When a scandal hits one company within a business group, the consequences often ripple far beyond the offending firm. The guilt-by-association effect can stain the reputations of all affiliated companies, even if they had no involvement in the misconduct. In tightly connected business groups, where affiliates operate under a shared identity or governance structure, distancing oneself from the scandal is not as simple as issuing a press release or deleting a social media post. So how can these companies manage their public image without appearing disingenuous?
In their recent study, Professor Josh Wei-Jun Hsueh (Jönköping International Business School) and Professor Melanie Richards (TUM School of Management), published in the Journal of Management Studies, explore the subtle and strategic ways affiliates of a business group can preserve their reputations in the wake of scandal. Drawing on real-world case studies and stakeholder perception theory, they propose that post-scandal reputation management is less about grand gestures and more about a nuanced choreography of distinct, yet coordinated actions.
Key Findings
The research identifies three key factors that influence how affiliates can best protect their reputation in the wake of scandal: differentiation, historical baggage, and coordination strategy.
1. Differentiating Actions
The most effective approach affiliates can take is to differentiate their response from that of the scandalized firm. When two companies within the same group adopt similar responses—whether technical (e.g., implementing stricter controls) or ceremonial (e.g., highlighting CSR efforts)—stakeholders may assume they are equally involved or equally at fault. This blurring of roles can worsen the reputational fallout.
Instead, affiliates should deliberately choose distinct strategies. For example, if the deviant firm takes technical corrective actions, such as updating quality assurance processes, another affiliate might emphasize positive ceremonial actions like community partnerships, education programs, or environmental initiatives. This contrast helps stakeholders see that the affiliate is not simply copying the deviant firm’s tactics, but rather has its own independent response and standards.
2. More Critical if the Affiliate Has a Shady Past
Differentiation becomes even more important when an affiliate has a history of its own misconduct. A prior scandal makes a company particularly vulnerable to guilt by association. In these cases, stakeholders may begin to view the business group as having a systemic problem with ethics or governance.
To break this “bundling effect,” firms with a checkered past must make extra efforts to differentiate from the current deviant company. Their response must be not only proactive but also visibly distinct, demonstrating that the issues are not recurring or widespread. These firms need to show they’ve learned from past mistakes and are now operating with higher standards of integrity and transparency.
3. Beware of Over-Coordination
Coordination can be useful, but too much coordination can backfire. If all the affiliates respond in a tightly aligned, almost rehearsed fashion, it may appear manipulative. Stakeholders might see this as a PR maneuver orchestrated by the parent company to deflect criticism, rather than a genuine effort to address problems.
Instead, the parent company should take a light-touch approach. It can guide affiliates to ensure they don’t mirror each other’s responses too closely, but should avoid openly directing the group’s reputation management. Subtle, behind-the-scenes coordination enables affiliates to remain distinct while still contributing to a cohesive yet authentic overall narrative.
Potential Implications
These findings offer important insights for affiliated firms, parent companies, and external stakeholders alike.
For Affiliates Within a Business Group:
It is crucial for affiliates to avoid simply replicating the deviant firm’s post-scandal strategy, as using the same tactics may unintentionally suggest shared responsibility. Instead, they should deliberately choose a differentiated approach. For example, if the deviant company focuses on technical corrections, the affiliate might emphasize its ongoing efforts in sustainability or social engagement to shift the narrative. This strategic contrast can help create a clearer distinction in the eyes of stakeholders. Moreover, if an affiliate has a history of its own misconduct, it must be particularly proactive in demonstrating that it operates with integrity and has learned from the past.
For Parent Companies:
Parent companies should resist the urge to control or centrally dictate how affiliates respond to a scandal. Heavy-handed coordination risks creating the impression of manipulation. Instead, leadership should work behind the scenes to ensure that the affiliates’ responses are meaningfully distinct from each other, especially in cases where multiple affiliates have faced public criticism in the past. Quiet support and subtle guidance can enable a more authentic and effective group-wide response.
For the General Public and Policymakers:
When evaluating a business group in the aftermath of wrongdoing, the public and policymakers should be careful not to assume that all affiliates are equally responsible. It is important to consider each company’s role and actions individually. Additionally, observers should maintain a critical perspective on post-scandal actions. What may appear to be corrective measures by the deviant firm could, in fact, be intended to shield the broader group’s reputation rather than truly address the misconduct.
Navigating the Reputational Tightrope
Business groups face a complex reputation management puzzle when one of their own is involved in a scandal. The study shows that the answer lies in subtle differentiation rather than uniformity. Affiliates must tactfully separate their responses, using both technical and ceremonial tools to show they are not cut from the same cloth as the deviant firm.
But this is not a free-form dance. Coordination still matters, just not too much. When the parent company pulls the strings too obviously, the entire group risks appearing inauthentic. The key lies in carefully choreographing a performance where each company plays its unique part, offering credibility through contrast.
In today’s transparency-driven business environment, reputation is both fragile and collective. Understanding how to manage it, particularly within interconnected business groups, is essential, not just to survive a scandal, but to emerge with trust intact.
To the research: https://onlinelibrary.wiley.com/doi/full/10.1111/joms.13186
