From Steve Jobs and Apple to Jeff Bezos and Amazon, some brands are inextricably connected to their founders.
But what happens to a company’s reputation when its founder is shown to be a scoundrel?
University of Georgia consumer psychology researcher Julio Sevilla wanted to know what happens when “main character” CEOs and founders are booted for bad behavior. Do the company brands suffer or soar?
“These days, CEOs are personalities,” said Sevilla, who serves as the L. Edmund Rast Chair of Business and professor of marketing at UGA’s Terry College of Business. “Because of the internet and in this era of hyper information, if you are the founder or CEO of a big company, you’re a celebrity. It wasn’t like that 20 years ago, but today CEOs are public figures.
“Whatever actions they commit become public and can be tied to a company.”
Sevilla and his co-authors started thinking about the connections between company reputation and CEO scandals in the wake of the #MeToo movement. They found sometimes a leader’s tie to the brand’s identity is too important to let them go.
Sevilla worked with Lan Anh Ton, a former Terry Ph.D. student who is now at Texas Christian University, and former Terry researcher Rosanna K. Smith. Their paper, Morality and Continuity Authenticity Tradeoffs in the Removal of Unethical Founders, was recently published by the Journal of the Association for Consumer Research.
“It’s not always straightforward whether a company benefits or not from dismissing a founder or a CEO after they suffered some kind of scandal,” he said. “We tried to understand when dismissing the CEO or founder — regardless of moral or even legal considerations — has a positive or negative effect on the company.”
Sevilla and his co-authors conducted studies asking several hundred participants about their opinions of corporate executives demonstrating bad behavior.
For instance, in one study, participants were told about a coffee chain founder who made a sexist comment during a board meeting. Participants rated their intention to buy from the brand and its authenticity.
The corporate leader’s role (founder vs. hired CEO), severity of the transgression, and nature of the transgression were tested in subsequent scenarios.
In the modern marketplace, consumers will reward companies they see as taking moral stands on social and ethical issues — but they also prize authenticity, Sevilla said.
Anything departing from the brand’s founding essence — including firing a charismatic founder — can be seen as lessening the brand’s authenticity.
Sevilla’s team found tension was in play when their hypothetical founders behaved badly. When the founder in the team’s study was reported to making a sexist comment at a board meeting, the company didn’t benefit from firing him. The company benefits for standing against sexism were negated by a perceived loss of authenticity, Sevilla said.
“We found that it depends on how related the transgression is to the mission of the company and also the severity of the transgression,” he said. “It may be the case that milder transgressions may be tolerated by consumers if they’re not closely linked to the mission of the company.”
The only time firing the problematic founder improved the corporate image is if a founder’s transgression was especially egregious, or if the transgression violated the company’s core values. Then, the company was better off parting ways with the founder.
Sevilla’s team tested that last scenario by telling participants about the founder of a size-inclusive women’s clothing company where the founder was accused of harassing employees about their weight. Since the founder’s transgression directly opposed the brand’s body-positive reputation, consumers felt the company had maintained authenticity by firing the founder.
In other scenarios, the team tested the impact of firing a hired CEO who behaved badly instead of a founder. Companies were always better cutting ties to them, Sevilla said.
“If the CEO is not a founder and not closely linked to the company, it is better to just let them go,” he said. “There’s no benefit to keeping them because they don’t convey any value to the brand. You may create value operationally but not in terms of brand identity or image.”
There are times when problematic leaders need to go, whether it’s damaging to a company’s brand or not, Sevilla concluded. But it’s important to understand the impact founders and leaders have on their brands to understand why certain companies hold onto besmirched executives while others cut ties.