Does public shaming of companies work?
Terrific article from Working Capital Review on research that has been done on how reputation ratings can get companies to change their behavior. As we all know, consumers use ratings all the time now to determine whether they should buy from particular companies depending on how they treat the environment, treat their local communities, treat employees and behave in the aftermath of crises. This we know. Chris Riback who authored the article asked the right question — do ratings impact the companies as well and cause them to change their behavior for the better? He cites research that has been done on this exact question. One conclusion from the study by Duke’s Aaron K. Chatterji and Harvard’s Michael W. Toffel, How Firms Respond to Being Rated, was: “We find evidence that firms initially rated poorly subsequently improved their performance more than two groups of comparison firms: those that were never rated, and those that were initially rated favorably. We find that this main effect was driven by firms in industries that face significant environmental regulations and by firms that faced less costly opportunities to improve.” Therefore, companies can be shamed into being better corporate citizens. Riback rightfully also mentions that many of these reputation ratings and scorecards are based on poor and missing data that come from companies and better statistics are required to fully evaluate corporate social responsibility.
Public shaming of companies is more widespread since social media arrived. I think you would agree that it has become even worse. I recall the furor over corporate inversions where companies were shamed into not moving their headquarters to non-U.S. tax-friendly addresses through mergers or acquisitions in order to save money. Even though these maneuvers are technically legal, some companies choose to stay put due to the potential consumer backlash and political blowback. The media called out many companies and helped to dampen several corporate moves overseas. Even Jon Stewart got into the act referring to the Invasion of the Money Snatchers!
Public shaming has become one way to create change and get companies to pay attention. If companies start out on the right foot in terms of behaving transparently and honestly, there would be no need for this last resort tactic.