the corrective actions organizations pursue following misconduct

r Academy of Management Annals2019, Vol. 13, No. 2, 547–585.https://doi.org/10.5465/annals.2017.0090

THE CORRECTIVE ACTIONS ORGANIZATIONS PURSUEFOLLOWING MISCONDUCT: A REVIEW AND

RESEARCH AGENDA

MATT C. HERSELClemson University

CATHERINE A. HELMUTHCentral Michigan University

MICHELLE L. ZORNAuburn University

CHRISTINE SHROPSHIRE1

Arizona State University

JASON W. RIDGEUniversity of Arkansas

Organizational misconduct has substantial effects on the well-being of a firm and itsstakeholders. As this body of work has grown, organizational scholars have devotedconsiderable research attention toward understanding how firms can minimize thenegative effects of misconduct through various corrective actions. Consequently, dis-crete research streams have formed around specific types of organizational misconductand corrective actions, which has left the literature without a unifying theoreticalmodel. We provide a conceptual synthesis and typology that aggregates disconnectedconcepts into the higher order constructs of organizational misconduct (executive dis-missal, product recalls, organizational accounts, and policy changes) and correctiveactions (fraud, product safety issues, employee mistreatment, and environmental vio-lations). Using the theoretical tenets of stakeholder salience and managerial cognition,we offer insight and future research directions about managers’ decision-making pro-cesses following misconduct and why firms respond using accommodative versus de-fensive strategies.

Over the past 10 years, scholars have devotedsignificant research attention toward understandinghow organizations manage the aftermath of mis-conduct (Pfarrer, Decelles, Smith, & Taylor, 2008),with an increasing focus onwhat organizations do to“right the ship” once misconduct has occurred.Given the prevalence and enormity of the effectsof organizational misconduct, it is not surprisingthat research in a variety of disciplines, includingmanagement, accounting, finance, marketing, op-erations, and public relations, has examined thecorrective actions organizations pursue followingmisconduct. Through this research, scholars are de-veloping an increasingly fine-grainedunderstanding

of the effectiveness of various corrective actionsfollowing different types of misconduct.

Although researchers have amassed considerableknowledge on corrective actions in the past decade,several shortcomings in the literature necessitate areview. First, for the purpose of understandingwhenand how corrective actions mitigate the effects ofmisconduct, the focal concepts are underdeveloped.In their Academy of Management Annals review,Greve, Palmer, and Pozner (2010) defined mis-conduct with a focus on its antecedents and socialconstruction. Their review furthered the field’s un-derstanding of what misconduct is, factors that leadto it, and how it can be prevented. However, the lit-erature still lacks a typology that delineates specificforms of organizational misconduct and their vary-ing consequences. Capturing this is essential for1 Corresponding author.

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https://doi.org/10.5465/annals.2017.0090

understanding when and how particular correctiveactions mitigate the consequences of misconduct.Moreover, although the term “corrective action” iscommonly used and understood in the vernacularsense, it is rarely defined in meaning or scope(Arthaud-Day, Certo, Dalton, &Dalton, 2006; Coombs&Holladay, 2002; Skinner & Srinivasan, 2012). Thus, theliterature is unclear about how managers can mitigatethe effects of misconduct.

Second, scholarly works concerning various cor-rective actions have developed within separateconceptual silos, which diminish cohesion acrossdisciplines. For instance, a large quantity of researchon recalls, an important corrective action for productsafety issues, exists within the operations literature(Chiarini, 2015; Tse&Tan, 2011). Similarly, researchon managing stakeholder relationships through or-ganizational accounts following misconduct largelyappears in the communication and crisis-responseliterature (Coombs, 2007a). Even corrective actionscentral to the management domain, such as CEOdismissal and internal policy changes, belong todistinct research streamswithin the broader strategicmanagement literature. Aside from a few impactfulstudies that bridge these disparate literatures(Zavyalova, Pfarrer, Reger, & Shapiro, 2012), littleconceptual overlap exists to date.

Third, it is unclear what the literature has accom-plished andwhere knowledge gaps remain given thelack of overarching perspective to effectively con-nect diverse findings from the interdisciplinary lit-erature. The predominant view from research oncorrective actions is that managers can achieve su-perior results for their firm by accommodating theneeds and desires of stakeholders affected by mis-conduct (Coombs, 2007a; Dawar & Pillutla, 2000;Elsbach, 1994; Rowley, 1997; Zhang & Wiersema,2009). However, research also indicates that man-agers frequently seek to defend their firm against theclaims of affected stakeholders (Bundy, Shropshire,& Buchholtz, 2013; Elsbach & Kramer, 1996), whichrepresents a divergence from the predominant view.This divergence illustrates that a proverbial “blackbox” exists in the literature, wherein insights frompresent research are limited about how managersmake corrective actiondecisions andwhat theyhopeto accomplish with their actions. In practice, man-agersmustmake difficult decisions about the actionsthey will pursue following misconduct, and as theymake those decisions, theymustweigh not only howto repair relationships with stakeholders but alsohow to maintain firm performance and survival(Pfarrer et al., 2008). Suchdecisions are complex and

difficult because the actions that accomplish thoseobjectives are often unclear or conflicting. Extantliterature offers some insights into how managersmake these decisions, but large gaps still exist—specifically related to comprehensive, theory-drivenexplanations of when and why managers adopt anaccommodative versus defensive posture.

These shortcomings represent obstacles for un-derstanding how organizations manage the after-math of misconduct and create hurdles for futuredevelopment, cohesion, and consensus-building re-garding research on corrective actions. Until thesedisparate concepts are connected and understood inthe context of an overarching theoretical framework,developments will remain isolated in separate re-search streams. As a result, researcherswill continueto lack a cohesive understanding of the broader lit-erature’s accomplishments and where promisingresearch opportunities remain.

In an effort to help resolve these problems, weprovide a conceptual synthesis and typology thataggregates disconnected concepts into the higherorder constructs of organizational misconduct andcorrective actions. This synthesis allows us to de-velop a conceptual model that illustrates how theseconstructs relate to each other and where missinglinks exist within the literature—thereby enhancingthe field’s understanding of the present literature.Following the conceptual synthesis, we use insightsfrom this body of research to develop a theoreticalframework that explores the forces underlyingmanagers’ decisions about corrective actions. Ourconceptual synthesis illustrates that managers haveassorted objectives for their use of corrective actionsand implement those actions in diverse ways.Therefore, it is not surprising that organizationsfacing similar pressures from stakeholders followingsimilar types of misconduct often pursue very dif-ferent corrective actions (Gangloff, Connelly, &Shook, 2016; Pfarrer et al., 2008). Accordingly, webuild on these insights to develop a theoreticalframework that explores how stakeholder salience(i.e., legitimacy, power, and urgency of stakeholdersaffected by misconduct) and managerial cognition(i.e., the knowledge structures that shape strategicdecisions) together influence managers’ correctiveaction decision-making.

Ultimately, this reviewcontributes to the literatureby advancing a stakeholder theory–managerial cog-nition framework to better understand managers’corrective action decision-making as well as theoutcomes and effectiveness of such decision-making.Because of the often-disconnected scholarship on

548 JulyAcademy of Management Annals

corrective actions and lack of overarching frameworkin the extant literature, it is difficult to know “whatwedo not know” about the drivers and efficacy of cor-rective actions. Our review and framework uncoverlarge gaps with respect to managerial decision-making on corrective actions. That is, (1) when man-agers choose to implement corrective actions, (2)whymanagers select certain corrective actions, and (3)how they assess the effectiveness of their action rep-resent notable missing links in the literature, whichrequire further research. To provide a starting point,we draw upon insights culled from our review fromboth established and recent work in stakeholdertheory to provide a theoretical framework for un-derstanding managers’ decision-making followingmisconduct. In doing so, we extend the current views

on corrective actions to uncover knowledge gaps andfruitful opportunities for research.

Using a systematic search, we identified 214 articleson corrective actions in top journals from manage-ment and related fields. This extensive search of theliterature includes articles that examine (1) why firmschoose specific corrective actions, (2) the effectivenessof corrective actions, and (3) the consequences ofmisconduct on various stakeholder groups. Table 1provides a quantitative summary of the articles wecollected from journals in a range of disciplines.

We first provide a typology and review of organi-zational misconduct and corrective actions, high-lighting insights for each corrective action about itsimplementation and outcomes. Next, we provide aconceptual model to highlight the structure of re-lationships currently uncovered in extant research.Following this, we advance a framework that notonly identifies clear gaps in our current under-standing of corrective action decision-making butalso integrates research on stakeholder salienceand the cognitive structures that managers use tointerpret stakeholders’ claims to better understandmanagers’ post-misconduct decision-making. Finally,we use this framework to develop a clear road map forfuture research on corrective actions.

ORGANIZATIONAL MISCONDUCT

Organizationalmisconduct is an illegal, unethical,or socially irresponsible behavior performed by anorganization that directly harms its stakeholders(Greve et al., 2010). Typically, behaviors that qualifyas misconduct include actions that cause harm tostakeholders and are explicitly illegal, punishable bylaw (Braithwaite, 1989), or are unethical anddeemedunacceptable according to societal norms (Sharpe,1993). These actions have the potential to harmstakeholders physically, emotionally, and/or eco-nomically.2 Scholars have studied numerous typesof misconduct and each one varies not only in termsof the specific harmful behavior performed by theorganization but also in terms of the focal stake-holder group(s) affected.3 Acts of misconduct can,however, also harm the organization. Following

TABLE 1Summary of Search Results

JournalNumber ofArticles

ManagementAcademy of Management Journal 27Academy of Management Review 18Administrative Science Quarterly 8Business Ethics Quarterly 4Journal of Applied Psychology 3Journal of Management 5Journal of Management Studies 2Organization Science 11Strategic Management Journal 18Others 8

Accounting/FinanceJournal of Corporate Finance 6Journal of Finance 4The Accounting Review 10Journal of Accounting Research 9Journal of Accounting and Economics 11

MarketingJournal of Marketing 6Journal of Marketing Research 6Journal of the Academy of Marketing Science 2Marketing Science 1

OperationsJournal of Operations Management 7Journal of Supply Chain Management 9Decision Sciences 3Production and Operations Management 2

Public RelationsPublic Relations Review 21Corporate Communications 2Corporate Reputation Review 2Journal of Public Relations Research 2Journal of Communication Management 2Other 5

Total 214

2 Importantly, we recognize behaviors that harm the or-ganization but that do not directly harm any stakeholdergroup as mismanagement rather than misconduct.

3 To be clear, the effects of misconduct can harm allstakeholders in an indirect way, but there is typically afocal stakeholder group or groups that the misconductharms directly (Pfarrer et al., 2008).

2019 549Hersel, Helmuth, Zorn, Shropshire, and Ridge

discovery of misconduct, organizations can experi-ence legitimacy loss, legal penalties, employee dis-satisfaction, consumer boycotts, and stock pricedrops (Cline, Walkling, & Yore, 2018). Each of theseeffects on the firm could have important implica-tions for performance and may even threaten firmsurvival (Karpoff, Lee, & Martin, 2008a).

Based on our review,wehave developed a typologythat aggregates four major types of organizationalmisconduct: fraud, product safety issues, employeemistreatment, and environmental violations. Eachof these widely studied firm behaviors representsan illegal, unethical, or socially irresponsible act thatdirectly harms stakeholders. By aggregating thesecurrently disconnected concepts together under thehigher order construct of organizational misconduct,we connect disparate research streams that shareunderlying similarities. Furthermore, we delineate

each type of misconduct by key characteristics, in-cludingboth theeffects it hasonperpetrating firmsandon stakeholders, which serves to enhance our under-standing of the corrective actions that organizationspursue followingmisconduct.Weprovide anoverviewof our organizational misconduct typology in Table 2.

Fraud

Fraud refers to firmactions thatdeceive, embezzle,or cheat other stakeholders (Zahra, Priem, &Rasheed, 2005). Fraud covers a wide range of ille-gal and unethical behaviors that usually benefit thefirm or its managers at the expense of other stake-holders. Three major forms of fraud exist—financialfraud, consumer fraud, and contract violations—each of which affects the perpetrating firm uniquelyand has the potential to harm different stakeholders.

TABLE 2Typology of Organizational Misconduct

Type ofMisconduct Definition Firm Effects

Stakeholder Group(s)Affected Focal Concepts

Fraud Firm actions that deceive,embezzle, or cheat otherstakeholders

Financial fraud: Legaland financial marketpenalties, increasedcost of capital

Investors Restatements, class-actionlawsuits, optionsbackdating

Consumer fraud: Loss oflegitimacy and consumertrust

Customers False marketing, pricemanipulation

Contract violations:Damage tointerorganizationalpartner networks

Partners suppliersdistributors

Contract disputes,transaction costs,damage current andfuture partnershipopportunities

Product safetyissues

Firms negligent ordeliberate release ofunsafe products into themarketplace

Operational (direct) costs,declining firm revenues,indirect costs

Customers and investors Defective products, timeto recall, hazard level,customer injuries,remediation strategy

Employeemistreatment

Firm actions that harm orhas the potential to harmemployees

Legal penalties, negativeemployment-relatedoutcomes (reducedproductivity, creativity,job satisfaction),decreases in firmperformance andshareholder value

Employees and theirfamilies

Discrimination,harassment, unjustifiedlayoffs, poor workingconditions

Environmentalviolations

Firm actions that harm thenatural world (i.e.,physical environmentalviolations) and/oractions that harm broadersociety (i.e., socialenvironmental violations)

Legal penalties, financiallosses, reducedinvestments from salientshareholders groups,reputational penalties,consumer boycotts

Local community, naturalenvironment, socialdiscourse

Environmental crises,societal crises, corporateenvironmentalsensitivity; scrutiny frominvestors, the media, andsociety


Financial fraud encompasses forms of financialmalfeasance, such as misreporting of financial state-ments, securities manipulation, and options back-dating (Cumming, Danhauser, & Johan, 2015; Fich &Shivdasani, 2007). Investors are invariably the mainvictims of financial fraud. When news of financialfraud becomes public knowledge, it typically reducesthe market value of the company’s stock (Davidson,Worrell, & Lee, 1994; Palmrose, Richardson, & Sholz,2004) and, as a result, shareholder wealth. Bond-holders and other creditors of the firm also bear theconsequences of financial fraud. If ratings agenciesreduce the firm’s credit rating following financialfraud, then bonds issued by the firm lose value, andbondholders suffer (Palmrose et al., 2004). In somecases, lenders may have provided capital that was se-cured by overvalued or nonexistent collateral orinflated cash flowprojections.Not only does thismakerecovery of debt difficult but it may also result in totalloss of principal.

After detection of financial fraud, perpetratingorganizations typically experience market and legalpenalties (Srinivasan, 2005). Financial markets loseconfidence in the financial information provided byfraudulent firms and in the ability of managers to actwith integrity, which can cause a drop in stock andbond prices (Gomulya & Mishina, 2017). Currentinvestors may also take legal action to recoup losses(Shi, Connelly, & Sanders, 2015), and firms thatcommit financial fraudmay experience an increasedcost of capital (Hribar & Jenkins, 2004). When in-vestors believe a firm’s managers might attempt toembezzle money or falsify financial information, itincreases perceptions of risk (Connelly, Ketchen,Gangloff, & Shook, 2016). As a result, the firm maynot be able to secure as favorable investment terms asit could otherwise.

Consumer fraud occurs when a firm deceives itscustomers, through false marketing or other means,about the nature of its products or services. Compa-nies commit consumer fraud in multiple ways, in-cluding offering a product that does not perform asadvertised, adding unreasonable charges to an initialestimate, or by concealing fees (Holtfreter, VanSlyke, & Blomberg, 2005). In each case, firms de-ceptively deprive customers of their property rights.Although consumer fraud is often associated withillegitimate firms whose purpose is to scam un-witting customers through identity theft or othermeans (McKnight, Choudhury, & Kacmar, 2002),mainstream companies have been the subjects ofhighly publicized consumer fraud cases in recentyears. For example, in a recent notable case, Wells

Fargo pressured customers to open unwanted ac-counts or opened accountswithout their consent andthen charged these customers with unanticipatedfees.

Organizations that engage in consumer fraud ex-perience notable consequences as well. Consumerfrauddiminishes customer’s trust in the firmbecauseusing deceptive practices on customers violates im-plicit social contracts between firms and their cus-tomers (Grazioli & Jarvenpaa, 2000). As a result,customers become wary of engaging in furthertransactions with the organization, which can affectfuture firm performance. Consumer fraud also dele-gitimizes firms by violating norms of acceptable firmbehavior toward customers (Kim, Ferrin, & Rao,2008). Organizations that experience decreased le-gitimacy are likely to suffer from diminished stake-holder support and access to resources (Elsbach,2003). Furthermore, after the detection of consumerfraud, perpetrating organizations typically experi-ence legal penalties and, if related to an operationalfailure, the cost of the fix.

Contract violations are another form of fraudwherein organizations, as a party to a contract, do notabide by the contract’s provisions (Janowicz-Panjaitan& Krishnan, 2009). Contract violations negatively af-fect interorganizational partners such as suppliers,distributors, and strategic alliance partners. Contractsare an essential component of interorganizationalpartnerships because they serve as protection againstthreats of opportunism (Mayer & Argyres, 2004).Therefore, a contract violation represents a mean-ingful breach of trust and generates transaction costsfor the partner organization (Mesquita, 2007), whichcan come in the form of renegotiating the contract,monitoring the violating firm for future violations,absorbing the responsibilities of the partnership, orfinding a new partner.

Violating a contract can damage a firm’s network ofrelationships with partners, suppliers, and distribu-tors (Harmon, Kim, & Mayer, 2015). Once violated,such partnersmight pursue legal actions or withdrawfrom the partnership, which could—depending onthe strategic importance of the relationship—harmthe perpetrating firm (Bruyaka, Philippe, & Castañer,2018; Mesquita, 2007). Furthermore, organizationsthat violate contracts may develop a reputation as anunreliable partner and, as a result, face difficultiessecuring future strategic partnerships (Sullivan,Haunschild, & Page, 2007). When firms that havepreviously violated contracts secure subsequentpartnerships, it is likely that the new partner willdemand greater contract specificity and heftier


punishments for violations. Therefore, contract vio-lations can damage an organization’s current and fu-ture partnership opportunities and increase the costsassociated with those opportunities.

Product Safety Issues

Product safety issues (also commonly referred to asproduct-harm crises) are well-publicized incidentswhereorganizationsnegligentlyordeliberately releaseflawedorunsafeproducts into themarketplace (Dawar& Pillutla, 2000; van Heerde, Helsen, & Dekimpe,2007). The consumer harm created by product safetyissues can engender substantial consequences for or-ganizational stakeholders (Cleeren, Dekimpe, & vanHeerde, 2017). In developed countries, product safetyissues remainunder the government’s purview,whichallows federal agencies, such as the United States’Food and Drug Administration, to protect the publicfrom safety threats (Wowak & Boone, 2015).

The product safety issue literature typically iden-tifies consumers as the stakeholder group primarilyaffected, owing to the physical harm that results fromproduct defects. The likelihood that product safetyissues create consumer harm depends on the (1) haz-ard level and (2) how promptly firms remediate alldefective products (Hora, Bapuji, & Roth, 2011; Ni,Flynn, & Jacobs, 2014). The hazard level refers to thepotential of the product defect to physically harmconsumers (Liu, Liu, & Luo, 2016), whereas “time torecall” captures the promptness of the remediationeffort itself (Hora et al., 2011: 767).Whereas the directrelationship between hazard level and consumerharm is relatively straightforward, the time firms taketo remediate harmful products depends on severalfactors (Eilert, Jayachandran, Kalaignanam, & Swartz,2017; Ni & Huang, 2018). One factor that influencesrecall promptness is whether firms selected a pro-active vs. passive (reactive) strategic response. Pro-active responses shield consumers from physicalharm, whereas passive responses are correlated withincidents of illness or injury (Chen, Ganesan, & Liu,2009). Product safety issues, in addition to causingconsumer harm, carry substantial financial conse-quences for stockholders (Chen & Nguyen, 2013; Liu,Shankar, & Yun, 2017). Indeed, findings point to per-formance declines and negative stock market returns(Davidson &Worrell, 1992); however, certain factors,such as firm attributes, industry, cultural orientation,and type of remediation strategy influence this likeli-hood (Ni et al., 2014; Zhao, Li, & Flynn, 2013).

In addition to stakeholders, product safety issuesthreaten the perpetrating firm and engender firm

instability through three, interrelated costs (Kumar& Schmitz, 2011; Thirumalai & Sinha, 2011).First, organizations suffer large direct costs fromsupply chain– or operational-related defects, in-cluding business interruptions, inventory losses,product remediation, and logistics expenses (Kiani,Shirouyehzad, Bafti, & Fouladgar, 2009). Empiricalevidence from the supply chain literature suggestssourcing strategies (Steven, Dong, & Corsi, 2014),buyer–supplier relationships (Chao, Iravani, &Savaskan, 2009), product traceability (Epelbaum &Martinez, 2014; Wowak, Craighead, & Ketchen,2016), and plant operations (Shah, Ball, & Netessine,2017) are key operational considerations duringproduct-harm crises.

Second, product safety issues negatively affectfirm revenues through declining consumer sales.Firm revenues decrease owing to the focal productsafety issue in addition to negative spillover ef-fects that reduce sales from similarly branded prod-ucts (Cleeren, Dekimpe, & Helsen, 2008; Lei, Dawar,& Lemmink, 2008). Indeed, nearly 55 percent ofconsumers indicate they are willing to change theirbuying preferences following a product safety con-cern (PR Newswire, 2007). Finally, product safetyissues create consequences for perpetrating firmsthrough large indirect expenses (Marucheck, Greis,Mena, & Cai, 2011). Product safety issues spreaduncertainty in the marketplace and change buyingpatterns as consumers question organizations’ ca-pacity for producing safe, high-quality products(Cleeren, van Heerde, & Dekimpe, 2013; van Heerdeet al., 2007). The extent towhich consumers penalizeorganizations, however, depends on several factorsincluding firms’pre-crisis levels of consumer loyalty(Cleeren et al., 2008), brand familiarity (Dawar &Lei, 2009), product quality (Zhao, Zhao, & Helsen,2011), and firm reputation (Munyon, Jenkins, Crook,Edwards, & Harvey, in press). Overall, research fromthe marketing literature suggests organizations mayincur substantial indirect costs from product-harmcrises due to waning consumer confidence thatharms firms’ intangible assets (Cleeren et al., 2017).

Employee Mistreatment

Employee mistreatment refers to actions taken byan organization or representative of an organization(e.g., manager) that harms or has the potential toharm employees. Employee mistreatment spans awide variety of issues, including labor relation vio-lations, unsafe working conditions, and sexual ha-rassment. In addition to overt mistreatment, such as


sexual harassment, employee mistreatment extendsinto subtler areas, such as abusive supervision oremotional harmdue to nonphysical hostility (Mitchell& Ambrose, 2007; Tepper, 2000, 2007). Such concernsfall within both the legal and ethical realms.

Within the legal realm, the U.S. government, likegovernments in many other countries, has set upnumerous agencies to provide employee protection,such as theDepartment of Labor (DOL) and the EqualEmployment Opportunity Commission (EEOC).These organizations and their associated suborga-nizations (e.g., The Department of OccupationalSafety and Health Administration) provide the legalbackdrop for employee protection. Stipulations fromthese organizations address minimum wage and la-bor laws, workplace safety, workers’ compensation,family and medical leave, layoffs, and race- and sex-related conduct.

Beyond legal requirements, firms face a variety ofsocietal pressures for employee treatment. Althoughfirms may have once had relatively free reign withrespect to their behavior and policies—as long as theminimum legal standard was met—there has been anincreasing focus in themedia and society on reducingemotional andnonphysical abuseamongsupervisors.For example, treating employees with respect, in-creasing employee-friendlyworkplace practices (e.g.,flex time and fitness amenities), and having favorableleave policies are notable topics in the current busi-ness press. In 2015, for example,Amazon cameunderfire for their “bruising workplace,” which fea-tured unreasonably high work standards and bare-minimum maternity leave policies. After receivingscrutiny frompopularmedia outlets such asTheNewYork Times, Amazon expanded their maternity pol-icy to include 4 weeks of paid medical leave beforedelivery and 10 weeks of paid leave following de-livery (Demmitt, 2015; Greenberg, 2015).

Both employees and shareholders experienceconsequences from employee mistreatment. Al-though employees are harmed directly by the mis-treatment itself, the firm may also be directly orindirectly harmed. Legally, the consequences ofsuch actions can include fines, fees, and sanctionsfrom the DOL, civil lawsuits, and in some cases evenlarge-scale class-action lawsuits. Walmart, for ex-ample, recently paid $151 million in damages tocurrent and former employees as the result of a class-action lawsuit filed by its workers for unpaid over-time work violations (Morran, 2016). In addition tothis fine, Walmart spent significant money and timefighting these claims—nearly 15 years in court andan estimated $36 million in legal fees.

In addition, both unethical (but legal) and illegalactions have a variety of extra-legal consequences.Firms with employee violations receive criticismand negative attention that can harm firm reputationand shareholder value (Eury, Kreiner, Treviño, &Gioia, 2018; Tepper, 2000). Furthermore, employeemistreatment and dissatisfaction are linked to re-duced employee productivity (Yang, Caughlin,Gazica, Truxillo, & Spector, 2014), lower employeecreativity (Liu, Liao, & Loi, 2012), reduced job sat-isfaction (Fitzgerald, Drasgow, Gelfand, & Magley,1997), employee strikes (Davidson, Worrell, &Garrison, 1988), and increased employee turnover(Tepper, 2000;Zellars, Tepper, &Duffy, 2002)—all ofwhich harm performance and shareholder value.Indeed, experts estimate that abusive supervisionalone costs firms more than 20 billion annually inlost productivity, employee health-care costs, andabsenteeism (Tepper, Duffy, Henle, & Lambert, 2006;Yu, Duffy, & Tepper, 2018). Thus, consequences thataffect internal and external stakeholders plaguefirms with employee mistreatment issues.

Environmental Violations

Sustainability research highlights two types ofenvironmental violations: actions taken by an orga-nization that harm the natural world (i.e., physicalenvironmental violations) and actions that harmbroader society (i.e., social environmental violations).Such actions may be expressly illegal (e.g., emissionsthat violate the law) or be within the bounds of law,but perceived by many in society to be unethical(e.g., hydraulic fracturing). Environmental violationstypically benefit the firm through cost savings or in-creased efficiency relative to legal or ethical alterna-tives.Forexample,dumpingharmfulwastebyproductsinto nonmandated areas may save firms expensivewaste removal fees. Illegal environmental violationsfall under the U.S. government’s Environmental Pro-tection Agency (EPA) and include numerous types ofactions ranging from noise pollution to illegal in-secticide usage to ocean dumping and air pollution.

In addition to federal regulations, environmentalpolicy and protection occurs at both the state andlocal levels and impacts firms in a wide variety ofindustries. Societal expectations for corporate envi-ronmental sensitivity and conduct have also grownexponentially in recent years. Not only does thepopular press provide negative coverage of firm en-vironmental actions that fall outside societal normsbut also most shareholder activism requests are nowcentered on socially responsible practices (Grewal,


Serafeim, &Yoon, 2016). For example, themedia hasrepeatedly criticized Nestle, a food industry power-house, for using palm oil and unethical labor practices(Mattera, 2013). Thus, even when actions are not ille-gal, societal perceptions of actions falling outside pre-ferred norms can have negative consequences.

Environmental violations affect not only the envi-ronment but also a variety of internal and externalstakeholders. For example, employees may experiencereducedpersonalsafety fromtheinappropriatedisposalof harmful chemicals or products. Similarly, wide-spread effects, such as polluted water or air, can harmentire communities (Gan, Davies, Koehoorn, & Brauer,2012; Griffith, Duncan, Riggan, & Pellom, 1989). Forexample, a recent leak at a Southern California GasCompany facility was responsible for the multimonthrelease ofmore than 97,000metric tons ofmethane gas.The spill affected employees and the surroundingcommunity with short-term symptoms, including“nosebleeds and headaches” (Schlanger, 2016).

Beyond direct harm to the environment and stake-holders, environmental violations have a number ofnotable consequences for firms that commit them.First, illegal environmental acts, once discovered, aresubject to avarietyof legal consequences. For example,first-time negligent cases of water pollution may re-ceive small fines ($2,500 to $25,000 per day) and/or upto a year of imprisonment for the responsible person.Knowing or willful violations, however, have stifferpenalties, including large fines (e.g., up to $50,000 perday) or longer terms of imprisonment (e.g., up to 3years). Beyond “knowingly committed” violations,firms whose willful violations endanger lives can faceeven larger fines. Thus, illegal environmental viola-tions can lead to large financial losses.

In addition to financial consequences levied by reg-ulatory agencies, both illegal and legal environmentalviolations are subject to the scrutiny of investors, themedia, and society as a whole. These consequencesinclude reduced investments from shareholders andinstitutional investors (Flammer, 2013), reduced con-sumer purchase volume (Mainieri, Barnett, Valdero,Unipan, & Oskamp, 1997; Perez & Bosque, 2015), andfirm reputation damage (Lii & Lee, 2012). Ultimately,such problems harm firm performance and have long-term financial consequences for firms (Karpoff, Lott, &Wehrly, 2005; Orlitzky, Schmidt, & Rynes, 2003).

CORRECTIVE ACTIONS

After misconduct, managers can pursue a range ofcorrective actions. We define corrective actions asbehaviors performed by an organization intended to

mitigate the negative effects of misconduct on the firmand its stakeholders and generate positive outcomesfor the firm. Research in this area suggests that man-agers typically take action when stakeholders experi-encenegativeoutcomesdue to themisconduct or thereis substantial concern that harm to stakeholders mayoccur in the future. Although the primary purpose of acorrective action is to reduce the negative effects ofmisconduct, some actions can generate positive an-cillary outcomes such as learning, resilience, andgoodwill with stakeholders (Elsbach & Sutton, 1992).

Based on our review of the literature, we have de-veloped a typology that aggregates four key types ofcorrective actions: executive dismissal, product re-calls, organizational accounts, and policy changes.Eachof thesewidely studied responses tomisconductattempts to mitigate the negative effects of mis-conduct and has the potential to generate positiveoutcomes for the firm. Building on these delineations,we highlight the key characteristics of each correctiveaction, including the basic functions that each serves,as well as outline the theoretical frameworks and themajor research trends and findings associated witheach corrective action. We offer a summary of ourcorrective actions typology and findings in Table 3.

Our review of the corrective actions literature in-dicates that managers implement corrective actionsto mitigate effects on stakeholders and the firm, andthere is variance in the way they do so. Firms thataddressmisconduct in a pro-stakeholderwaypursueaccommodative responses—meaning that the re-sponse directly addresses and engages stakeholderconcerns over the misconduct. Such responses typ-ically offer tangible solutions in response to theaffected stakeholder group’s claims and needs. Ex-tensive research has sought to understand stake-holders’ reactions to misconduct (Devers, Dewett,Mishina, & Belsito, 2009; Greve et al., 2010) and howorganizations can repair relationships with stake-holders (Dawar & Pillutla, 2000; Elsbach, 1994;Zhang & Wiersema, 2009). As such, this accommo-dative view represents a dominant perspectivewithin the literature on corrective actions. Compar-atively fewer studies indicate firmsmayalso responddefensively—meaning that their actions serve todistance the firm from the wrongdoing in the eyes ofstakeholders and limit the firm’s financial, reputa-tional, and strategic losses (Dutton & Jackson, 1987;Elsbach & Kramer, 1996). Thus, our review of theliterature pointed to accommodative and defensiveactions as a meaningful distinction in corrective ac-tion implementation and we use this distinction tohelp organize our review of corrective actions.


Executive Dismissal

When misconduct occurs, organizations often re-move and replace the leaders responsible (Agrawal,Jaffe, &Karpoff, 1999; Hennes, Leone, &Miller, 2008).Strategic leaders of firms that engage in misconductare more than twice as likely to lose their jobs com-paredwithother executives (Arthaud-Dayet al., 2006;Karpoff, Lee, & Martin, 2008b). Executive dismissalinvolves a two-step process of (1) electing to fire anexecutive and (2) choosing a successor, which allowsfirms to mitigate the effects of misconduct both byeliminating problematic leaders and by hiring newleaders (Connelly et al., 2016). Although CEOs are

commonly the target of executive dismissal, othermembers of the top management team, includingC-level executives and board members, are also fre-quently dismissed in thewake ofmisconduct (Marcel& Cowen, 2014; Pozner, 2008). Because executivedismissal involves takingactionagainstmanagers, thedecision-making authority to pursue this correctiveaction may lie within different organizational actors,including the CEO, the board of directors, or even thevoting shareholders.

Researchers have used a range of theoretical per-spectives to understand dismissal and successor se-lection decisions. The most common perspective issignaling theory, which scholars have largely used

TABLE 3Typology of Corrective Actions Organizations Pursue Following Misconduct

CorrectiveAction Definition Theoretical Frameworks Responses

Major Research Areas(Example Citation)

Executivedismissal

Removing and replacing anorganization’s leader(s)

Signaling theory, screeningtheory, trust repairtheory, agency theory,implicit leadershiptheory

Accommodative: Correctleadership problems;signal change

Insider, outsider, or interimsuccessors (Gangloffet al., 2016)

Defensive: Scapegoating Successor characteristics(Gomulya&Boeker, 2014)

Product recalls The remediation ofconsumer goodsfollowing the discoveryofproduct defects, safetyconcerns, or governmentviolations

Transaction costeconomics, resource-based view, signalingtheory, organizationallearning

Accommodative: Voluntaryrecalls (firm-initiated);proactive recalls

Different types of productrecalls (Ketchen et al.,2014)

Defensive: Involuntaryrecalls (government-mandated); passiverecalls

Voluntary vs. involuntaryrecalls (Haunschild &Rhee, 2004)

Proactive vs. reactive(passive) recalls (Chenet al., 2009)

OrganizationalAccounts

The use of corporatecommunication tomanage strategicrelationships

Situational crisiscommunication theory,image restoration theory,attribution theory

Accommodative:Acceptance/rebuildingstrategies, e.g., apology,repentance,compensation, sympathy,& rectification

Crisis-response strategies(Coombs, 2007a, 2007b,2014)

Defensive: Denial strategies,e.g., attack the accuser,denial, blame, andsuffering

Protect or restore the firm’sreputation (Coombs,2006; Holladay, 2010)

Communication medium(Shultz, Utz, & Goritz,2011)

Efficacy and dynamics ofcommunications(Elsbach, 1994)

Policy changes The use of internal strategicand organizationalchanges

Advocacy coalitionframework, multiplestreams approach,punctuated-equilibriumtheory, critical discourse,pluralist models, straintheory, tournamenttheory

Accommodative:Substantive changes tothe internal strategies,structures, or rules; signalactual change

Changes to code of conductor policies (Gillespie &Dietz, 2009)

Defensive: Easily decoupledand reversible changes;“false signals” of change

Altering reward structures(Harris & Bromiley, 2007)

Adjusting operationalprocedures (Chao et al.,2009)

Implementation of ethicstraining programs(Weaver et al., 1999)


to explore stakeholder reactions to executive dis-missals (Zhang & Wiersema, 2009). Broadly, re-searchers argue that removing ahigh-level executivefrom the firm signals to stakeholders the firm’sunderlying intentions to rehabilitate, which can ef-fectively reduce stakeholder uncertainty about thefirm’s future (Arthaud-Day et al., 2006). Conversely,scapegoating an executive—by either dismissing alower level executive or dismissing an upper levelexecutive and replacing them with an insider—signals to stakeholders that the firm is committed tothe status quo (Connelly et al., 2016; Gangloff et al.,2016). In addition to signaling theory, scholars haverecently applied notable perspectives that contrib-ute to our understanding of the more nuancedphenomena that exist during succession events.For instance, according to implicit leadership the-ory and theory on trust repair, boards may selectsuccessors whom they perceive to have positivepersonality traits that serve to elevate the ethicalclimate in the firm and produce positive stake-holder reactions (Gomulya, Wong, Ormiston, &Boeker, 2017). Furthermore, Gomulya and Mishina(2017) use screening theory to explain shifts in howstakeholders evaluate information provided by firmsthat have committed misconduct before and after adismissal. Their findings indicate that stakeholdersremain wary of information provided by the firm untiltheboardreplaces the incumbentCEO.Taken together,the literature demonstrates that executive dismissalmay be accommodative or defensive in nature—meaning that firms may dismiss executives to accom-modate stakeholder concerns and correct leadershipproblems or to defend firmandmanagerial interests byscapegoating an executive.

Accommodative responses. The decision toretain or fire leaders following an instance of mis-conduct serves as an important signal to stake-holders about the organization’s intentions forchange. In an effort to repair damaged relationshipswith stakeholders, organizations may attempt tosignal their desire for change by dismissing themanagers responsible (Kryzanowski & Zhang, 2013).Furthermore, Marcel and Cowen (2014) found thatfollowingmisconduct, firms appear to “cleanhouse”on the board of directors by dismissing low-qualitydirectors. Doing so serves to reaffirm stakeholders’perceptions of organizational legitimacy by allowingthe board to acknowledge past shortcomings andsignal a willingness to remedy governance weak-nesses. Conversely, retaining leaders that engaged inor allowed misconduct signals apathy and commit-ment to the status quo. Not surprisingly, investors

tend to react favorably to misconduct-related dis-missal (Gangloff et al., 2016) and reestablish trustwith organizations after executive dismissal occurs(Gomulya & Mishina, 2017).

Selecting a replacement following a dismissalprovides organizations with an additional oppor-tunity to signal their intentions to stakeholders.Extant research suggests that a variety of CEO suc-cessor characteristics signal change intentions tostakeholders affected bymisconduct. Gomulya andBoeker (2014), for example, found that following adismissal related to financial fraud, investors reactpositively to CEO successors with prior CEO ex-perience, turnaround experience, or an elite edu-cation background. They theorized that each ofthese qualities signals that the firm is seriousabout correcting problems because it is willing topay a premium for a quality successor. Similarly,Connelly et al. (2016) examined selection of insiderversus outsider CEO successors and its effect onshareholder reaction following accusations of or-ganizational misconduct. Their findings indicatethat selecting an outsider CEO signals commitmentto change,whereas selecting an insider CEO signalscommitment to the status quo, thereby producingfavorable and unfavorable investor responses,respectively.

Moving beyond signaling, research has begun toexplore whether organizations pursue executivedismissal to generate substantive changes that pre-vent further misconduct. This suggest that in addi-tion to signaling their intentions to stakeholders,substantively correcting internal problems may be amotivating factor in firms’ successor selection de-cisions. For instance, Gomulya et al. (2017), using animplicit leadership perspective, found that directorstend to select CEO successor candidates who havethe appearance of integrity because they want a CEOwho will make honest and ethical decisions. Fur-thermore, Hazarika, Karpoff, and Nahata (2012)found that earnings management decreases follow-ing a forced CEO dismissal, suggesting the dismissalresulted in meaningful changes to firms’ financialoperations.

Defensive responses. Organizations may alsouse succession defensively by scapegoating anexecutive. When organizations use scapegoating,the succession event is mainly a ritual designedto placate stakeholders (Gamson & Scotch, 1964;Rowe, Cannella, Rankin, & Gorman, 2005) withoutintroducing real change to address underlying lead-ership problems that may have precipitated mis-conduct (Boeker, 1992). Thus, scapegoating is a


defensive action because it insulates the people andpractices that caused the misconduct. Although it isdifficult to directly assess whether a dismissal isdefensive without knowing the decision-makers’intentions ormonitoring the successor’s actions overtime, researchers identify instances of scapegoatingusing measurement proxies related to who is dis-missed and who is selected as a successor. For in-stance, top executives may attempt to protectthemselves and shift blame to others by dismissingindividuals at lower levels of the organizational hi-erarchy (Ashforth & Lee, 1990; Boeker, 1992;Bonazzi, 1983; Leone & Liu, 2010). Scapegoatingalso occurs when top managers are dismissed andreplaced by insiders, which serves to protect currentinternal practices from an outside change agent(Connelly et al., 2016; Gangloff et al., 2016). Al-though scapegoating signals to investors that man-agement is committed to the status quo, researchshows that scapegoating, nonetheless, canhelp firmsreestablish legitimacy and trust with investors(Hennes, Leone, & Miller, 2013; Leone & Liu, 2010).However, such actionsmay not generate as favorableshareholder reactions relative to dismissals that sig-nal the organization’s intent for substantive change(Gangloff et al., 2016).

Product Recalls

Product recalls mitigate the adverse impact ofproduct safety issues or consumer fraud resultingfrom unethical or illicit organizational misconduct(Wowak & Boone, 2015). Specifically, recalls are theremediation of consumer goods following the dis-covery of product defects, safety concerns, or gov-ernment violations by a focal organization or federalagency (Thirumalai & Sinha, 2011). Early researchoften viewed recalls as uniform events, whereasmorerecent studies unpack the importance and effects ofdifferent recall classifications (Wowak & Boone,2015). This line of inquiry produced four unique re-call types: precise, overkill, cascading, and in-complete (Ketchen, Wowak, & Craighead, 2014).Precise recalls occur when firms have identified thecause of the product safety issue and subsequentlyretrieved all defective products. In contrast, overkilland cascading recalls occur when organizationsstruggle to define the scope of the product-harm.During incomplete recalls, firms cannot readilyidentify the product safety issue,which leads to failedremediation efforts where managers are unable to re-call all the defective products or tainted goods. Anadditional recall type follows incidents of consumer

fraud, such as Volkswagen’s 2015 recall for its “cleandiesel” vehicles in violation of the EPA’s Clean AirAct. Recalls from consumer fraud are unique becausethe corrective action is not associated with a productsafety concern but rather a deliberate attempt to cir-cumvent government regulation.

Although the product recall literature has a prac-tical foundation, recently researchers have madenotable theoretical gains by incorporating key per-spectives, including transaction cost economics(Steven et al., 2014), resource-based view (Epelbaum& Martinez, 2014), signaling theory (Ni et al., 2014),and organizational learning (Rhee, 2009). Trans-action cost economics has helped researchers ex-plain the relationship between supply chainsourcing strategies, such as outsourcing and off-shoring, and firms’ product quality failures. For ex-ample, Steven et al. (2014) concluded outsourcinghas a more robust effect on product quality failurescompared with offshoring. The authors found out-sourcing led to more product failures because whenfirms formed relationships with global partners,their supply chain complexity and transactionalrisk increased from growing monitoring and co-ordination costs. The transactional risks associatedwith outsourcing and global partnerships, in partic-ular, have opened a conversation in supply chainresearch regarding the importance of quality man-agement on preventing product safety issues (Das,2011; Marucheck et al., 2011).

The resource-based view represents another no-table theoretical perspective within the productrecall literature, which has been used to explorethe impact of food traceability systems on firmperformance (Epelbaum & Martinez, 2014). Foodtraceability systems and quality controls are key re-sources because they assist firms in locating andremediating defective products during the productrecall process (Alfaro & Rabade, 2009; Wang, Li, &O’Brien, 2009). By conceptualizing food traceabilitysystems as a resource, Epelbaum and Martinez(2014) found that managers can enhance their orga-nization’s performance by introducing firm-specifictechnological innovations that are rare and diffi-cult for competitors to imitate. Although much ofresource-based theory has focused exclusively onthe importance of firms obtaining resource endow-ments that are valuable, rare, inimitable, and non-substitutable, Ketchen et al. (2014) advanced thisposition by introducing resource orchestration the-ory to the product recall literature. Their findingssuggest that in addition to having valuable resources,how managers actively use their resource portfolio


during recalls is an essential, but previously missingaspect of the product recall literature.

Product recall researchers have also used signal-ing theory to show that stakeholders interpret firms’strategic responses as a signal of their capacity toremediate defective products safely and effectively(Wowak & Boone, 2015). Ni et al. (2014) used sig-naling theory to explain why stock market penaltieswere harsher for firms that offered consumers amonetary refund compared with firms that offeredproduct replacements or repairs. The authors foundchoosing a monetary response strategy such as re-funds signaled to investors that the potential ofconsumer injury was so likely that the firm was re-quired to leverage the greatest possible incentiveto remediate the faulty product. Comparatively, in-vestors interpreted product repairs or replacementsmore positively because these nonmonetary re-mediation strategies signaled to investors that thefirm was much more confident about their contain-ment efforts and believed the likelihood of consumerharm was low. Extant research suggests the stockmarket interprets product recalls as a signal of op-erational failure, which raises shareholder concernsabout systemic quality problems and, perhaps, sub-sequent financial losses (Chen et al., 2009). Takentogether, signaling theory provides a robust frame-work that helps explain why investors may holddifferent preferences regarding the level of proac-tivity firms use in their strategic responses (Zhaoet al., 2013).

Finally, organizational learning theory conceptu-alizes product recalls as not only a corrective actionbut also an opportunity to reduce future operationalfailures (Hall & Johnson-Hall, 2017; Kalaignanam,Kushwaha, & Eilert, 2013). Product recalls are triggerevents that highlight structural, procedural, or designfailures, which stimulate firms to change their in-ternal procedures or consider alternative solutions(Maslach, 2016). Although organizational learningtheory views failure as a powerful, motivating factor,not all product safety problems lead to organizationallearning (Thirumalai & Sinha, 2011). Rhee et al. haveidentified key contextual factors that influencewhether firms learn from their product safety prob-lems (Haunschild & Rhee, 2004; Rhee & Kim, 2015).

Following product safety crises, firms attempt tolessen the adverse effects by implementing re-sponses that mitigate stakeholder harm (Wowak &Boone, 2015). The product recall literature suggestsfirm responses fall on a continuum that ranges fromaccommodative to defensive (Liu et al., 2017). Ac-commodative responses refer to proactive recalls

that prioritize consumer safety, whereas defensiveresponses entail reactive recalls that causes physicalharm to unsuspecting patrons (Chen et al., 2009).

Accommodative responses. Liable firms showconcern for consumer welfare by initiating voluntaryrecalls, which use internal resources to remove anyproduct that contains a functional defect, poses aconsumer health risk, or violates federal regulation(Haunschild & Rhee, 2004). Thus, voluntary recallsare firm-initiated not government-mandated (Laufer& Coombs, 2006). After initiating a voluntary recall,organizations can further intensify their response byleveraging a more accommodative position throughunambiguous support. Unambiguous support occurswhen firms assume complete responsibility of thesafety concern, apologize to appropriate stakeholdergroups, and remediate all potentially harmful prod-ucts (Dawar & Pillutla, 2000). Johnson & Johnson’s1982 decisive recall of its tainted Tylenol capsulesrepresents an example of unambiguous support be-cause the firm accepted responsibility, communi-cated diligently with customers, and implemented acomprehensive remediationstrategy that emphasizedpublic safety. Findings in the recall literature suggestsconsumers and the media react positively to accom-modative responses that blend proper marketing andmedia management with technical changes that di-rectly address the origin of the safety issue (vanHeerde et al., 2007; Zavyalova et al., 2012).

Defensive responses. By contrast, firms some-times act defensively by attempting to conceal poten-tially hazardous products from salient stakeholders.For example, involuntary or mandatory recalls arisewhen federal agencies order the physical removalof defective products to ensure consumer safety(Siomkos & Kurzbard, 1994). Involuntary recalls re-quire governmental intervention because the firm thatshould have initiated the recall negated their re-sponsibility to mitigate consumer harm (Haunschild& Rhee, 2004). The most extreme version of suchactions—unambiguous stonewalling—occurs whenfirms deny all responsibility for the product safetyissue, refrain from communicating with stakeholders,and offer no product remediation (Dawar & Pillutla,2000). For example, in Peanut Corporation ofAmerica’s 2009 recall, the firm denied responsibility,evaded communication, and refused to remediatecontaminated goods that sickened more than 700consumers and resulted in nine deaths (Canavan,2013). As this case shows, denial is an especiallydangerous response because it leaves unsuspectingconsumers vulnerable to physical harm and recalldelays (Claeys, Cauberghe, & Pandelaere, 2016).


Organizational Accounts

Firms also use organizational accounts as acorrective action to attenuate negative impacts oforganizational misconduct (Ma & Zhan, 2016).Organizational accounts refer to firm-level communi-cations where managers attempt to mitigate the se-verity of the misconduct by offering stakeholdersvariousexplanations (Elsbach,1994;Schlenker,1980).Within this context, accounts are the image-protectingresponses where firms either explain their role inthe wrongdoing or deny their culpability (McDonald,Sparks, & Glendon, 2010). Research on organizationalaccounts includes an extensive body of theoreticalframeworks and empirical models that capture howorganizations manage strategic relationships in thewake of firm wrongdoing (Hutton, 1999; Schultz,Kleinnijenhuis, Oegema, Utz, & Van Atteveldt, 2012).The organizational accounts literature typically usesimpressionmanagement (Garrett, Bradford,Meyers, &Becker, 1989), situational crisis communication the-ory (Coombs, 1995), image restoration theory (Benoit,1997), or attribution theory (Coombs, 2007b) to ad-dress how salient stakeholder groups perceive variousforms of communication post-misconduct. Each ofthese theories points to firms using organizational ac-counts to promote a favorable image with its stake-holders and/or, depending on the organization’sresponse, to obfuscate the severity of its transgression.

A growing segment of research about organiza-tional accounts stresses what firms say and do fol-lowing organizational misconduct (Coombs, 2006:242). Transgressing organizations typically frametheir communications using organizational accounttactics known in the literature as crisis-responsestrategies (Ma & Zhan, 2016). Organizations usecrisis-response strategies to communicate with a di-verse array of stakeholders affected by their mis-conduct, including investors, supply chain partners,employees, consumers, and community associ-ates (Coombs, 2007a, 2007b). Crisis-response strate-gies allow organizations to protect, and potentiallyrestore, their reputation and legitimacy post-wrongdoing (Desai, 2011; Utz, Schultz, & Glocka,2013). Such response strategies can also be accom-modative or defensive in nature, with some firmschoosing to proactively communicate and addressstakeholder concerns and others choosing to defendor distance themselves from themisconduct (Huang,Lin, & Su, 2005; Lamin & Zaheer, 2012).

Accommodative responses. Accommodative re-sponses include various strategies from the organi-zational accounts literature where firms take

responsibility for their actions and/or assist victimswho suffered from theirmisconduct (Coombs, 2006).Accommodative responses assist firms in rebuildingor “redressing” their reputation post-wrongdoingby dealing directly with the misconduct (Coombs,2007a: 143). Hence, accommodative strategies arehelpful because they allow organizations to reframetheir actions by engaging in positive activitiesthat prioritize victims to counteract the negativesfrom previous wrongdoing (Coombs, 2014). Priorresearch indicates that stakeholders, in general, andconsumers, specifically, prefer accommodative re-sponse strategies because of the firms’ acceptance ofresponsibility (Claeys et al., 2016).

Prior research associates accommodative responseswith five organizational strategies: (a) apology, (b)repentance, (c) sympathy, (d) compensation, and (e)rectification (Holladay, 2010). Apology indicates or-ganizations have accepted complete responsibilityfor the wrongdoing, and repentance shows man-agers also sought forgiveness from stakeholders (cf.Verhoeven, Van Hoof, Ter Keurs, & Van Vuuren,2012). Although apology and repentance are effectiveresponse strategies, accepting complete responsibil-ity for the wrongdoing opens unsuspecting firms tocostly legal proceedings and financial loss (Kim,Avery, & Lariscy, 2009; Patel & Reinsch, 2003). Toavoid such circumstances, transgressing organiza-tions may offer stakeholders sympathy, compensa-tion, or rectification instead. Sympathetic responsesallow firms to express concern for negatively affectedstakeholders as well as regret or remorse for theirwrongdoing (Coombs & Holladay, 2008). In additionto offering sympathy, compensation strategies alloworganizations to provide financial reimbursement ortangible aid to victims affected by the misconduct(Coombs, 2007a). For instance, organizations mayprovide affected parties direct monetary payment oroffer living necessities post-wrongdoing (i.e., housingand food; Coombs & Holladay, 2009). Finally, trans-gressing firms may attempt to rectify the situationby implementing safeguards to prevent such mis-conduct from occurring again (Vlad, Sallot, & Reber,2006). Even though transgressing organizations can-not undo their wrongs, rectification shows that firmsare dedicated to preventing future misconduct with-out apologizing.

Defensive responses. Whereas accommodativeresponse strategies deal directly with the mis-conduct, defensive strategies create separation be-tween transgressing organizations and the actualmisconduct through denial (Coombs, Holladay, &Claeys, 2016). Defensive response strategies are


relatively inexpensive compared with accommoda-tive tactics and allow transgressing firms to dis-tance themselves from any wrongdoing (Claeys,Cauberghe, & Vyncke, 2010). Although researchersfrom the organizational accounts literature recom-mend firms use defensive responses when outsideentities are alleging untrue information, trans-gressing organizations, more recently, have beendenying responsibility when, in fact, they are cul-pable (Coombs, 2014). Although defensive responsestrategies appear attractive, in general, consumersand the public at large react negatively to publicdenials where firms do not disclose incriminatinginformation (Claeys et al., 2016).

Defensive responses include four organizationalstrategies: (a) attack the accuser, (b) denial, (c) blam-ing, and (d) suffering (Holladay, 2010). Attack theaccuser occurs when transgressing organizationschallenge the entity alleging that wrongdoing oc-curred (Coombs, 2006). For example, organizationsmay confront the entity that alleges the miscon-duct occurred by seeking legal remedies, includingpotential civil action in hopes of defending theirreputation (Coombs, 2007a). Organizations employdenialby refutinganywrongdoing transpired (Benoit,1997). Denial attempts to release organizations fromresponsibility by severing any association with thewrongdoing. By contrast, blame arises when trans-gressing organizations transfer responsibility byblaming anoutside party (Coombs, 2014; Park, Park,& Ramanujam, 2018). For instance, when facingmisconduct claims, retailers may blame their sup-plier, thereby transferring responsibility to a dif-ferent supply chain entity. Finally, organizationsuse suffering by portraying themselves as an unfairvictim instead of the perpetrator of the misconduct(Holladay, 2010). Transgressing organizations mayuse this response in an attempt to garner sympa-thetic responses.

Policy Changes

Policy changes are internal strategic and organi-zational changes that organizations pursue in thewake of misconduct. Organizational strategies,structures, and rules can incentivize or discourageillegal or unethical behavior that harms stakeholders(Harris & Bromiley, 2007; Shi et al., 2015). In an at-tempt to prevent the recurrence of misconduct intheir organization,managers or the board of directorsmay adjust policies to diminish the incentive formisconduct or to discourage further bad behav-ior. Examples of internal policy changes include

amending the code of conduct (Gillespie & Dietz,2009; Perez-Batres, Doh, Miller, & Pisani, 2012), al-tering reward structures (Harris & Bromiley, 2007),adjusting operational procedures (Chao et al., 2009),and introducing ethics training programs (Weaver,Treviño, & Cochran, 1999).

Historically, policy study researchers have usedthree perspectives to study policy change: the ad-vocacy coalition framework, the multiple streamsapproach, andpunctuated-equilibrium theory (John,2003). A common goal among these referent theoriesis to reveal theunderlying causal processes thatdrivepolicy change (Real-Dato, 2009). Although the spe-cific drivers of policy change still garner debate inthe literature, a compelling organizational event—such as corporate misconduct—represents a keycausal mechanism for change (Capano, 2009).

The advocacy coalition framework proposes thatthe likelihood of policy change depends on theopenness of the political institution and the level ofagreement among policy participants that a majorchange is needed (Sabatier & Weible, 2007). Fol-lowing misconduct, core beliefs about the need for apolicy change may be shared widely among man-agers, employees, and outside stakeholders, whichcan influence policy change decisions (Pfarrer et al.,2008;Weaver et al., 1999).When a strong coalition ofinternal and external stakeholders support a change,major policy revisions are likely to take place(Sabatier, 1998). Second, the multiple streams ap-proach suggests that policy adoption results from thecoupling of three distinct streams—the problem, thepolicy, and politics. Policy windows open whenthese streams are aligned, which garners attentionfrom policy makers and provides an opportunity forchange (Kingdon, 1995). The multiple streams ap-proach highlights a temporal aspect to policy changeby indicating that policy makers must swiftly capi-talize on an open policy window because thesefleeting opportunities only exist following a highlyvisible event, such as misconduct, for a limited timeperiod (Zahariadis, 2008). Third, Baumgartner andJones (1991) developed punctuated-equilibriumtheory to policymaking, which is characterized bylong periods of incremental of policy adjustments(i.e., equilibrium) and short periods of major policychange (i.e., disequilibrium). The principal thesis ofpunctuated equilibrium is that an inherent frictionexists between the influx of new information and theprevailing opposition to change that exists withinorganizations (Jones & Baumgartner, 2012). Be-cause revelations of organizational misconduct arelikely to create disequilibrium, such allegations may


alleviate resistance to change within organizationsand allow for substantial policy changes (Weick &Quinn, 1999).

Whereas policy study scholars have historicallyused the aforementioned theoretical lenses in so-ciopolitical contexts (Capano & Howlett, 2009; John,2003), organizational researchers have recently ex-panded the theoretical boundaries of the policychange literature to explore the nexus of policy andmisconduct (Harris & Bromiley, 2007; Ridge, 2012).Many of the studies in this area use alternative the-oretical perspectives to identify policy flaws thatcausemisconduct by incentivizing illegal, unethical,and socially irresponsible behavior (Shi et al., 2015;Zhang, Bartol, Smith, Pfarrer, & Khanin, 2008).Others use signaling theory to explore the infor-mational cues that managers may attempt to providestakeholders through their use of policy changes. Aswith other corrective actions, prior research showsthat organizations may pursue policy changes in anaccommodative or defensive manner. Accommoda-tive responses include making substantive changesto policy that prevent reoccurrence of misconductor signal the organization’s intentions for change,whereas defensive responses involve making easilydecoupled or reversible changes.

Accommodative responses. Policy changes pro-vide managers with an opportunity to make sub-stantive changes to the internal strategies, structures,or rules that incentivized or allowed formisconduct.Policies and other organizational structures, specif-ically those that create intense competition or strain,can incentivize managers to engage in misconduct(Vaughan, 1999). Thus, scholars have explored howpolicies influence the likelihood of misconductbased on strain theory– and tournament theory–driven mechanisms (Shi et al., 2015; Simpson &Piquero, 2002; Zhang et al., 2008). Although straintheory was originally devised to explain why thelower classes of society engaged in higher rates ofillegal activity (Merton, 1938), considerable evi-dence shows that gaps between goals and actualoutcomes may create strain that leads to corporatemisconduct (Agnew, Piquero, & Cullen, 2009; Harris& Bromiley, 2007; O’Connor, Priem, Coombs, &Gilley, 2006). For example, Zhang et al. (2008)found that organizations are more likely to engagein financial fraud when CEO stock options areout-of-the-money, which introduces a gap betweenactual and potential CEO earnings. However, intra-organizational competition, or tournaments, mayalso lead to misconduct (Ridge, 2012). For example,Shi et al. (2015) found that when a large gap exists

between CEOs and other executives in relative pay,firms are more likely to experience financial fraudthan when the gap is small. They argue this occursbecause relatively underpaid executives are temptedto resort to unethical behavior to cover up problemsor exaggerate performance potential to help positionthemselves for promotion. Taken together, researchin this area indicates that organizations can preventfurther misconduct by removing or adjusting poli-cies that create incentives for it because of strain orintense internal competition.

Managers can also introduce new policies that dis-courage further misconduct (Gillespie & Dietz, 2009).Studies in this area have examined perpetrating or-ganizations’ introduction of new operating standards,governance mechanisms, ethics training programs,and codes of conduct to generate meaningful change.In terms of new operating standards, Chatterji andToffel (2010) found that after receiving a poor reportfrom an environmental ratings agency, organizationsimplemented emission standards that improved theirenvironmental performance. In addition, research in-dicates that organizations tend to implement strictergovernance standards to increase monitoring and de-ter unwanted behavior (Farber, 2005). They may doso by increasing the number of outside directors, in-creasing the size and scope of the audit committee, orusing external accreditors and auditors. However,findings about the effectiveness of these governancemechanisms are still somewhat mixed (Ege, 2014;Peasnell, Pope, & Young, 2005). Furthermore, in aneffort to shift organizational culture, managers mayalso implement an ethics training program or ethics-focused code of conduct to educate employees aboutacceptable and unacceptable behavior (Gillespie &Dietz, 2009; Weaver et al., 1999).

Organizations can use policy changes as signals tostakeholders that help rebuild trust and reestablishlegitimacy following an instance of misconduct. Poli-cies related to the implementation of whistleblowingprocedures, support of industry-wide regulation, andceding decision-making authority to stakeholderseach signal commitment to substantive change in theorganization. Organizations can signal their commit-ment topreventing furthermisconduct by establishingprocedures and rewards for employee whistleblow-ing (Mesmer-Magnus & Viswesvaran, 2005). Imple-mentation of such policies indicates to stakeholdersthat the organization intends to expose and eliminatethe misconduct-related behavior (Near & Miceli,1995). Organizations might also push for legislationthat would impose penalties for further misconduct(Schweitzer, Hershey, & Bradlow, 2006; Slovic,


1993). In doing so, the organization signals to stake-holders that it supports governmental oversight andpunishment.However, organizations canalso simplyyield control to affected stakeholder groups volun-tarily, thereby allowing the external stakeholdersto perform oversight and levy punishments as theysee fit (Nakayachi & Watabe, 2005). Such volun-tary actions tend to reestablish stakeholder trustmore effectively than government-imposed over-sight and punishments because they signal avoluntary commitment to meeting stakeholderdemands.

Defensive responses. Managers may also usepolicy changes defensively by implementing easilydecoupled or reversible strategies, structures, andrules (Bromley & Powell, 2012). These policychanges act as false signals of change because man-agers do not intend to provide the support that thepolicy needs to have an effect. Thus, these policychanges provide the appearance of conformity withstakeholders’ expectations while also making it easyto insulate the organization from actual substantivechanges (Weaver et al., 1999). For instance, a policychange would be considered more defensive if it isengaged in a way that makes the policy easily re-versed or even more so if the policy is announcedwithout actions taken to implement the policy. Re-searchers commonly measure policy decoupling ex-post because of the difficulties associated withassessing managers’ intentions when using archivaldata (Crilly, Zollo, & Hansen, 2012; Maclean &Behnam, 2010). Despite this limitation, scholarshave accurately predicted defensive policy changesby measuring managers’ use of specific languagecues in policy announcements (Fiss & Zajac, 2006).Westphal and Zajac (1998) provide evidence thatsymbolic corporate governance changes, althoughenacted to enhance organizational legitimacy, havethe broader effect of deterring future and more sub-stantive governance reforms. Indeed, research hasdemonstrated that a range of stakeholder groups,including investors, customers, and the public, ingeneral appearwilling to trust and restore legitimacyto organizations because of such symbolic gestures(Ashforth & Gibbs, 1990; Elsbach, 2003; Shi &Connelly, 2018; Westphal & Zajac, 2001). However,organizations often recidivate because they did notmake substantive changes to prevent further mis-conduct (Maclean&Behnam, 2010;Maclean, Litzky,& Holderness, 2015). Thus, if policy changes areenacted but easily decoupled, or proposed withoutaction, these responses are likely more defensive innature.

CORRECTIVE ACTION OUTCOMES

Integrating research from the succession, organi-zational accounts, policy change, and product recallliteratures provides insight into the unique outcomesof corrective actions. Primary outcomes encompassfirm performance and stakeholder reactions, whereassecondary outcomes encompass ancillary firm out-comes such as legitimacy restoration and trust.

Primary Outcomes

Extant research from the succession, organiza-tional accounts, and policy change literatures sug-gests stakeholders largely react positively whenfirms introduce corrective actions from these fieldsof study. Specifically, prior research on successionevents following misconduct suggests that investorsmay react positively to actions such as dismissal(Helfat & Bailey, 2005). In particular, CEOs may befiredas“scapegoats” topacify investorsor theymaybefired to signal genuine strategic change as evidencedby either an inside successor or outside successor,respectively. This research suggests equifinality instrategies, such that both scapegoating the CEO andusing the succession event to signal strategic change islikely to result in positive investor reactions (Gangloffet al., 2016).

Research on policy changes, similarly, suggests thatimplementing strategic changespost-misconductmaygarner positive stakeholder reactions. Stakeholdersoften react positively to policy changes that introducesocially responsible or ethical business practices.Transgressing organizations tend to leverage sociallyresponsible policies and communiques to restore le-gitimacywith salient stakeholder groups and enhancefirm performance (Arvidsson, 2010). Indeed, organi-zations can improveperformanceby tying their policychanges to stakeholders’ preferences and implement-ing social actions that align with the corporation’sstrategic goals (Michelon, Boesso, & Kumar, 2013).Like the policy literature, research on organizationalaccounts emphasizes the importance of targetingsalient stakeholder groups post-misconduct withwell-positioned crisis management strategies. Theorganizational accounts literature suggests that firmscan use multipronged strategies that target multiplestakeholder groups (e.g., customers, shareholders,communities, capital providers, and employees) togenerate positive stock price reactions (Chakravarthy,Dehaan, & Rajgopal, 2014).

Unlike other literature streams, product recallstudies show investors typically have negative


reactions to formal product recall announcements(Wowak & Boone, 2015). Shareholders may reactnegatively to recall announcements because theyrepresent an operational failure, which investors arelikely learning about for the first time (Ni et al., 2014).Given the expediency required by governmentalagencies, shareholders are often unaware of theproduct defect until firms issue a formal recall.

As the literature on corrective actions has ad-vanced, emerging research suggests that scholarsare considering key intervening or moderating fac-tors that influence the interrelationships withinthe misconduct literature. For example, empiricalresearch on organizational accounts suggests de-livery medium and tenor are important factors thatshape firm outcomes (Coombs & Holladay, 2009).Specifically, researchers have found thatwhenCEOsaccept responsibility for misconduct, investors reactmore positively to video press releases than tradi-tional text releases. Conversely, the opposite is truewhen CEOs deny responsibility and make externalattributions: traditional text releases garner morepositive investor reactions than video releases(Elliott, Hodge, & Sedor, 2012). The policy changeliterature has similarly identified key interveningfactors that influence the relationship between or-ganizations’ use of socially responsible initiativesand performance. For example, existing researchhas identified firm reputation, innovativeness, andcompetitive advantage as mediating factors that in-fluence the association between socially responsiblepractices and organizational performance (Bocquet,Le Bas, Mothe, & Poussing, 2017; Saeidi, Sofian,Saeidi, Saeidi, & Saaeidi, 2015). Likewise, productrecall researchers continue to advance the litera-ture’s understanding of primary performance out-comes by showing that market reactions depend onkey characteristics of the recall and attributes of therecalling firm (Liu et al., 2017). Factors such as in-dustry context, CEO attributes, recall severity, andcapital structure influenced how salient stakeholdergroups responded to firms’ formal product recallannouncements (Cleeren et al., 2017; Wowak &Boone, 2015). Overall, prior research shows thatprimary outcomes depend on the type ofmisconductas well as key contextual factors.

Secondary Outcomes

Beyond traditional performance metrics, correctiveactions have a variety of secondary outcomes—manyof which produce positive, intra-organizational bene-fits (Ulmer, Sellnow, & Seeger, 2010). Research on

succession suggests that firms may engage in mean-ingful strategic changes that positively shape thefirm (cf. Ferrin, Cooper, Dirks, & Kim, 2018). Theo-ries from the corporate decision-making literaturesuggest succession events allow for necessary strate-gic changes (Lant, Milliken, & Batra, 1992) and,moreover, may open the door for the board to hire aCEO that better aligns with their strategic vision(Westphal & Fredrickson, 2001).

The succession research mirrors extant researchfrom the policy change literature, which suggeststhat damaging eventsmay offer firms an opportunityfor positive strategic and organizational change.Using institutional theory, research shows positiveoutcomes may develop at the firm level throughmicrolevel processes that emerge from shared em-ployee perceptions (cf. Chun, Shin, Choi, & Kim,2013). From a policy perspective, firms can thrivepost-misconduct and build organizational resiliencyby introducing strategically implemented practicesaimed at developing employees’ core abilities(Lengnick-Hall, Beck, & Lengnick-Hall, 2011).

Building on the notion that corrective actionsgenerate positive intraorganizational benefits, anemerging body of research on organizational ac-counts suggests that negative events may offer posi-tive opportunities for renewal and development(Ulmer, Seeger, & Sellnow, 2007; Veil, Sellnow, &Heald, 2011). “Discourse of renewal” is an emergingframework that leverages the tenets from chaos the-ory to describe how firms become stronger corpora-tions following a negative organizational event(Seeger & Griffin-Padgett, 2010: 127). The organiza-tional accounts and policy change literatures showcorrective actions may actually strengthen relation-ships between transgressing firms and salient stake-holder groups by improving trust, satisfaction,commitment, and power balances between theseparties (Smith, 2012; Xu, 2018).

In addition to organizational development andrenewal, the product recall literature suggests thatthe decision to remediate defective goods or servicesprovides firms with an opportunity to learn fromtheir misconduct (Thirumalai & Sinha, 2011). Usingorganizational learning theory, empirical evidencesuggests firms’ learning depends on important ele-ments of the recall including volition (voluntary vs.involuntary recalls), magnitude, and hazard level(Bae & Benıtez-Silva, 2011; Haunschild & Rhee,2004; Rhee & Kim, 2015). Prior research suggestsfirms were more likely to learn from large-scale,voluntary product recalls that posed a significanthazard to consumers compared with small-scale,


involuntary recalls that had a lower risk of harm (Bae& Benıtez-Silva, 2011; Kalaignanam et al., 2013).

Finally, research across a variety of literaturespoints to the ability of corrective actions to affect firmreputation. Research on executive dismissal sug-gests that succession events following wrongdoingmay allow firms to hire a CEO that signals the seri-ousness of their image restoration efforts (Gillespie &Dietz, 2009). Those successors who have prior ex-ecutive and turnaround experience or elite educa-tional backgrounds were all likely to aid the firm’sreputation (Gomulya & Boeker, 2014). From a prod-uct recall standpoint, firm reputation is a key orga-nizational factor that influences consumer andmarket reactions to defective goods (Haunschild &Rhee, 2006; Kim, 2014). A curvilinear relationshipexists between firm reputation and organizationallearning where companies with high- and low-levelreputations were most likely to reduce their productdefect rate (Rhee, 2009). Research on organizationalaccounts echoes the importance of examining firmreputation with recent research suggesting well-positioned strategies may not only repair but alsoimprove salient stakeholder perceptions of trans-gressing firms (Ulmer et al., 2010). Similarly, from apolicy viewpoint, organizational changes to internalcodes and procedures serve as key tools for im-proving corporate reputations especially after thefirm’s reputation has been threatened (Wright &Rwabizambuga, 2006). In sum, research fromdiverseliterature streams show that corrective actions maybenefit corporations by providing impactful organi-zational changes, including improvements to re-siliency, development, and learning (Reierson,Sellnow, &Ulmer, 2009;Wan&Yiu, 2009; Xu, 2018).

A THEORETICAL FRAMEWORK OFCORRECTIVE ACTION DECISION-MAKING

Based on our synthesis of the diverse literatures onmisconduct and corrective actions, we developedthe conceptualmodel in Figure 1.Within thismodel,we illustrate findings from the present literature us-ing solid lines and notable missing links within theliterature using dashed lines. In findings from thepresent literature, we depict research concerningthe consequences of organizational misconduct onthe left side of the model. As discussed in the afore-mentioned organizational misconduct review andtypology, four basic types of misconduct exist, andeach of these types ofmisconduct harm stakeholdersand have consequences for the organizations thatperpetrate them. The right side of themodel portrays

the corrective actions literature, which providesnumerous insights about the four different actionsfirms tend to implement following various types ofmisconduct and the achieved outcomes.

Synthesizing these research streams also allowedus to identify several shortcomings in the present lit-erature, which are evident in Figure 1. In particular,themissing links in theconceptualmodelpoint to twomajor problems. First, we know relatively little aboutcorrective action decision-making—why managers4

choose certain corrective actions and why theychoose to implement them in either an accommoda-tive or defensive manner represent notable missinglinks within the literature. The vast majority of re-search examines and promotes only one side of thatcontinuum—namely, accommodative responses toaffected stakeholders’ needs and desires—but doesnot explainwhymanagers choose todefendagainst orignore stakeholder claims5 and what objectives theyseek to accomplish in doing so. Second, although theliterature emphasizes many notable outcomes ofcorrective actions related to stakeholder reactions,previous research has not examined outcomes fromthe managerial perspective. Yet, doing so is essentialfor understanding how managers evaluate the effec-tiveness of corrective actions. Accordingly, we ad-vance a theory-driven framework to enhance ourunderstanding of the complex decisions managersface following misconduct and to understand howmanagers assess the effectiveness of their actions.

The Objectives of Accommodative versusDefensive Responses

To develop a better understanding of managers’corrective action decision-making and their assess-ment of corrective action effectiveness, we parsedown research findings into five fundamentalobjectives that research suggests managers typi-cally seek to accomplish following misconduct.Three of these objectives speak to accommodative

4 We use the term manager throughout to refer to an or-ganization’s decision-makers, which, depending on thesituation, could actually be the board of directors, the topmanagement team, or an individual CEO/manager.

5 We use the term claim throughout to refer to tacitclaims or explicit demands of stakeholders that representtheir desires for corrective actions following misconduct.In practice, stakeholders may explicitly communicatetheir desires to managers, but often managers attempt toproactively anticipate stakeholders’demandsandevaluatetheir tacit claimswhenmaking corrective actiondecisions.


implementation (i.e., atone, resolve, and signal)and two speak to defensive implementation (i.e.,conserve and distract).

Although each of these objectives represents adistinct motivation for managers’ corrective actiondecisions, some overlap exists between objectives.Specifically, certain objectives share similarities interms of the outcomes that they tend to produce; how-ever, each accomplishes these outcomes through dif-ferent mechanisms, which we discuss in the followingparagraphs. Furthermore, in practice, managers oftenhave multiple objectives when they undertake correc-tive actions. For example, following a product safetyissue, managers often attempt to atone for the harmcaused to customers and resolve the operational prob-lem that caused the safety issue (Cleeren et al., 2013;Zavyalova et al., 2012). Thus,managerial objectives arealso interrelated in terms of their application.

Accommodative objectives. Accommodative ob-jectives seek to address stakeholder claims andalleviate their concerns in a substantive way. When

managers adopt accommodative objectives, theyare interested in restoring relationships withstakeholders; therefore, the outcomes that interestmanagers following accommodative actions are oftenrelated to eliciting positive stakeholder reactions.Dependingon the typeofmisconductandstakeholdergroup harmed, outcomes such as market reactions,employee morale, or perceptions of legitimacy andtrust are indicative of effectiveness. Accommodativeobjectives include atonement, resolving the rootproblem, and signaling intentions to stakeholders.

First, when addressing the claims of stakeholdersaffected bymisconduct, managers may seek to atoneby offering explanations, apologies, and/or penanceas a remedy for the harm (Gillespie, Dietz, & Lockey,2014). In doing so, managers can earn goodwill withstakeholder groups and restore the organization’slegitimacy and trustworthiness, which serve as in-dicators of effectiveness for atonement (Hearit,1994). For example, in their case study of SevernTrent Water, a British utility company, Gillespie

FIGURE 1Conceptual Model of the Current Corrective Actions Literature and Missing Links

Firm OutcomesPrimary Outcomes

• Firm performance• Market reactions

Secondary Outcomes• Strategic change• Organizational learning• Organizational resiliency• Organizational development,

renewal, & trust• Commitment & Satisfaction • Firm reputation• Legitimacy• Trustworthiness• Culture change

Defensive Objective Outcomes• Conservation of resources• Distracting stakeholders

without making substantive changes

Corrective ActionDecision-Making

Process

Corrective Action

ImplementationOrganizational Misconduct

• Fraud• Product safety issues• Employee mistreatment• Environmental violations

Corrective Action Selection

• Executive dismissal• Recalls• Organizational accounts • Policy changes Defensive

Accommodative

Stakeholderharm

Firmconsequences

Managers adopt objectives(for corrective action

selection/implementation)

Managers’ interpretation of stakeholdersaliency

(legitimacy, urgency, power)

Managerial cognition ofstakeholder claims

(alignment or conflict)

Note: Solid lines capture key concepts in the existing literature. Dashed lines map key insights from the theoretical framework onto theexisting literature.


et al. (2014) noted that the firm explained that fail-ures in internal processes were to blame for thewrongdoing and followed this explanation with afull apology. Supporting their actions, research onorganizational accounts suggests that apologies playa vital role in addressing stakeholder concerns(Coombs & Holladay, 2012; Hearit, 1994; Patel &Reinsch, 2003).

In addition to explanations and apologies, firms of-ten try to atone through penance. Severn TrentWater,for example, following their apology, offered to reducecustomer bills for the next 2 years as “a gesture ofpenance,” and later agreed to spend £20 million oninternal improvements andcustomer reimbursements(Gillespie et al., 2014: 14). Management and opera-tions research suggests that such “substantive”penance helps restore trust and goes beyond thebenefits conferred by apologies alone (Bachman,Gillespie, & Priem, 2015; Bottom,Gibson,Daniels, &Murnighan, 2002; Lado, Dant, & Tekleab, 2008; Ren& Gray, 2009).

Second, managers frequently attempt to resolvethe root internal problem responsible for the harmfulbehavior. If stakeholders believe that the root prob-lem is an individual or a group within the organiza-tion, their dissatisfaction often leads to managers orthe board of directors dismissing the individualswho were responsible for the misconduct (Arthaud-Day et al., 2006; Gangloff et al., 2016). These dis-missals can range from employees all the way toboard members themselves (Arthaud-Day et al.,2006; Marcel & Cowen, 2014) and are driven bya variety of factors, including media attention(Wiersema & Zhang, 2013), characteristics of the in-dividual (Leone&Liu, 2010), and type ofmisconduct(Aharony, Liu, & Yawson, 2015). Indeed, research inaccounting suggests that founderCEOs are less likelyto be dismissed than nonfounder CEOs followingaccounting irregularities (Leone & Liu, 2010) andrecent research in finance suggests that firm re-sponses differ based on thenature of themisconduct,such that certain types of lawsuits result in differentlikelihoods of CEO and director dismissal. For ex-ample, Aharony et al. (2015) found that intellectualproperty lawsuits led to a higher likelihood of out-side director departures, whereas contractual law-suits lead to ahigher likelihoodof insidedirector andCEO dismissal. Personnel changes such as theseserve to restore damaged relationships with stake-holders and elicit positive market reactions, whichserves as an indicator of effectiveness when man-agers seek to resolve the problem (Gomulya &Boeker, 2014; Zhang & Wiersema, 2009).

When the root internal problem is strategy orstructure, managers often try to resolve the problemthrough adjusting internal policies and procedures(Bertels, Cody, & Pek, 2014). Researchers across or-ganizational disciplines have examined how man-agers can adjust policies, processes, and structuresto accommodate stakeholders’ demands for change.In the management and finance/accounting do-mains, scholars have studied managers’ use of pol-icy changes following instances of misconduct.These studies have examined policy changes suchas implementing organizational controls and gov-ernance mechanisms (Ege, 2014; Murillo-Luna,Garces-Ayerbe, & Rivera-Torres, 2008; Weibel,Den Hartog, Gillespie, Searle, Six, & Skinner,2015), amending the code of conduct (Gillespie &Dietz, 2009), altering reward structures (Harris &Bromiley, 2007), and introducing ethics trainingprograms (Weaver et al., 1999). Furthermore, oper-ations researchers suggest that adjustments to op-erational policies and procedures are a means ofaccommodating consumers’ demands for change fol-lowing product safety problems (Chao et al., 2009;Zavyalova et al., 2012).

Third, managers often attempt to signal their in-tentions and plans for implementing future changes,but cannot do so immediately. Doing so is particu-larly usefulwhenaffected stakeholder groups call forurgent action andmanagers believe that theywill usetheir power to punish the firm. Therefore, managersoften signal that they are accommodating salientstakeholder claims, which can help avoid retaliation(Kirmani &Rao, 2000; Zhang &Wiersema, 2009). Forexample, research on succession following fraudfinds that investors respond positively when firmsclearly signal strategic change by dismissing theCEO following wrongdoing and negatively other-wise (Gangloff et al., 2016). In addition, althoughsalient stakeholder claims typically have urgency(i.e., call for immediate action), managers cannotalways implement large-scale corrective actionsquickly (Hannan & Freeman, 1984; Lorsch, 1986).When they cannot take immediate actions,managerscan assuage stakeholder concerns by using signals(Bergh, Connelly, Ketchen, & Shannon, 2014).

Defensive objectives. Defensive objectives usesymbolic actions that allow managers to avoid ac-commodating stakeholder claims and protect theirown or the firm’s interests. Managers generally at-tempt to accomplish two basic objectives when theyassume a defensive position—conserving resourcesand distracting stakeholders. When managers adoptthese objectives, their goal is to protect themselves


or firm resources while giving the appearance ofaccommodating stakeholder claims. Therefore, theoutcomes that are important to managers’ assessmentof effectiveness following defensive actions are relatedto managerial and firm goals.

First, managersmay attempt to conserve resourcesby limiting costs incurred when responding tostakeholder claims. The potential costs of respond-ing to stakeholder claims can have a substantialtaxing effect on a wide range of firm resources(Durand, Hawn, & Ioannou, 2017; Pozner, 2008).Therefore, it is not surprising that managers oftenattempt to delay corrective actions or use less ex-pensive alternatives to the actions demanded bystakeholder groups (Bromley & Powell, 2012; Chenet al., 2009). Research from organizational accountsindicates managers commonly use symbolic ac-tions, such as apologies or marketing campaigns, toappease stakeholders and avoid costlier actions(Coombs & Holladay, 2008, 2009). Supporting this,management and operations research demonstratesthat managers may attempt to prevent or delay re-calls to avoid their immense cost (Chao et al., 2009;Chen et al., 2009).

Managers may also attempt to avoid losing non-economic strategic resources or preserve their ownjob security. For example, stakeholder groups af-fected by any type of misconduct commonly call fordismissal of the responsible executives, which is acostly corrective action not only in terms of themonetary cost but also in terms of the lost humancapital (Buchholtz, Ribbens, & Houle, 2003; Cao,Maruping, & Takeuchi, 2006; Harris & Helfat, 1997).Therefore, when replacing the executives responsi-ble for misconduct would be exceptionally costly ordifficult, the board of directors may seek to avoiddismissing them, and instead pursue an alternativecorrective action or scapegoat a different person(Connelly, Tihanyi,Ketchen,Carnes, &Ferrier, 2017;Gangloff et al., 2016). In addition, managers mayavoid actions that give affected stakeholder groupsgreater power to impose their claims. For instance,managers may avoid apologizing because, at times,apologies are a legally admissible acknowledgementof guilt (Fuoli, van deWeijer, & Paradis, 2017; Tyler,1997).

Second, managers may seek to distract stake-holders to restore the firm’s image, reputation, orlegitimacy without making substantive changes.Doing so is effective from the manager’s point ofview when they can restore stakeholder relation-ships without making substantive changes. Man-agers can distract by shifting blame to an external

party, implementing easily decoupled changes, orby using propaganda. When managers seek to shiftblame, they may attempt to avoid responsibility forthe misconduct by holding others responsible (Cho& Gower, 2006; Schwarz, 2012). For example, op-erations research indicates that managers may tryto shift the blame to other firms including theirsupply chain partners (Park et al., 2018). Similarly,research from the crisis-response literature showsmanagers also shift or avoid blame through denial,attacking the stakeholders’ claim, or portraying thefirmas a victim (An&Gower, 2009; Coombs, 2007a).These actions serve to restore the firm’s image byobfuscating either who is to blame for the mis-conduct or the amount of stakeholder harm.

When implementing easily decoupled actions,managers project the appearance of accommodatingsalient stakeholder claims by using false signalsof change (Bromley & Powell, 2012). It can be diffi-cult for affected stakeholders to observe firms’ in-ternal practices and monitor whether managersimplement proposed changes (Christmann &Taylor,2001). Under such conditions, managers can de-ceive stakeholders about whether they are actuallyenforcingpolicies (Maclean&Behnam, 2010),whichcan aid legitimacy and trust with affected stake-holders while still pursuing alternative interests(Crilly et al., 2012).

Managers may also attempt to distract stake-holders throughpropaganda,which serves to refocusstakeholder attention on positive aspects of the firm(Zavyalova et al., 2012). In this approach, managersmight call attention to the firms’ good deeds andcharitable giving or performhighly publicized stuntsto earn goodwill with stakeholders. For example,shortly after a product safety issue with their toys,FAO Schwarz announced that they would hostchildren for the “first ever Play-A-Thon� ... by of-fering them the chance to raisemoney for the charityof their choice” (Business Wire, 2001). Such sym-bolic actions do not address stakeholder concerns ina substantive way but serve to distract stakeholders’attention or shift stakeholders’ negative perceptionof the firm.

Salience of Stakeholders Affected by Misconductand Managerial Responsiveness

Defining five fundamental objectives provides in-sight aboutwhatmanagers intend toaccomplishwithacorrective action, yet the literature lacks a clear un-derstanding of when managers are responsive tostakeholders followingmisconduct. In this section, we


explore how misconduct affects stakeholder salience,which influences managers’ responsiveness to theirclaims. Following misconduct, managers must assessthe effects that their firm’s misconduct has had onstakeholders todecidewhether they should respond totheir claims. Unlike traditional stakeholder issues,wherein stakeholder or issue salience is related to en-during characteristics of the stakeholder group(Mitchell, Agle, & Wood, 1997), the salience of stake-holders followingmisconduct is related to theeffectsofthe misconduct itself. Thus, we draw on insights fromstakeholder theory to explain how the effects of mis-conduct influence managers’ perceptions of stake-holder salience and, as a result, their responsiveness tostakeholder claims.

The theory of stakeholder identification de-veloped by Mitchell et al. (1997) describes salienceas the degree to which managers are attentive andprioritize a stakeholder. Stakeholder salience in-creases with critical attributes as perceived by man-agers, including the legitimacy of the stakeholder’srelationship and their claim on the firm, the stake-holder’s power to force the firm to comply with theirclaim, and the urgency of the stakeholder’s claim(Mitchell et al., 1997). When a stakeholder holdsmultiple or higher levels of critical attributes, theirsalience increases, making managers not only moreaware of the stakeholder’s claims but also more re-sponsive to them(Agle,Mitchell, &Sonnenfeld, 1999;David, Bloom, & Hillman, 2007; Eesley & Lenox,2006). Stakeholder salience, therefore, is a criticalmechanism for understanding how harm caused tostakeholders influences whether managers will re-spond to their claim. In the following paragraphs, wedescribe howmisconduct influences these attributes.

First, based on a general sense of justice and fair-ness, managers tend to perceive the claims of thoseharmed by the firm as legitimate (Phillips, 2003).Legitimacy indicates the appropriateness of a stake-holder’s claims within a system of norms, values,and beliefs (Mitchell et al., 1997). The principle thatthosewho harm others should change their behaviorand/or face penalties for their transgressions is acommon tenant within legal systems and widelyaccepted codes of ethical conduct (Jones, Felps, &Bigley, 2007). Therefore, after experiencing harmcaused by an organization’s misconduct, stake-holders can make legitimate claims that the organi-zation should take action to correct its behavior and/or face penalties for its misdeeds.

Second, stakeholder’s power to influence the firmthrough legal and social mechanisms also tends toincrease followingmisconduct (Murphy, Shrieves, &

Tibbs, 2009). Power is the extent to which stake-holders have or can gain access to means that allowthem to force an organization to do something that itwould not otherwise do (Mitchell et al., 1997). As aresult of the harm done to them, affected stake-holders are often able to impose legal penalties on thefirm through individual lawsuits, class-action law-suits, or fines from governing agencies. For example,in 2011, employees of Verizon Wireless secured a$20million settlement from the company because ofan employee mistreatment class-action lawsuit fora discriminatory attendance policy (EEOC, 2011).Consequently, Verizon adjusted its attendance pol-icy to prevent further allegations of employee dis-crimination (Neil, 2011).

Although stakeholders affected by misconductregularly use legal channels to gain access to power,misconduct sometimes falls outside the scope oflegality and within the realm of ethics or socialresponsibility (Hahn & Albert, 2017). In such situ-ations, affected stakeholders, or those acting ontheir behalf, may not be able to pursue legal reme-dies and instead must use social mechanisms, suchas boycotts and media campaigns, to express theirpower (Klein, Smith, & John, 2004). Indeed, re-search on social movements suggests that stake-holders influence over firm actions that fall outsidesocietal norms is growing (Davis & Thompson,1994; King, Bentele, & Soule, 2007; King & Soule,2007). For instance, in 2009, Greenpeace led a suc-cessful consumer boycott against Kimberly-Clark,who was logging the Boreal Forest in Canada toproduce tissue paper. In response to the boycott,Kimberly-Clark changed its wood pulp harvestingpolicies to protect established ecosystems (Neff,2014). Thus, Greenpeace influenced Kimberly-Clark to change its policy by threatening the firm’srevenues and market share.

Third, when stakeholders experience harm due toorganizational misconduct, they often demand animmediate remedy to the situation. Urgency is thedegree to which stakeholder claims require imme-diate action (Mitchell et al., 1997). Research on firmresponses to misconduct generally indicate thatstakeholders harmed by an organization’s behaviorprefer that the organization promptly cease theharmful behavior and make changes to prevent fur-ther harm. For example, following revelations of fi-nancial fraud, research indicates that investorsstrongly prefer an immediate change in leadership toan interim appointment (Connelly et al., 2017).Moreover, research on product safety issues showsthat taking too long to issue a recall has substantial


effects on consumers’ negative perceptions of thefirm (Souiden & Pons, 2009).

Overall, stakeholder theory suggests that whenmanagers perceive affected stakeholders possesshigh levels of all three critical attributes, they tendto be responsive. Accordingly, when stakeholdersexhibit high levels of all three critical attributes(i.e., legitimacy, urgency, and power), managershave a mandate to give priority to the claims of thatstakeholder over the claims of other stakeholdersand managerial issues (Mitchell et al., 1997). Forexample, although managers are often focused onfinancial stakeholders, if a faulty product injuresconsumers, they are likely to perceive the harmedstakeholders as the more salient group followingmisconduct.Moreover, the content of specific claimsmade by salient stakeholders serves to guide man-agers with respect to the action that is most appro-priate for addressing the claim.

Managerial Cognition and CorrectiveAction Decision-making

Although Mitchell et al. (1997) theory of stake-holder identification helps explain how the harmcaused to stakeholders by misconduct influencesmanagerial responsiveness to their claims, it doesnot fully explain why managers adopt specific ac-commodative or defensive objectives for their re-sponse. The extant literature provides numeroustheoretical arguments and empirical findings thatindicate that accommodating stakeholder claimsproduces positive stakeholder responses (Coombs,2007a, 2007b; Zhang & Wiersema, 2009). Nonethe-less, our review and abundant recent examples in-dicate that managers often do not accommodatestakeholders but rather seek to defend against theirclaims (Canavan, 2013; Connelly et al., 2016;Gangloff et al., 2016; Shi & Connelly, 2018; Titus,Parker, & Bass, 2018). When managers adopt de-fensive objectives, they aim to distance the firm fromthe misconduct and protect their own or their firm’sinterests (Dutton & Jackson, 1987; Elsbach &Kramer,1996). Yet, the present literature lacks a compre-hensive theory-driven explanation of whymanagersadopt accommodative versus defensive objectivesfor their corrective actions.

To further connect missing links in the literaturesurrounding corrective action decision-making, weintegrate research on managerial cognition, specifi-cally the cognitive structures that influence man-agers’ assessment and interpretation of stakeholderclaims (Bundy et al., 2013; Durand et al., 2017;

Mitchell, Weaver, Agle, Bailey, & Carlson, 2016).Although recent research examines how cognitiveprocesses influence managers’ general interpreta-tion of stakeholder issues, we extend this work toincorporate key insights about how managers in-terpret stakeholder claims following misconductand select corrective actions.

In determining how to respond to stakeholderclaims, managers must assess whether stakeholderclaims are aligned (i.e., supporting, reinforcing, orconfirming) or conflicting (i.e., challenging orthreatening) with their own and their firm’s interest.In other words, when managers perceive that stake-holder salience is high and that a claim is deservingof response, they must consider not only how theirresponse might address the stakeholder’s claim butalso how it will affect a range of other factors that areimportant to themselves, the firm, and other stake-holders. Drawing on Bundy et al. (2013) strategiccognition view of managers’ interpretation of stake-holder issues, we suggest that when a claim isaligned with the firm’s interests, managers will bemore likely to accommodate. Conversely, when aclaim conflicts with those interests, managers aremore likely to adopt a defensive stance.

Strategic cognition refers to the cognitive struc-tures that managers use to process stakeholderclaims in relation to their firm’s interests whenmaking decisions about potential strategies or tactics(Narayanan, Zane, & Kammerer, 2011). Consistentwith the strategic cognition view (Bundy et al., 2013),we suggest that managers use the cognitive struc-tures of organizational identity and strategic frame toassess whether stakeholder claims are aligned orconflicting with their firm’s values and goals. How-ever, the strategic cognition view does not addresshow managers interpret claims in relation to theirown interests, which prior research suggests can in-fluence managerial actions. For example, followingmisconduct, managers may choose to scapegoat an-other actor in the firm to protect their own job secu-rity. Therefore, we include in the strategic cognitionview how managerial self-interest and, more objec-tively, the firm’s interests may influence managers’interpretation of stakeholder claims.

Managerial cognition includes the cognitivestructures of organizational identity and strategicframe, which managers use to assess stakeholderclaims in relation to the firm’s interests, as well asself-interest, which plays a role in how managersassess claims in relation to their own interests. Or-ganizational identity reflects the distinctive and en-during core values and beliefs that define the firm in


the minds of its managers (Bundy et al., 2013). De-cisions motivated by organizational identity followan expressive logic, where the action reflects thefirm’s identity to external constituents (Bundy et al.,2013; Polletta & Jasper, 2001). Thus, when inter-preting a stakeholder claim, managers evaluatewhether the claim is consistent or conflicting withthe firm’s core values because they want subsequentactions to express the values that they believe theirfirm represents.

Similarly, managers’ strategic frames define theirperceptions of the organization’s goals and helpthem assess what claims align with accomplishingthose goals (Bundy et al., 2013; Polletta & Jasper,2001). As opposed to organizational identity, amanager’s strategic frame facilitates information in-terpretation through an instrumental logic, which ispredicated on a rational pursuit of firm objectives(Dutton & Jackson, 1987; Thomas, Clark, & Gioia,1993). Thus, managers rely on strategic frames tointerpret stakeholder claims following misconductas either consistent or conflicting with their pursuitof organizational goals. Using this instrumentallogic, managers may evaluate the costs and benefitsof accommodating a claim to determinewhether it isconsistent with firm goals. A cost-benefit analysisinvolves estimating the expected gains derived frommobilizing or expending limited firm resources mi-nus the estimated costs of using them (Durand et al.,2017). The gains in this equation may be any of thecorrective action outcomes identified previously,such as firm performance, market reaction, or repair-ing relationshipswith stakeholders to restore trust andlegitimacy. Costs, however, include the immediateand future resource losses or opportunity costs asso-ciated with the selected course of action. These costsencompass the loss of physical, human, and organi-zational resources as well as the social costs of prior-itizing a particular stakeholder group’s claim overanother’s. For a claim to be consistent with the firm’sgoals and worth accommodating, managers mustperceive that the resulting course of actionwill have anet benefit for the firm.

Ultimately, managerial cognition influences howmanagers perceive and process stakeholder claims.Althoughstakeholder salience increases the likelihoodthat managers will respond to specific stakeholders,we also suggest that the way in which they chooseto respond—accommodatively or defensively—is aproduct of whether the stakeholders’ claim is consis-tent or conflicting with their own or their firm’s in-terests. If managers perceive that a claim is consistentwith those interests, then they will likely adopt

accommodative objectives. Conversely, when a claimconflictswith those interests,managers aremore likelyto defend against the claim. Accordingly, whethermanagers choose to respond toaparticular stakeholderdepends on their salience; whether they choose to doso in an accommodative or defensive way depends onthe fit between the stakeholder’s claim and the in-terests of the firm.

Overall, this discussion helps clarify not only howmanagers select objectives for their corrective ac-tions but also how managers and stakeholders eval-uate the outcomes of corrective actions. Outcomesfor stakeholders are largely dependent on whetherthe firm chooses to accommodate their claim and, asa result, stakeholder groups are likely to respondpositively when their claim is accommodated.Managers’ evaluations of outcomes, however, aremore complex and depend on whether or not theselected corrective actions accomplish their inten-ded objectives. Thus, although the literature by andlarge focuses on stakeholder outcomes, managerialoutcomesmay ormay not bemet by accommodatingstakeholder claims and we know little above the ef-ficacy of corrective actions from an internal per-spective. When managers adopt accommodativeobjectives for stakeholder claims, managers mightconsider restoration of trust, legitimacy, or reputa-tion as indicative of effectiveness. However, whenmanagerial cognitions conflict with stakeholders’claims and they adopt defensive objectives, theymay disregard such outcomes and instead focuson outcomes associated with the interests they areattempting to defend. For example, if conservingresources is a primary objective, then a successfuloutcomemight be to protect the financial bottom line(e.g., net income). As such, managers may imple-ment corrective actions that serve to protect theirfirm’s interests in lieu of those that serve to increasestakeholder-driven indicators of effectiveness (e.g.trust, legitimacy, reputation, stock market reaction,and short-term performance).

In sum, this framework suggests that stakeholdersalience and managerial cognition influence correc-tive action decision-making following misconduct.Responsiveness to stakeholder claims is dependenton stakeholder salience (i.e., legitimacy, power, andurgency following the misconduct). Managerial cog-nition about whether a claim aligns or conflictswith their own or the firm’s interests determineswhether managers will adopt accommodative ver-sus defensive objectives. Subsequently, those objec-tives shape the corrective action(s) that managerspursue and how they implement them. In terms


of corrective action efficacy, stakeholder percep-tions are largely influenced by whether the firm ac-commodated their claim; whereas efficacy fromthe managers’ perspective may be achieved througheither accommodative or defensive actions, but as aproduct of the outcomes of those actions fulfillingtheir objectives.

DISCUSSIONAND FUTURERESEARCHAGENDA

The prevalence of corporatemisconduct gives riseto numerous corrective actions intended to resolveor alleviate its consequences. Firms undertake dis-missals, product recalls, organizational accounts,and policy changes in the hopes of correcting theharm caused by misconduct. As such, a notable butdisconnected body of research spanning multiplefields has developed around corrective actions fol-lowingmisconduct. Accordingly, the purpose of thisreview is to synthesize these disconnected areas tobetter understand current insights and where futureresearch may be fruitful.

Theconceptual synthesis and theoretical frameworkoffered previously bring together an interdisciplinaryliterature on corrective actions and identify numerousgaps that require additional research. Foremost, ourreview exposes that notable missing links exist inthe literature surrounding corrective action decision-making. To explicate decision-making followingmisconduct, we took the initial steps of definingmanagerial objectives from the literature and ad-vancing a stakeholder theory–managerial cognitionframework. To visually highlight clear paths for fu-turework, the conceptualmodel provided inFigure 1maps the insights advanced within our stakeholdertheory–managerial cognition framework onto amodel of the existing literature. Using our frameworkas a guide, we develop broad research directions thatcan fill major gaps in the field’s understanding ofcorrective action decision-making and the de-terminants of corrective action effectiveness. Wesummarize these directions in Table 4.

Drivers of Accommodative Corrective ActionsFollowing Misconduct

Although researchers have extensively studiedaccommodative responses to misconduct, furtherresearch is needed to understand the mechanismsthat drive managers to take an accommodativestance regarding stakeholder claims. A stakeholdertheory–managerial cognition framework suggeststhat, following misconduct, the claims of affected

stakeholders provide an important input to man-agers’ corrective action decisions. However, gapsremain in the literature, as we lack understandingof how the claims of affected stakeholders andmanagers’ perceptions of those claims influencecorrective action decision-making.

To fill these gaps, researchers must continueinvestigating the characteristics of affected stake-holders and the content of their claims to determinehow those claims influence managers’ correctiveaction decisions. Research could examine how man-agers interpret the legitimacy, power, and urgencyof stakeholders affected by misconduct, especiallydepending on the severity of the misconduct. In ad-dition, firms may have multiple salient stakeholdersfollowing misconduct. Therefore, research is nec-essary to consider the specific characteristics ofstakeholders to determine how managers assessthe relative importance of salient stakeholders whenconsidering how to respond. Prior work in stake-holder theory indicates that stakeholder salienceincreases with the number of critical characteristicsthe individual or group possesses (Mitchell et al.,1997). However, managers’ perceptions of stakeholdersalience followingmisconductmayoperate differentlythan stakeholder salience in general. It is possible thatbecausesomestakeholders affectedbymisconduct canthreaten punitive power over the firm, managers mayrespond to stakeholders that have power, but lack le-gitimacy or urgency. This may explain why somemanagers attempt to anticipate stakeholder claims andact before receiving an explicit, urgent demand.

Going a step further, future research is also nec-essary to understand how managers’ perceptionsand interpretations of the content of affected stake-holder claims influence managers’ objectives forcorrective action. For instance, in terms of the con-tent of a claim, can managers easily interpret whatstakeholders want them to accomplish with the re-sultant corrective action? In some cases, such as aproduct safety issue, the stakeholder claim and de-sired corrective actionmay be relatively evident andeven explicitly demanded (i.e., customers demandthe safety issue be resolved, so the firm issues a re-call). However, following other types of misconduct,such as employee mistreatment and environmentalviolations, stakeholder claims may be less explicitor obvious, which may make it difficult for man-agers to adopt an accommodative corrective action.When managers can clearly understand what stake-holders want from the organization and how theycan fulfill those desires, they may be more likely totake an accommodative stance than they would be


otherwise—simply because they can readily assessstakeholders’ desires. In addition, although stake-holder claims are often explicit, managers also fre-quently attempt to anticipate stakeholder claims andtake corrective actions in a more proactive manner(Hora et al., 2011). Although it may be easy formanagers to interpret and respond to explicit stake-holder demands, it may be difficult to anticipate andaccommodate tacit stakeholder claims. Thus, in an-ticipating demands, howdomanagers decide amongcorrective actions?Domanagers follow a “playbook”based on common industry practices?

Research is also necessary to examine factors thatstrengthen the effects of stakeholder claims. Forexample, strong societal or industry norms forfairness and justice in stakeholder treatment maystrengthen the effect of salient stakeholder claimson managers’ corrective action decisions (Hillman &Keim, 2001). In societies that abide by a strict moralcode or industries that place an emphasis on stake-holder relations, managers may be more likely toadopt an accommodative stance because of socialor institutional pressure (DiMaggio & Powell, 1983).

In addition, when managers have a cooperative orpersonal relationship with stakeholders, such asstrategic partners or employees, they may be moresensitive to their claims than they would be other-wise. Therefore, research is necessary to understandwhen managers are willing to accommodate weakclaims to avoid relationship damage.

Last, research is necessary to investigate when andwhy managers choose to accommodate claims fromstakeholders that donot possess the critical attributesthat determine salience. Examples suggest that com-panies sometimes respond in anaccommodativewayto consumer boycotts of illegitimate concerns orgadfly investors that do not have the power to punishthe firm if ignored (Bundy et al., 2013). Additionalresearch would help provide insight into the driversof accommodative responses to nonsalient claims.

Drivers of Defensive Corrective ActionFollowing Misconduct

Future research is also necessary to empiricallyexplore the direct connections between managers’

TABLE 4Research Directions and Questions for Future Study

Research Direction Key Future Research Questions

Drivers of accommodativecorrective actionsfollowing misconduct

How domanagers interpret the legitimacy, urgency, and power of the stakeholders’ claims depending onthe severity of the misconduct?

Following organizational misconduct, what is the relative importance of the three dimensions ofstakeholder claim salience—power, legitimacy, and urgency—in determining managerialresponsiveness?

Are managers more/less likely to accommodate stakeholder claims when they can/cannot clearlyunderstand what stakeholders want them to accomplish?

Does a paradigm exist in research and practice that promotes accommodative responses to stakeholderclaims following misconduct and does that paradigm influence managers’ decisions?

What societal- or industry-specific norms influence corrective action choices following specific types ofmisconduct?

When and why do managers accommodate nonsalient stakeholder claims?

Drivers of defensive correctiveactions followingmisconduct

What kinds of stakeholder claims and strategic goals are managers most likely to believe are in conflictwith each other, thereby motivating a defensive response?

Do managers assess alignment/conflict between stakeholder claims and strategic goals in absolute termsor on a scale? Does a threshold for conflict with strategic goals exist that a claim must exhibit beforemanagers will pursue defensive action?

Do contentious stakeholder relationships or certain external/internal environmental conditions makemanagers more likely to pursue defensive corrective actions when they perceive conflict?

The determinants of correctiveaction effectiveness

When and why do stakeholders consider a corrective action effective? How important is recidivism tostakeholders affected by different types of misconduct?

Do stakeholders only react favorably to actions that directly accommodate their claims or demands?How do managers assess the effectiveness of defensive actions?What factors enhance the effectiveness of firms’ corrective actions? Are these factors different for

accommodative versus defensive responses?Whendoes introducingmultiple corrective actions increase the effectiveness of a firm’s overall response?

Which action combinations are most effective?


cognitions, objectives, and behavior. Researcherscanapproach thequestionof howmanagers interpretand filter stakeholder claims through their cognitivestructures from a variety of directions. For example,what kinds of stakeholder claims and various firmpriorities are managers most likely to perceive asconflicting with one another, thereby driving de-fensive responses? These characteristics may varybased on characteristics of the claim as well asthe type of corrective action under consideration.Therefore, research could examinemanagerial choiceswhen stakeholder claims conflict with other intereststhat are important to the managers themselves, theirfirm, or other stakeholders.

Going deeper, future research is also needed tounderstand the process by which managers assessstakeholder claims through their cognitive struc-tures. Specifically, do managers assess the conflictbetween salient stakeholders’ claims and cognitivestructures in absolute terms or on a relative scale?Although it is possible that in some situations,managers can clearly discern that a stakeholder’sclaim conflicts with other priorities, it is likely thatmanagers cognitively assess a claim on a continuousscale wherein a claim can conflict with other in-terests to varying degrees. If they assess claims on ascale, is there some threshold level of conflict thatmust bemet beforemanagers consider implementinga defensive action? Furthermore, when conflict ex-ists, but only in low levels, canmanagers implementcorrective actions in such a way that they have realoptions to shift toward a more accommodative ordefensive implementation later? For example, withlow levels of conflict between a stakeholder claimand another interest, managers could implement apolicy that they can decouple at a later date whenthey have more information (Bromley & Powell,2012; McGrath, 1997, 1999).

Another fruitful avenue involves examining poten-tial moderating factors. For example, prior difficultexperiences with certain stakeholder groups mightinfluencemanagers toward interpreting salient claimsfrom that group as conflicting with their cognitivestructures (Donaldson&Preston, 1995;Rowley, 1997).Whenmanagers have a contentious relationship withstakeholder groups, they may presume conflict. Al-ternatively, conditions in the firm’s external or in-ternal environment might influence how managersinterpret stakeholder claims (Darnall, Henriques, &Sadorsky, 2010). For instance, when resources arescarce within the firm or external competition is in-tense, managers may believe that they have less flex-ibility to accommodate stakeholder claims evenwhen

the claims align with their cognitive structures. Inthese situations, even minor perceptions of claimmisalignment may be a strong predictor of the choiceto defend or ignore stakeholder claims.

The Determinants of CorrectiveAction Effectiveness

A topic that is particularly ripe for future research isdetermining theeffectivenessof correctiveactions fromboth managers’ and stakeholders’ perspectives. Extantresearch indicates that corrective actions are most ef-fectivewhenmanagersdirectlyaccommodate affectedstakeholders. This would certainly be true fromthe stakeholders’ perspective, wherein effectivenessmight be considered as a function of how well man-agers match the corrective action to their claims.Accordingly, previous research indicates that accom-modativeactions tend to restorenotonly stakeholders’perceptions of trust, legitimacy, and reputationbut also enhance performance (Coombs, 2007a;Greenwood & Van Buren, 2010; Greve et al., 2010;Schnackenberg&Tomlinson, 2016).However, studiesrarely examine whether stakeholders’ specific claimswere addressed. For instance, when mistreated em-ployees demand a change in policy to prevent furthermistreatment, do managers make the requestedchange and does it actually prevent future mis-treatment? For those stakeholder claims that requirethe firm to eliminate its harmful behavior, recidivismrates among firms that implement corrective actionswould provide an indication of whether the organi-zation truly accommodated the stakeholders’ claims.Alternatively, when a defective product injures acustomer, the customer’s claim may require that theorganization compensate for their pain and suffering.Researchers might study how often firms willinglyoffer reparations and when doing so satisfies stake-holders. Thus, researchers can expand their focaloutcomes beyond stakeholder reactions to gain a bet-ter understanding of whether corrective actions di-rectly address stakeholders’ claims.

Another areawhere additional insight is necessaryinvolves examining widely studied stakeholderreaction-related outcomes under unique circum-stances. We know that when managers accommo-date affected stakeholder claims, those stakeholderstend to react favorably (Coombs, 2007a; Gangloffet al., 2016). However, are there situations whenmanagers ignore or defend a stakeholder’s claimsand the stakeholder still considers it an effectiveaction? Some stakeholders may be able to discernthat for managers to accommodate their claims, it


would imperil important firm goals or the needs anddesires of other stakeholder groups. In such situa-tions and at their own expense, affected stakeholdersmight prefer that managers pursue a course of actionthat preserves other important factors.

Researchers can alsowiden the scope of correctiveaction outcomes to capture corrective action efficacyfrom the managers’ perspective. Determining out-comes that indicate corrective action efficacy fromthemanagers’ perspective depends on the objectivesthey seek to fulfill. Managers may willfully sacrificetheir firm’s legitimacy, reputation, and stock price toprotect their personal welfare or their organization’sstrategic resources and plans. Thus far, the literaturehas not examined metrics of efficacy from this per-spective. Therefore, when studying the efficacy ofdefensive actions, researchers can gain understand-ing by assessing outcomes in relation to managers’objectives.

In line with examining outcomes from the man-agers’ perspective, future research could offer con-ceptual and, if possible, empirical models ofcorrective action effectiveness when managers re-spond defensively following misconduct. Afterassessing what outcomes managers hope to achievewith defensive actions, researchers should examinewhether or not managers successfully achieve theirobjectives. For example, in terms of executive dis-missals, are managers able to protect themselves orother valuable human resources by dismissing ascapegoat? For recalls, when managers stonewallfollowing a product safety problem, does this helpthem avoid issuing a recall or help them limit thecosts of the recall?Continuing this line of inquiry, arethe costs of forced corrective actions greater thanvoluntary corrective actions?

Research is also necessary to explore the potentialmoderators of both accommodative and defensivecorrective action effectiveness. For example, scholarshave begun to explore media coverage as anoutcome of misconduct and corrective actions(Zavyalova et al., 2012), but it is possible that cor-rective actions and media coverage interact as pre-dictors of outcomes such as legitimacy or otherstakeholder reactions. When a firm dismisses anexecutive following an instance of fraud and namesan outside successor (i.e., accommodative dis-missal), extensive media coverage of the correctiveaction may increase its effectiveness in terms of re-storing firm legitimacy among investors and pro-ducing a favorable stockmarket reaction because themedia is amplifying the firm’s signal that it ismakingsubstantial changes.However, it is equally likely that

media coverage or scrutiny might amplify negativestakeholder reactions associated with defensive ac-tions because themediamayhighlight that the firm isnot accommodating stakeholder claims.

Researchers can also consider factors that interactwith defensive responses to weaken the negative ef-fects they tend to have on stakeholder reactions. Forexample, firms that have a strong positive reputationbefore misconduct might not experience as severe areaction from stakeholders when they use organiza-tional accounts to deny culpability and avoid re-sponsibility. Strong reputations may make it easierfor stakeholders to accept the firm’s denial (Coombs& Holladay, 2002).

Furthermore, while in practice firms almost al-ways use more than one corrective action simulta-neously, researchers rarely examine how multiplecorrective actions work together. For example,when a firm releases an unsafe product, it is com-mon for the firm to issue a recall, dismiss the re-sponsible executives, change operational policies toprevent future product safety problems, and offerpenance to affected customers. Moreover, executivedismissals, recalls, and policy changes are nearly al-ways accompanied by some form of public response,such as a press release or direct communication.However, we know relatively little about managerialgoals with respect to combinations of corrective ac-tions and their perceived efficacy. Similarly, futureresearch can examine which combinations of actionsare most effective for producing specific outcomes orwhether additional corrective actions reduce the effi-cacy of others. Finally, scholars could also explorehow implementing accommodative and defensiveaction simultaneously fulfills different or conflictingobjectives.

CONCLUSION

The popular press is littered with examples ofcorporate malfeasance that range from financialfraud to sexual misconduct to product recalls. In-deed, scandals at firms such as Uber, Wells Fargo,and Facebook continue to plague the corporatelandscape. Following misconduct, firms must de-cide how to proceed, and a large body of literaturesurrounding these corrective actions has developed.Our review highlights that corrective actions have avariety of drivers and outcomes, which are studiedacross diverse literatures. We offer an organizingtypology and a stakeholder theory–managerial cog-nition framework to help advance the literature.Ultimately, our objective is to advance exciting


avenues for future research on corrective actionsfollowing misconduct.

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Matt C. Hersel ([email protected]) is an AssistantProfessor in the Department of Management at ClemsonUniversity. His primary research interests fall at the in-tersection of strategy and corporate governance includinghow firms manage the aftermath of corporate scandals.

Catherine A. Helmuth ([email protected]) is an Assis-tant Professor in the Management Department at CentralMichiganUniversity.Her foremost research interests are inthe field of strategy including how corporate governancestructures influence organizational outcomes during timesof turbulence.

Michelle L. Zorn ([email protected]) is an AssistantProfessor of Strategic Management in the Raymond J.Harbert College of Business at Auburn University. Her re-search primarily focuses on corporate governance, acqui-sitions, and corporate restructuring.

Christine Shropshire ([email protected]) is AssociateProfessor of Management & Entrepreneurship in the W. P.Carey School of Business at Arizona State University. Herresearch is in the area of corporate governance, includingboard composition and effectiveness, diversity in the up-per echelons, and stakeholder management.

Jason W. Ridge ([email protected]) is AssociateProfessor of Strategic Management in the Sam M. WaltonCollege of Business at the University of Arkansas. His re-search is in the area of corporate political activity, strategicleadership, and executive compensation.


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