Preliminary results on a company's repair strategy

We have run the first experiment by looking at how a single company can repair its own reputation after a negative event of another company within the same business group.

It is a paper-based experiment with the participation of 99 students at Bocconi University.

We use the event of the Deepwater Horizon oil spill of the BP's oil business in 2010. Students first read the information about this event (regarding safety issue), and then evaluate BP's oil business and its another business in renewable energy and energy storage.

 

After controlling their evaluation of the oil business, we find that another company (the energy storage company) have better evaluations when it takes action not directly related to the negative event (regarding the safety issue). Instead of using a strategy that stresses its sound safety policies and procedures, it can avoid being negatively associated with the deviant company through a strategy addressing other social issues, such as local community development with education program and infrastructure building.

If the deviant company doesn't take any action, another company from the same business group can protect its reputation by stressing its virtue different from the deviant issue.

This suggests a distance strategy to avoid being directly associated with the deviance. It is a common strategy used by companies which are not in a business group too, such as partnering or competing companies in the same industry.

The next experiment will consider the strategic dynamic of both the deviant and the focal companies to see if such a distance strategy can still work when they share the affiliations to the same business group.