Good company, good target
Have you wondered like me why firms that are good end up being good targets? Is being number 2 easier than being number 1? Maybe so. Fortune calls this the “good company, good target” phenomenon. In short, the more virtuous the company, the more problematic. The slightest misstep among the giants turns consumers’ trust downward fast. Research at Northwestern University on this phenomenon finds that even though it makes complete sense to be proactively responsible as a corporate citizen, it also attracts activists who target them to meet their agendas. As the researchers say:
“In fact, despite strong arguments made to the contrary, there are good reasons to think that ‘doing well by doing good’ and creating a positive firm reputation may actually attract unwanted activist attention. If activists see their goal as not only to coerce firms into dropping bad policies and practices but also to increase general awareness about a social issue, then activists have incentives to go after firms that will maximize the likelihood of garnering attention and outrage. High-status firms with identities grounded in prosocial behavior should attract more attention for perceived normative violations than firms that are not seen in an equally positive light. For this reason, activists may be more likely, not less, to target firms that have committed themselves to CSR and have built a positive reputation.”
The authors – Bryden King and Mary-Hunter McDonnell – find that yes, indeed, companies that are visible, prosocial and awarded as good corporate citizens are more likely to be targeted by activists and boycotters. I guess this is what’s also called unintended consequences. The reputational halo that these good companies acquire from doing the right thing can suddenly lean into the reputation pitchfork effect. Of course there are many benefits to being a good company and their good deeds give them the benefit of the doubt, loyal customers and greater profits but it is important to also recognize that there are problems as well.
The researchers bring up a good point. They advise that further research is needed to investigate if the lesser regarded and lesser prosocial companies that fly under the radar are getting away with so-called murder because activists are focusing on the upper tiers of reputation royalty to change their behaviors. If no one is paying attention to these lesser-regarded firms, are activists now part of the problem when these companies hurt the environment, treat their employees poorly and do not contribute to the greater good. Are these not-so-good companies getting away with bad behavior and laughing all the way to the bank?