Guilty by association: The risk of crisis contagion

Abstract

Crisis contagion, or how a crisis spreads from one company to another, has received very little attention from researchers. This is surprising as the negative consequences of crisis contagion can be significant when customers make assumptions of guilt by association. This article focuses on this important issue and describes four risk factors-country of origin, industry, organizational type, and positioning strategy-that increase the likelihood of crisis contagion. Valuable guidance is also provided on whether a company should issue a denial or remain silent if it faces the risk of crisis contagion.

Full text

BUSHOR-1426;
No.
of
Pages
7
EXECUTIVE
DIGEST
Guilty
by
association:
The
risk
of
crisis
contagion
Daniel
Laufer
a,
*,
Yijing
Wang
b
a
School
of
Marketing
&
International
Business,
Victoria
Business
School,
Victoria
University
of
Wellington,
23
Lambton
Quay,
P.O.
Box
600,
Wellington
6140,
New
Zealand
b
Erasmus
School
of
History,
Culture,
&
Communication,
Erasmus
University
Rotterdam,
Rotterdam,
The
Netherlands
1.
Crisis
contagion:
A
major
risk
for
companies
Much
has
been
written
about
how
executives
should
manage
crises
in
their
organizations.
For
example,
in
this
journal,
Laufer
and
Coombs
(2006)
wrote
about
how
companies
can
manage
ambiguous
prod-
uct
harm
crises
and
Claeys
(2017)
wrote
about
the
benefits
of
stealing
thunder
when
a
company
is
involved
in
a
crisis.
However,
what
happens
when
a
company
is
at
risk
of
crisis
contagion,
or
being
linked
to
a
crisis
that
is
impacting
another
organi-
zation
such
as
a
competitor?
How
should
a
company
respond
in
this
type
of
situation?
Researchers
have
discussed
rumor
crises,
defined
as
the
circulation
of
“an
untruthful
statement
about
an
organization”
(Coombs,
2015,
p.
154).
This
article
focuses
on
the
analysis
of
risk
factors
associated
with
crisis
conta-
gion,
which
is
related
to
the
likelihood
of
a
rumor
spreading
and
linking
the
corporate
response
to
the
level
of
risk.
A
good
example
of
a
crisis
spilling
over
from
one
organization
to
another
is
a
high-profile
crisis
in-
volving
the
airline
industry
in
April
2017.
The
inci-
dent
began
with
a
man
being
violently
removed
from
a
United
Airlines
flight
by
airport
security
due
to
the
flight
being
overbooked.
This
incident
was
captured
on
video
by
several
passengers
and
it
quickly
went
viral
(Lartey,
2017).
After
the
incident
was
picked
up
by
the
media,
people
were
quick
to
point
to
the
issue
of
overbooking
as
an
industry-
wide
problem,
mentioning
that
it
occurs
at
other
Business
Horizons
(2017)
xxx,
xxx—xxx
Available
online
at
www.sciencedirect.com
ScienceDirect
www.elsevier.com/locate/bushor
*
Corresponding
author
E-mail
address:
dan.laufer@vuw.ac.nz
(D.
Laufer)
KEYWORDS
Crisis
management;
Crisis
communication;
Crisis
contagion;
Accessibility
and
diagnosticity
Abstract
Crisis
contagion,
or
how
a
crisis
spreads
from
one
company
to
another,
has
received
very
little
attention
from
researchers.
This
is
surprising
as
the
negative
consequences
of
crisis
contagion
can
be
significant
when
customers
make
assump-
tions
of
guilt
by
association.
This
article
focuses
on
this
important
issue
and
describes
four
risk
factors–— country
of
origin,
industry,
organizational
type,
and
positioning
strategy–— that
increase
the
likelihood
of
crisis
contagion.
Valuable
guidance
is
also
provided
on
whether
a
company
should
issue
a
denial
or
remain
silent
if
it
faces
the
risk
of
crisis
contagion.
#
2017
Kelley
School
of
Business,
Indiana
University.
Published
by
Elsevier
Inc.
All
rights
reserved.
0007-6813/$
—
see
front
matter
#
2017
Kelley
School
of
Business,
Indiana
University.
Published
by
Elsevier
Inc.
All
rights
reserved.
http://dx.doi.org/10.1016/j.bushor.2017.09.005

airlines
as
well
(Mahdawi,
2017).
This
incident
high-
lights
the
risks
for
companies
when
a
crisis
occurs
at
another
organization
and
raises
the
question–— when
does
a
crisis
occurring
at
one
company
spread
to
others?
The
topic
of
crisis
contagion
has
received
little
attention.
This
is
surprising
as
the
negative
conse-
quences
of
crisis
contagion
can
be
significant
when
customers
make
assumptions
of
guilt
by
association.
This
article
focuses
on
this
important
question,
among
others:
What
factors
increase
the
likelihood
of
crisis
contagion?
How
should
a
company
respond?
Should
it
issue
a
denial,
or
remain
silent?
We
hope
to
provide
valuable
guidance
to
companies
on
these
important
issues.
2.
What
causes
crisis
contagion?
The
role
of
accessibility
and
diagnosticity
Companies
can
benefit
from
incorporating
the
accessibility-diagnosticity
framework
(Feldman
&
Lynch,
1988)
in
order
to
assess
the
risk
of
crisis
contagion.
Based
on
this
framework,
if
crisis
infor-
mation
is
memorable
to
consumers
and
perceived
as
diagnostic
in
forming
judgements,
crisis
contagion
is
likely
to
occur
(Roehm
&
Tybout,
2006).
It
is
worth
noting
that
both
of
these
conditions–— accessibility
and
diagnosticity–— need
to
be
satisfied
in
order
to
trigger
the
contagion
effect.
Accessibility
is
enhanced
by
the
perceived
similarity
of
the
focal
company
and
the
company
experiencing
the
crisis.
This
effect
is
associated
with
categorization.
The
more
a
company
is
per-
ceived
to
be
in
the
same
category
as
the
company
experiencing
the
crisis,
the
higher
the
risk
for
crisis
contagion
(Janakiraman,
Sismeiro,
&
Dutta,
2009).
For
example,
Starbucks
is
a
typical
brand
in
the
coffeehouse
chain
category.
A
crisis
occurring
at
Starbucks
is
likely
to
activate
consumers’
knowl-
edge
of
similar
coffeehouse
chain
brands
such
as
Caribou
Coffee
and
Costa
Coffee.
The
higher
the
perceived
similarity
of
these
brands
with
Starbucks,
the
more
consumers
will
be
reminded
of
these
brands
when
they
hear
about
Starbucks
in
the
news
or
on
social
media.
Diagnosticity
is
also
related
to
crisis
contagion
(Janakiraman
et
al.,
2009).
It
is
triggered
when
there
is
something
about
the
category
that
is
related
to
the
crisis.
For
example,
The
Coca-Cola
Company
was
criticized
in
the
media
for
the
large
quantity
of
sugar
in
the
company’s
soft
drinks,
which
was
linked
to
tooth
decay
in
children
(Parsons,
2016).
If
the
crisis
information
(i.e.,
high
levels
of
sugar)
is
perceived
as
being
related
to
soft
drinks
in
general,
people
will
believe
the
crisis
impacts
other
soft
drink
companies.
This,
in
fact,
can
be
seen
in
the
media’s
coverage
of
other
soft
drink
brands,
Lucozade
and
Frijj;
these
companies
were
judged
as
guilty
by
association
because
they
belong
to
the
same
category.
In
line
with
this
logic,
similarities
to
other
scan-
dal
attributes–— such
as
safety
for
cars
and
fair-trade
coffee
beans
for
coffee
chains–— are
associated
with
inferences
about
diagnosticity
as
well.
The
higher
the
perceived
similarity
to
the
scandal
attribute,
the
more
likely
crisis
contagion
will
occur
(Roehm
&
Tybout,
2006).
In
many
cases
this
is
related
to
the
positioning
strategy
of
companies,
however
it
can
also
occur
independent
of
the
positioning
strategy
if
the
attribute
is
commonly
associated
with
a
type
of
company
or
industry.
For
example,
the
contamina-
tion
of
milk
powder
of
a
specific
brand
may
be
generalized
to
the
entire
dairy
industry
due
to
consumers’
concerns
about
food
safety,
regardless
of
the
positioning
strategy
of
the
dairy
companies.
In
a
similar
vein,
a
crisis
involving
corruption
at
a
state-owned
enterprise
may
be
associated
with
other
state-owned
enterprises
since
consumers
may
believe
that
corruption
is
linked
with
government-
owned
entities.
In
summary,
whether
a
company
is
at
risk
for
crisis
contagion
based
on
the
accessibility
and
diagnosticity
framework
depends
on
consumer
per-
ceptions
of
whether
the
focal
company
shares
a
common
category
with
the
company
experiencing
the
crisis
(accessibility),
and
whether
an
attribute
of
the
category
is
viewed
as
being
linked
to
the
crisis
(diagnosticity).
It
is
worth
noting
that
if
these
two
conditions
are
not
met,
crisis
contagion
is
unlikely
to
occur.
If,
for
example,
the
crisis
is
caused
by
an
incident
at
a
company
which
is
perceived
by
con-
sumers
to
be
specific
to
that
company,
and
not
common
to
other
companies
in
that
industry,
other
companies
will
not
be
adversely
impacted
even
if
the
category
is
accessible
(Roehm
&
Tybout,
2006).
For
example,
when
the
CEO
of
American
Apparel
was
accused
of
sexual
misconduct
allegations
and
removed
from
his
position
in
2014
(Hanson,
2015),
the
risk
of
crisis
contagion
to
other
clothing
brands
such
as
Gap
was
low.
These
allegations
of
miscon-
duct
were
perceived
by
consumers
as
unique
to
American
Apparel.
In
addition
to
accessibility
without
diagnosticity,
diagnosticity
without
accessibility
can
also
occur.
This
would
reduce
the
likelihood
of
crisis
contagion
as
well.
For
example,
during
the
2003
invasion
of
Iraq,
there
was
a
boycott
of
French
products
by
American
consumers
due
to
the
French
govern-
ment’s
stance
on
the
war.
However,
the
boycott
didn’t
adversely
impact
all
French
brands
because
a
number
of
them
did
not
have
French-sounding
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2
EXECUTIVE
DIGEST

names
(Pandya
&
Venkatesan,
2016).
This
is
an
excellent
example
of
a
lack
of
accessibility.
In
a
similar
case,
Chinese
companies
with
Western-
sounding
brand
names
avoid
consumer
perceptions
of
quality
issues
linked
with
those
made
in
China.
A
good
example
of
this
is
Giordano,
a
clothing
retailer
from
China
(Watts,
2007).
3.
Crisis
contagion
risk
factors:
What
should
companies
be
concerned
about?
Accessibility
and
diagnosticity
are
driven
by
con-
sumer
perception,
and
it
is
important
to
understand
the
factors
that
strengthen
the
association
between
a
focal
company
and
a
company
involved
in
a
crisis.
These
factors
are
related
to
the
perceived
similarity
of
companies
and
whether
characteristics
per-
ceived
to
be
common
to
the
shared
category
can
be
linked
to
a
crisis.
Below,
we
discuss
the
four
risk
factors
of
crisis
contagion
(see
Table
1)
and
how
risk
increases
when
there
are
multiple
factors
at
play.
3.1.
Country
of
origin
Country
of
origin
(COO)
represents
the
country
that
a
company
is
affiliated
with,
which
in
many
cases
is
the
country
where
its
headquarters
are
located.
For
example,
VW’s
COO
is
Germany
and
Starbucks’
COO
is
the
U.S.
If
other
companies
share
the
same
COO
as
the
crisis
company,
there
is
a
risk
that
they
could
be
linked
to
the
crisis
by
consumers
because
companies
from
the
same
country
may
be
perceived
to
share
the
same
category.
In
other
words,
the
match
be-
tween
the
crisis
company
and
other
companies’
COO
enhances
accessibility.
Diagnosticity,
on
the
other
hand,
depends
on
whether
an
aspect
of
the
COO
is
perceived
to
be
related
to
the
crisis,
such
as
the
country’s
culture
or
its
product-country
image
(i.e.,
the
consumers’
image
of
products
from
a
specific
country).
Maher
and
Singhapakdi
(2017)
looked
at
the
role
of
COO
in
crisis
contagion
and
examined
how
a
fictitious
moral
failure
of
the
Japanese
company
Toshiba
impacted
consumers’
intentions
to
purchase
competing
brands
from
the
same
COO
(e.g.,
Japanese
Fujitsu)
as
well
as
from
a
different
COO
(e.g.,
Taiwanese
Acer,
American
HP).
The
results
suggest
that
the
nature
of
the
contagion
effect
depends
on
the
brands’
COO.
In
other
words,
a
moral
failure
is
likely
to
adversely
impact
com-
peting
brands
with
the
same
COO,
but
not
those
with
a
different
COO.
In
addition
to
findings
from
experiments
regard-
ing
COO,
there
is
also
evidence
from
an
actual
crisis
involving
the
Japanese
company
Mitsubishi
and
sex-
ual
harassment,
which
resulted
in
a
payment
of
$34
million
to
350
women
(Peirce,
Smolinski,
&
Rosen,
1998).
Pollack
(1996)
attributed
the
cause
of
this
crisis
to
Japanese
culture:
He
claimed
that
the
secondary
status
of
women
in
Japanese
society
led
to
discrimination
of
women
and
sexual
harass-
ment
at
American
subsidiaries
of
Japanese
compa-
nies.
As
a
consequence,
the
crisis
was
not
only
damaging
for
Mitsubishi,
but
it
also
had
a
significant
impact
on
other
Japanese
companies
(Tolbert,
1999).
In
fact,
according
to
Mehri
(2005),
a
Toyota-affiliated
company
was
concerned
about
the
impact
of
the
Mitsubishi
crisis
and
conducted
a
survey
to
investigate
the
extent
of
the
problem
among
its
own
employees.
The
survey
found
that
75%
of
women
and
62%
of
men
at
the
company
were
aware
of
someone
who
had
experienced
sexual
harassment
at
the
company.
Similar
to
the
findings
from
the
experiment
involving
Toshiba,
the
Mitsu-
bishi’s
COO
caused
people
to
associate
Japanese
companies
with
organizational
misdeeds
such
as
sexual
harassment.
3.2.
Industry
Companies
in
a
given
industry
are,
in
many
instan-
ces,
adversely
effected
by
a
crisis
that
impacts
one
of
its
competitors.
If
an
event
is
associated
with
misconduct
at
a
company,
consumers
are
likely
to
generalize
and
connect
the
problem
to
the
industry
category
as
a
whole
due
to
the
perceived
similarity
of
companies
in
the
category.
In
particular,
if
the
crisis
is
related
to
an
industry
standard
or
common
operational
procedure,
high
diagnosticity
is
likely
to
be
perceived
by
consumers.
The
crisis
information
of
a
typical
company
in
a
category
causes
consumers
to
adjust
their
beliefs
about
the
credibility
of
competing
companies
in
the
same
industry
through
a
“reputation
commons”
process
(Barnett
&
King,
2008,
p.
1153).
As
a
result,
if
companies
share
the
same
industry
category
as
the
crisis
company,
there
is
a
risk
that
they
could
be
linked
to
the
crisis
by
consumers.
A
good
example
of
this
process
is
the
recent
Volkswagen
(VW)
emissions
crisis,
which
weakened
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No.
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7
Table
1.
Four
crisis
contagion
risk
factors
Crisis
contagion
risk
factors
Higher
risk
Lower
risk
1
Country
of
origin
Identical
Different
2
Industry
Identical
Different
3
Organizational
type
Similar
Dissimilar
4
Positioning
strategy
Similar
Dissimilar
EXECUTIVE
DIGEST
3

the
confidence
of
car
buyers
in
the
entire
automo-
bile
industry
(Kollewe,
2015).
Post-crisis
polling
in
the
U.K.
found
that
over
74%
of
people
believed
that
other
car
manufacturers
could
be
involved
in
a
crisis
similar
to
VW,
while
only
9%
believed
that
the
crisis
was
limited
to
the
VW
group
(Rowe,
2015).
Follow-
ing
its
crisis,
not
only
did
VW
sales
fall
by
almost
10%,
but
other
big
carmakers
suffered
steep
sales
declines
as
well:
Ford
sales
decreased
by
8.8%,
General
Motors’
Vauxhall
brand
was
down
16.4%,
and
Citroen
sales
dipped
by
18.5%
(Rowe,
2015).
In
addition,
the
share
prices
of
other
companies
took
a
hit
following
VW’s
disclosure
of
the
emission
scandal,
including
BMW
(6.3%
drop),
Daimler
(5%
drop),
and
Peugeot
(5.9%
drop)
(Neilan,
2015;
Sharman
&
Brunsden,
2015).
The
decline
in
sales
and
stock
prices
of
competing
automakers
suggests
that
both
consumers
and
investors
believe
that
VW
was
not
the
only
company
engaging
in
the
illegal
behavior.
3.3.
Organizational
type
A
shared
organizational
type
can
also
lead
to
crisis
contagion.
An
organizational
type
is
related
to
a
company’s
mission,
ownership,
and
structure.
For
example,
a
for-profit
(e.g.,
private
university)
en-
tity’s
mission
is
to
generate
income,
while
a
non-
profit
(e.g.,
public
university)
focuses
on
serving
a
humanitarian
need.
Consumers,
who
recognize
that
a
for-profit
organization
aims
to
generate
profits,
may
perceive
a
crisis
occurring
at
a
for-profit
entity
as
a
common
issue
impacting
others
with
the
same
organizational
type.
If
the
crisis
is
related
to
the
categorical
feature
of
an
organizational
type,
it
will
be
perceived
as
more
diagnostic,
and
thus
more
likely
to
affect
companies
in
the
same
category.
For
example,
as
the
goal
of
a
for-profit
entity
is
to
generate
profits,
any
one
entity’s
unethical
or
ille-
gal
activities
to
achieve
this
goal
may
be
attributed
to
the
feature
of
this
category
as
a
whole,
and
could
spill
over
to
other
companies
in
the
same
category.
Trump
University
is
a
good
example
to
elaborate
on
this
point.
Though
never
licensed
as
a
university,
it
has
been
described
as
a
for-profit
university
(Douglas-Gabriel,
2016).
Before
it
was
shut
down,
an
estimated
$40
million
in
revenue
was
generated
from
approximately
7,000
students
from
2004—2010
(Douglas-Gabriel,
2016).
A
number
of
former
students
sued
the
company
for
false
and
misleading
advertising.
The
allegations
against
Trump
Univer-
sity
were
mentioned
in
connection
with
another
for-
profit
college,
Corinthian
Colleges,
in
the
media
(Douglas-Gabriel,
2016).
These
two
for-profit
orga-
nizations
were
linked
to
one
another
due
to
the
similar
organizational
type.
As
a
result,
people
assumed
they
employed
similar
strategies:
exploit-
ing
vulnerable
consumers
through
the
targeting
of
people
with
low
self-esteem
and
low
income
(Douglas-Gabriel,
2016).
An
article
published
in
Forbes
mentioned
that
the
$40
million
lawsuit
against
Trump
University
is
a
good
lesson
for
all
for-profit
colleges
(Howard,
2013).
It
is
worth
noting
that
nonprofit
universities
were
not
mentioned
in
the
article.
3.4.
Positioning
strategy
A
similar
positioning
strategy
is
another
factor
that
could
increase
the
risk
of
crisis
contagion.
A
com-
pany’s
positioning
strategy
is
defined
as
an
orga-
nized
attempt
by
a
company
to
differentiate
itself
from
its
competitors
and
to
influence
the
way
its
target
audience
perceives
it
(Trout,
2005).
It
involves
a
deliberate
branding
plan
or
process
(e.g.,
advertising,
marketing
campaign).
A
compet-
ing
company
with
a
similar
positioning
strategy
leads
to
accessibility
and
is
likely
to
be
connected
to
the
crisis
by
consumers
because
it
will
be
per-
ceived
to
be
similar
to
the
company
experiencing
the
crisis
(Broniarczyk
&
Alba,
1994;
Janakiraman
et
al.,
2009).
If,
on
the
other
hand,
the
positioning
strategy
of
a
competing
company
is
perceived
by
consumers
to
be
different,
the
association
between
the
competing
company
and
the
crisis
company
in
consumers’
memory
is
likely
to
be
low,
minimizing
the
risk
of
crisis
contagion.
The
level
of
diagnosticity
is
determined
by
the
extent
to
which
the
positioning
strategy
is
con-
nected
to
the
crisis.
For
instance,
if
the
crisis
is
triggered
by
the
failure
of
fulfilling
consumers’
expectation
on
the
promised
corporate
mission
(e.g.,
generating
value
for
the
local
community)
or
promoted
product
function
(e.g.,
organic
food
for
health
and
nutrition),
competing
companies
using
the
same
positioning
strategy
are
more
likely
to
be
affected
by
the
crisis.
A
good
example
to
illustrate
this
point
relates
to
the
coffee
industry.
Starbucks
has
been
a
leading
player
in
the
coffee
industry,
promoting
environ-
mental
sustainability
and
highlighting
corporate
social
responsibility
(CSR)
(Crane,
2006).
This
strat-
egy
involves
a
wide
range
of
activities:
helping
the
community,
sourcing
ethically,
and
being
environ-
mentally
friendly.
1
Despite
its
extensive
efforts
in
this
area,
Starbucks
has
been
publicly
criticized
on
issues
related
to
CSR
such
as
wasteful
water
practices,
lack
of
recycling
infrastructure
for
customers,
and
exploitation
of
coffee
farmers
BUSHOR-1426;
No.
of
Pages
7
1
www.starbucks.com/responsibility
4
EXECUTIVE
DIGEST

(Lozanova,
2009).
These
allegations
against
Star-
bucks
have
also
caused
consumers
to
criticize
other
coffee
brands
that
position
themselves
on
CSR
as
well,
such
as
Caribou
Coffee
(Haight,
2011).
The
similar
positioning
strategy
of
Starbucks
and
Cari-
bou
causes
consumers
to
view
them
in
a
common
category
(accessibility)
and
the
likelihood
of
the
crisis
spilling
over
to
Caribou
is
high
because
the
positioning
strategy
(CSR)
is
related
to
the
crisis
(diagnosticity).
3.5.
Existence
of
multiple
risk
factors
In
many
instances,
companies
are
associated
with
a
number
of
crisis
contagion
factors.
For
example,
a
firm
might
be
in
the
same
industry
and
share
a
common
COO
with
a
company
experiencing
a
crisis.
The
existence
of
multiple
risk
factors
enhances
the
perceived
similarity
in
consumers’
minds,
which
increases
the
risk
of
crisis
contagion.
This
can
be
explained
by
the
way
information
is
stored
in
a
person’s
memory.
A
schema
is
a
cognitive
structure
that
represents
an
object
in
memory
(Taylor
&
Crocker,
1981),
and
the
way
knowledge
is
organized
in
memory
influences
the
retrieval
of
information.
The
more
nodes
linking
an
object
to
another
object,
the
higher
the
likelihood
it
will
be
retrieved
from
memory
(accessibility).
The
risk
factors
represent
nodes
to
memory,
which
increase
the
likelihood
that
consumers
will
think
about
the
focal
company
when
the
company
dealing
with
the
crisis
is
mentioned
in
mainstream
or
social
media.
Borah
and
Tellis
(2016)
found
support
for
the
link
between
the
number
of
risk
factors
and
crisis
con-
tagion
in
their
study
that
investigated
the
extent
to
which
negative
chatter
on
social
media
about
one
company
brand
resulting
from
a
product
recall
(e.g.,
Corolla
or
Camry
for
Toyota)
spills
over
to
other
brands
(e.g.,
Honda,
Nissan,
Chrysler).
The
researchers
found
that
the
spillover
effect
was
strongest
for
the
Japanese
brands
Toyota,
Honda,
and
Nissan.
These
findings
suggest
that
the
exis-
tence
of
two
risk
factors
simultaneously–— industry
and
COO–— corresponds
to
a
stronger
contagion
effect
than
the
existence
of
the
industry
factor
only.
It
also
implies
that
if
a
company
is
associated
with
multiple
risk
factors,
there
is
a
higher
likeli-
hood
of
crisis
contagion.
4.
Company
response:
Should
the
company
issue
a
denial?
As
demonstrated
by
Borah
and
Tellis
(2016),
if
the
company
exhibits
any
of
the
crisis
contagion
risk
factors,
this
is
likely
to
be
reflected
in
conversations
on
social
media.
Therefore,
it
is
important
for
a
company
to
track
a
number
of
key
issues
on
social
media,
identified
in
these
three
questions:
Is
the
company
being
linked
to
the
crisis?
Are
people
speculating
about
possible
spillover
effects?
Is
the
crisis
being
described
as
an
industry
issue?
If
the
answer
to
any
of
these
questions
is
yes,
it
is
important
that
the
company
issues
a
denial.
This
denial
should
also
include
an
explanation
of
why
the
crisis
is
not
related
to
the
company.
For
example,
in
the
case
of
a
crisis
involving
not
fulfilling
CSR
promises–— such
as
a
coffee
chain
competitor
not
providing
fair
compensation
to
coffee
growers
in
developing
countries–— it
is
important
to
demon-
strate
that
the
company
is
fulfilling
its
CSR
respon-
sibilities.
Stating
that
the
company
issues
an
annual
CSR
report,
which
discusses
compensation
to
coffee
growers,
and
is
audited
by
an
independent
third
party,
would
be
an
effective
way
to
refute
the
accusations.
Issuing
a
denial
without
providing
an
explanation
will
not
sufficiently
satisfy
skeptical
consumers.
An
effective
denial
by
the
company
will
greatly
assist
in
combating
the
risk
of
crisis
contagion.
A
good
example
of
an
effective
company
response
with
a
high
risk
of
crisis
contagion
was
BMW
following
the
VW
emissions
crisis.
BMW
had
a
high
risk
of
crisis
contagion
because
the
company
was
linked
to
two
risk
factors:
COO
and
industry
(German
company
in
the
automobile
industry).
In
response
to
the
VW
emissions
crisis,
a
spokesperson
for
the
company
issued
a
statement
denying
any
connection
to
the
crisis:
“I
can
confirm
that
we
don’t
use
any
software
that
could
influence
the
emissions
test”
(Robbins,
2015).
If,
on
the
other
hand,
the
risk
of
crisis
contagion
is
low,
it
is
best
for
the
company
not
to
respond.
Issuing
a
denial
when
it
is
not
necessary
could
draw
attention
to
the
company
and
cause
some
people
to
believe
that
there
may
be
reason
to
be
concerned.
For
example,
Roehm
and
Tybout
(2006)
conducted
a
fictitious
experiment
which
involved
Burger
King
being
accused
of
misleading
consumers
about
the
nutritional
content
of
its
burgers.
The
study
exam-
ined
whether
a
denial
by
Wendy’s,
its
competitor,
was
effective
(“Wendy’s
has
never
and
will
never
mislead
customers
about
the
nutritional
content
of
any
of
its
menu
items”).
When
consumers
believed
there
was
brand
differentiation
between
Burger
King
and
Wendy’s,
Wendy’s
denial
was
counter-
productive
and
a
boomerang
effect
occurred.
In
BUSHOR-1426;
No.
of
Pages
7
EXECUTIVE
DIGEST
5

other
words,
attitudes
and
beliefs
about
Wendy’s
after
the
denial
were
less
favorable
when
compared
with
the
no-denial
condition.
Roehm
and
Tybout
(2006)
suggested
that
this
may
have
occurred
be-
cause
people
might
infer
guilt
when
a
company
protests
too
much
when
it
is
not
necessary.
In
the
case
of
the
Wendy’s
experiment,
this
occurred
because
Wendy’s
and
Burger
King
were
viewed
as
different
types
of
companies
in
the
fast
food
indus-
try
(brand
differentiation),
therefore
crisis
conta-
gion
didn’t
occur.
As
a
result,
the
denial
likely
caused
people
to
think
that
perhaps
Wendy’s
was
hiding
something.
Crisis
contagion
is
an
issue
companies
need
to
take
seriously.
By
understanding
the
risk
factors
and
issuing
a
denial
if
the
risk
of
crisis
contagion
is
high,
a
company
can
minimize
the
chances
of
a
crisis
spilling
over
and
adversely
impacting
its
operations.
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