Shipilov, Strategy Area,

INSEAD, Boulevard de Constance, 77305

Fontainebleau, France.

Email: andrew.shipilov@insead.edu

Abstract

Research Summary:Media coverage is known to influ-

ence firms' behavior, but it is less known whether cover-

age of firms' partners also has an effect. In a context of

governance practices' diffusion in Canada, we distinguish

the effect of direct media coverage of the firm's activities,

from indirect coverage, defined as media coverage of the

firms' interlock partners. We examine whether the cover-

age is laden with positive or negative emotions. We find

that both direct and indirect media coverage have a strong

effect on firms' adoption of practices, either when the tone

is positive or negative. The findings indicate that media

coverage has broader and deeper effects on firms' actions

than previously known.

Managerial Summary:Firms are under pressure from

many outside stakeholders who want them to change. This

pressure is felt strongly when it is expressed through mass

media attention to the firms or their practices, and often

persuades management to make changes. We examine the

effect of media coverage on changes in governance prac-

tices, finding that media influences reach all the way to

the board. In addition, we find that both critique and praise

can lead a firm to make changes in its governance prac-

tices. The media attention does not even have to be

directed to the firm itself: when media targets companies

that share common directors with the focal firm, the firm's

board usually responds by adopting governance practices

as if media targeted the firm.

Received: 8 August 2018 Revised and accepted: 22 March 2019 Published on: 6 May 2019

DOI: 10.1002/smj.3030

1368 © 2019 John Wiley & Sons, Ltd. wileyonlinelibrary.com/journal/smj Strat Mgmt J. 2019;40:1368–1393.

KEYWORDS

board reform, diffusion, governance, media coverage, networks

Firms have multiple stakeholders, with formal and informal authority, and need to respond to these

stakeholders' pressures (Henisz, Dorobantu, & Nartey, 2014; Kacperczyk, 2009; Rowley, 1997). It is

well known that firms live in the public eye, and attention can be drawn to their behaviors by many

sources (Pozner, Mohliver, & Moore, 2018). For example, the tactics of social movements include

selection of when to targets firms, which firms to target, and when and how to target them (Rowley,

Shipilov, & Greve, 2017). Social movements also make use of media to put pressure on firms,

including creating rating or ranking systems that evaluate them along dimensions that are of interest

to the social movement and newsworthy to media (Abagail & Donald, 2000; Elsbach & Kramer,

1996; Espeland & Sauder, 2007).

The tone of firms' media coverage is important because it influences a wide range of important

outcomes. Firm behaviors that media labels as misconduct or inappropriate lead to loss of revenue

(Jonsson & Buhr, 2011; Jonsson, Greve, & Fujiwara-Greve, 2009). Board members and executives

can experience negative career outcomes after becoming associated with negative events that have

potential for media coverage (Cowen & Marcel, 2011; Gomulya & Boeker, 2016; Marcel & Cowen,

2014). Financial markets can assess a firm as being a risky asset as a result of negative media cover-

age (Kölbel, Busch, & Jancso, 2017). Conversely, positive media coverage has benefits in financial

markets (DeFanti & Busch, 2011; Pollock, Rindova, & Maggitti, 2008). These findings suggest that

executives should pay close attention to when and how their firm is covered in the media.

Media coverage can be utilized as an external oversight mechanism. In public corporations, gov-

ernance oversight is necessary for the reduction of agency costs which result from the s eparation of

ownership, in the hands of shareholders, and control, in the hands of managers (Fama & Jensen,

1983). Media coverage of a firm also reduces information asymmetry between management and

shareholders and penalizes firms whose actions or performance dynamics run counter to shareholder

interests (Bednar, 2012). Thus, media attention and governance practices aimed at increasing trans-

parency and aligning interests of managers with those of the shareholders should be related. There

should be a link between media coverage of a firm with the propensity of companies to adopt prac-

tices affecting board composition, board processes, or firm ownership that increase transparency and

facilitate oversight.

We look at the relationship between firm media coverage and board reform adoption. First, exis-

ting research focuses on the impact of a firm's own media coverage on its actions (Bednar, 2012). In

general, research predicts that firms dislike governance changes and that they change only due to the

exposure to negative coverage while resisting changes when coverage is positive. While we follow

the same logic in our hypotheses and replicate the negative coverage results, we find the opposite

effects of positive coverage. The stronger is the positive coverage of the firm, the more likely is the

firm to adopt new governance practices consistent with increasing the outsiders' oversight of the

company's management.

Second, we propose to supplement the focus on the firm's own media coverage with the network

view. Indeed, prior research has already shown that network ties such as board interlocks are con-

duits through which practices and behaviors diffuse (e.g., Davis & Greve, 1997). Assessments of

practices and behaviors may diffuse through the same conduits. We propose that the influences of

positive or negative media coverage on the firms' adoption of governance practices might come not

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