Managerial irresponsibility and firm survival. Pivoting the company in the aftermath of a social scandal.

Abstract

This study is focused on the analysis of the factors that underlie managerial social irresponsibility scandals and the dimensions that influence the possibility to pivot the company back to success after a social scandal. Three characteristics distinguish organizational crises due to social scandals: (a) they often have such a significant negative impact on corporate performance to pose the very survival of the firm is at risk; (b) social evaluations of the firm determine both the emergence and the possibility to resolve these corporate crises; and (c) time is crucial, as the rapidity of the effective management of the crisis enhances the chance of its successful outcome. Thus, indications regards the relevant dimensions to analyse and the types of actions to take following social scandals may enhance the rapidity and effectiveness of the management of these corporate crises, increasing the chances of their success. The thesis proposed in this study is that the capacity to pivot the company back to sustainable survival in the aftermath of social scandals depends on the interplay between legitimacy loss and restoration, on the one hand, and the reputation of the company’s business units, on the other hand. Whilst legitimacy signals the firms’ alignment to cognitive, moral and pragmatic social norms and expectations, reputation signals the firms capacity to create value. Though these social evaluations are distinct, the argument made in this volume is that they are interconnected, as social irresponsibility scandals trigger an active process of overall re-evaluation of both aspects. The positive judgment of legitimacy restoration and firm reputation are both necessary to restore or maintain the relationships on the basis of which firms may sustainably draw resources and support from their environment.