Article

Research: When leadership scandals crush or help save careers

When brand leaders are at the center of a public scandal or other significant failing, new research indicates it's not always a crushing blow to their careers.

August 21, 2019 by S.A. Whitehead — Food Editor, Net World Media Group

Restaurant brands — particularly those with well-known or vocal leaders — may be more susceptible than most businesses to seeing negative news about those leaders catch fire online in ways that can singe and even incinerate a brand. But recent University of Notre Dame Mendoza College of Business research — soon to be published in the Strategic Management Journal — shows that while "viral" scandals have indeed taken down many business leaders, some will garner more support against attacks that may be particularly vicious or unfounded.  

The research — conducted by Notre Dame Assistant Professor of Management John Busenbark with co-authors Nathan Marshall/University of Colorado, Brian Miller/Indiana University and Michael Pfarrer/University of Georgia — centered around what the professors termed, the "severity gap." This is a measurement of the gap between the public perception of such scandals and their actual severity. 

Essentially, the researchers found that in the event of a scandal or any substantial negative news about a brand's leader, stronger-performing leaders are far more likely to retain their positions and even receive support from corporate colleagues.  

"Our central finding is that organizations are less likely to dismiss stronger-performing leaders when there is a high severity gap, and this is because internal stakeholders want to protect their organization and its central figures from what they perceive as undue scrutiny," Busenbark said in information he shared with this website about the research recently. "Weaker-performing leaders, however, are apt to get dismissed following a scandal with a larger severity gap. We argue this is because the excess drama from a large severity gap provides insiders with a perfect opportunity to scapegoat leaders they do not perceive as integral to the organization."

In order to study the issue, Busenbark and his colleagues actually looked at another type of business, NCAA Division I football and basketball. The study evaluated team head coaches following NCAA violations, using numerous rigorous econometric techniques to test ideas and findings. 

What's that got to do with the corporate leader? Plenty. In fact, the University of Notre Dame said it is the first research to show a disconnect between real and perceived views of scandalous acts. The findings show that everyone from the company's board to its management tend to rally around the high-performing brand leader at the heart of a scandal to more or less protect a valued company asset. 

"The lesson that managers can learn from Papa John's and other firms in similar circumstances, is that they need to remain particularly careful when making seemingly innocuous decisions when they are not performing very well. While they may believe that their platform affords them some discretion to perhaps be a bit inflammatory, it is unlikely their organizations will protect them unless performance exceeds expectations."                                - Study co-author John Busenbark

Naturally, there are parallels to the plight faced by the Papa John's pizza brand, following the multiple missteps, ill-advised comments and even a racial slur reportedly made by the company's founder, John Schnatter. In an interview, Busenbark said from the "eagle's eye" view of that brand — or any that have experienced similar situations over recent years — the media firestorm, as well as overall corporate and public upheaval surrounding such instances show how truly all-encompassing the overall social disapproval can be in the wake of such incidents. 

"In the past, executives and academics alike envisioned a relatively seamless line between the actual magnitude of a violation and the degree to which it resonated socially," Busenbark said. "Incidents like Papa John's, however, underscore how the activities of organizations or its focal leaders can get scrutinized and publicized almost independent of the objective magnitude of the violations themselves."

At Papa John's, of course, Schnatter was let go as CEO and member of the brand's board when media and huge swaths of the public began condemning his comments. But most of the vast majority of those comments had little to do with Papa John's food or service or even corporate leadership. Nonetheless, the scandal netted the overall brand broad social disapproval as the media and public commentary amplified. 

"Papa John's quickly learned that this type of social disapproval can manifest in financial declines if perceptions of the organization and its leaders in dimensions unrelated to the product resonate negatively with outsiders," the professor said. 

"In our research, we suggest that notably stronger-performing executives are less likely to get dismissed in situations such as this, which we refer to as a high "severity gap." A severity gap is high when an organizational action or violation does not confer a great deal of objective damage, but outsiders heavily scrutinize the activities or firm itself. Whereas we theorize and find that insiders (such as the board of directors and investors) are apt to protect and 'circle the wagons' around leaders who are performing very well when the severity gap is high." 

He said in the case of Papa John's, declines in the brand's overall performance before Schnatter's troublesome comments were made public probably made his eventual departure from its leadership far more likely than if, for instance, the brand had been riding higher financially, he said. 

"The lesson that managers can learn from Papa John's and other firms in similar circumstances is that they need to remain particularly careful when making seemingly innocuous decisions when they are not performing very well," Busenbark said.

"While they may believe that their platform affords them some discretion to perhaps be a bit inflammatory, it is unlikely their organizations will protect them unless performance exceeds expectations."

The Darden Restaurants story

Busenbark said further proof in the food service sector of the relation between company performance and a brand leader's fate came from Darden Restaurant Brands and its former CEO Clarence Otis. Following a span of less-than-glimmering financial performance under Otis, the company — which includes Olive Garden and Cheddar's among others — moved to restructure by selling off the Red Lobster brand.

"While this decision may seem rational because Red Lobster was one of the worst divisions of Darden, if not the worst, investors perceived this as a transgression emblematic of poor governance and leadership," Busenbark said. "Accordingly, this represents a somewhat high severity gap — liquidating a weak division is not necessarily very egregious, but it was perceived as such by investors and activists."

After this, Otis stepped down. But Busebark said the research indicates that had Otis and the brand, in general, performed better until that time, "it is quite probable that the board would have sought to protect him from the ire (of) investors in this circumstance."

What QSR leaders, boards can do

In Busenbark's view, the research underscores that old notion that the pen can indeed be mightier than the sword when it comes to corporate leaders and their violations or scandals. As for what leader can do to change their fates, he advises either doing what it takes to avoid that negative limelight in the first place or just perform very well — which is, of course, the real trick for all brands. 

But there's a wider lesson, too for QSR brands, Busenbark said. And it's directed squarely at companies' governing bodies, which Busenbark said are, after all, made up of people with subconscious behavioral tendencies to protect or dismissed top actors following violations. 

In essence then all this heavy-duty fall-out following these negative events really takes place without any explicit intent by anyone to protect or reject brand leaders in these circumstances. 

"We thus suggest that directors should perhaps try to remain cognizant of precisely why they may be inclined to retain or dismiss a CEO following a scandal," he said. "It is possible their firms would actually be better-suited in some circumstances to retain a weaker-performing CEO in the face of a high severity gap and dismiss stronger-performing CEOs."

Photo: iStock

About S.A. Whitehead

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Pizza Marketplace and QSRweb editor Shelly Whitehead is a former newspaper and TV reporter with an affinity for telling stories about the people and innovative thinking behind great brands.