Secrets of Successful Corporate Apologies

26 Oct, 2015

This story originally appeared in the October 2015 issue of the Council’s monthly newsletter, Impact.

The corporate apology used to be rare, but “has become a normal part of business discourse,” Harvard Business Review reports. Even so, we’re only beginning to understand how to offer an effective mea culpa.

Research published in Organizational Behavior and Human Decision Processes might seem obvious. When corporate executives looked cheerful when issuing an apology, the company’s stock dropped. “The more the person smiled, the worse his company performed,” researchers found.

Looking sad didn’t increase the stock price, but it did “allow the company to move forward,” say researchers from the University of California, Berkeley Haas School of Business and the London Business School. But over time, the stock price increased. “A good apology can build investor confidence,” researchers found.

A study published in the Journal of Corporate Finance, meanwhile, analyzed 150 press releases from 1993 to 2009, comparing how firms fared when they blamed themselves or external factors for poor performance. When companies blamed “economic forces” or other external factors, their financial decline continued. But when they took responsibility for missed earnings, they eventually rebounded — though both groups were almost equally likely to fire the CEO.

Being forthright and specific about troubled performance and taking the blame “cheers up investors” and probably “helps the company turn around the issue more quickly.”