Ashes, Ashes, Organizations All Fall Down!

Topic: Change Management, Organizational Reputation
Publication: Academy of Management Journal (DEC 2008)
Article: Good fences make good neighbors: A longitudinal analysis of an industry self-regulatory institution
Author: M.L. Barnett, A.A. King
Reviewed By: Katie Bachman

In these “interesting” economic times, it seems like every company is struggling to overcome challenges within their organizations. Bad news: You need to be worried about what your competitors struggle with too! In a recent article in the Academy of Management Journal, Barnett and King describe the influence of reputational spillover on organizations. The nuts and bolts of their argument is that a) consumers have a hard time telling similar companies apart and b) when something goes wrong in one company, it can taint others by association. For example, if you think back to the months after 9/11, Americans didn’t just stop flying on United Airlines, they stopped flying on airplanes. Tragedies that garner negative publicity are likely to hurt many companies within their industry.

Interestingly, there is a way to ameliorate the negative consequences when something like this happens and it may not be what you think. While companies may want to differentiate themselves from a tainted company (a short-term option), in the long term, companies would do well to band together. By keeping tabs on each other and forming some sort of self-regulatory institution, companies can keep away from bad publicity by keeping their competitors from making errors. Everyone benefits when no one’s screwing up.

Barnett, M. L., & King, A. A. (2008). Good fences make good neighbors: A longitudinal
analysis of an industry self-regulatory institution. Academy of Management Journal, 51(6), 1150-1170.

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