If you’re like us, you spend a lot of time reading the business news. And you’re be familiar with a strange paradox: while some highly respected business leaders can be brought to their knees by one poor decision or ethical stumble, there are others that seem to get away with it time after time. In the language of the CBD, they’re Teflon-coated.

It hardly seems fair that those who have spent their career doing the right thing attract more criticism when they fail. But it seems there is nothing the public hates more than a hypocrite.

Psychologist Dr. Melissa Wheeler says hypocrisy is often considered a bigger sin than the transgression itself.

“The thing that really gets people’s attention is someone’s moral hypocrisy – when you say something, but do something very differently. Or you condemn something, but then have been found to be doing it as well”, says Wheeler, who has a PhD in moral and social psychology and is a Research Fellow in the Department of Management and Marketing at the University of Melbourne.

Cyclist Lance Armstrong is therefore judged more harshly because he was a healthy-life champion who was doping himself throughout a career, which included winning seven Tour de France events.

“The thing that really gets people’s attention is someone’s moral hypocrisy – when you say something, but do something very differently.”

Conversely, we shrug off US President Donald Trump’s Twitter diatribes and troublesome behaviour because they’re generally consistent with his career and private life over the decades.

“With Trump, I keep wondering why people aren’t more outraged and shocked at all the things that are coming out, scandal after scandal, and why are people not even batting an eye anymore”, says Wheeler.

“And I think it is because we have come to expect that from him, because it conforms with what you are expecting and it conforms with your stereotype of what he, as a politician, is.”

Surprise makes a scandal ‘stick’

Mud seems to “stick” if someone does the unexpected or flouts their own stereotype, she says.

In the corporate world, Volkswagen’s falsification of its vehicle emissions data became one of the biggest scandals of 2015. It was trading on its “green” credentials, but was lying about its performance.

Organisations cannot even expect that their good record will help insulate them from future mistakes.

“If you do anything to fall from that grace, it is going to be worse”, says Wheeler.

In fact, not only can “good-practise champions” attract more criticism when they fail, they can also draw more scrutiny in the first place, according to the managing director of the Australian Centre for Corporate Social Responsibility, Dr Leeora Black.

“Paradoxically, sometimes companies with stated good intentions are targeted [by activists] more frequently than companies without, simply because they are more likely to respond.”

Black, an advisor with a PhD in Corporate Social Responsibility, says change campaigners will target companies that already have expressed a commitment to be socially responsible. “They know they will get more traction from those companies than companies that don’t care.”

“Paradoxically, sometimes companies with stated good intentions are targeted more frequently than companies without, simply because they are more likely to respond.”

Activists target companies they can change

Public opinion and media coverage often follow the activists, which goes some way towards explaining why socially responsible companies get more flak for their ethical breaches, she says.

“Normally, without that targeting by activists, if a company is doing well and it stumbles, stakeholders are more likely to give it the benefit of the doubt.”

“Many people have spoken to me about this [phenomenon] in their companies, particularly in the early days, when they get started. Normally, companies that are further advanced in their corporate responsibility journey become more resilient and they also develop stronger relationships with stakeholders and so they are much less likely to suffer that kind of backlash when they do slip”, says Black.

“It is the companies that are newer to CSR that are more likely to get targeted and may be more concerned about it.”

However, fears of harsh judgement should not be a disincentive to hold and display high ethical standards. The business case of corporate social responsibility (CSR) is that the “benefits outweigh the troubles”, she says.

“And the troubles are short term and the benefits are long term.”

Black says the benefits of CSR are better employee attraction and retention, higher employee productivity and organisational commitment.

“For companies listed on the stock exchange, over time, their better performance will be rewarded by shareholders. There is also the opportunity for enhanced risk identification and management, enhanced innovation and improved reputation”, she says.

“But it does take consistency and persistency. You don’t just do one good thing and expect everybody to fall all over the place, gobsmacked about how wonderful your company is. That doesn’t cut it. That is the kind of thing that is more likely to be viewed as hypocrisy.

“Where there are systemic, fundamental, deep-seated commitments being made by the company that are being expressed in its culture and its strategy, then, over time, the persistence and the consistency will be rewarded and the company will become much more resilient to shocks that may happen from an occasional stumble.”

Scandal recovery depends on response

Wheeler says once a scandal has broken, an organisation’s ability to recover will depend on how it handles the aftermath and whether it uses it as an opportunity to grow.

Effective responses include taking responsibility, working around the facts of the transgression, not sweeping it under the rug and providing appropriate explanations for the wrongdoing.

“I think there is a real sincerity in that. So, it is not just like trying to weasel out of the blame.

“And then people like to see that the companies are willing to accept and serve what might be considered an equitable punishment. They want to see there is some punishment for the action and some consistent internal changes – what sort of rehabilitation are they doing?”

University of Pittsburgh researchers studied 100,000 social media tweets to see how the tenor of the public discussion changed in the weeks following Volkswagen’s emissions data scandal.

A sentiment analysis over four separate weeks showed how criticism of the company abated once Volkswagen and the regulators took action.

“Ultimately, if the company’s efforts at recovery are successful, the sentiment returns to a neutral state”

Sentiment about the brand was extremely negative immediately after the news broke, but shifted once the company started recovery efforts (such as an apology and recall) and regulatory agencies placed responsibility with the company.

“Ultimately, if the company’s efforts at recovery are successful, the sentiment returns to a neutral state”, says the study’s lead author, Vanitha Swaminathan, Thomas Marshall Professor of Marketing at the Katz Graduate School of Business at the University of Pittsburgh.

Learning from the experience

The damage to Volkswagen included a plunge in their stock price, government investigations in North America, Europe and Asia, the CEO’s resignation, the suspension of other executives, the company’s 2015 record loss, and a tab estimated at more than $US19 billion to rectify the issues, according to American economist, Boris Groysberg, in the Harvard Business Review.

There are also expected to be long term impacts on the careers of Volkswagen employees. “Our research shows that executives with scandal-tainted companies on their résumés pay a penalty on the job market, even if they clearly had nothing to do with the trouble”, says Groysberg.

“Overall, these executives are paid nearly 4 per cent less than their peers. Given that initial compensation in a job strongly affects future compensation, the difference can become truly significant over a career.

Good news for those who have slipped up is that surviving a scandal can result in a stronger operating performance in the long term – if the organisation has learned from the experience, ejected the wrongdoers and put into place measures to avoid a recurrence.

Researchers at the University of Sussex studied 80 corporate scandals and discovered that although share prices plummeted by between 6.5 and 9.5 per cent in the month after the bad headlines started, the experience could lead to improved performance in the long term. The scandals included breach of contract, bribery, conflicts of interest, fraud, price fixing and other white-collar crimes, as well as personal scandals such as a CEO having an affair, lies on CVs and harassment cases.

Dr Surendranath Jory, who led the study, said safeguards put into place to protect against further abuses seemed to allay investor fears and avoid further drops in a company’s stock price, ensuring they rebound to the levels of their rivals. “Three years on from scandals, the share price performance of firms matched those that had not been affected by scandals.

“Clearly, investors value ethics and they place a premium on it.”

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