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date: 20 November 2017

The Role of the Media in Corporate Governance

Summary and Keywords

Corporate governance scholars have long been interested in understanding the mechanisms through which firms and their leaders are held accountable for their actions. Recently, there has been increased interest in viewing the media as a type of corporate governance mechanism. Because the media makes evaluations of firms and leaders, and can broadcast information to a wide audience, it has the potential to influence the reputation of firms and firm leaders in both positive and negative ways and thereby play a role in corporate governance.

The media can play a governance role and even influence firm outcomes by simply reporting about firm actions, giving stakeholders a larger voice with which to exert influence, and through independent investigation. However, despite the potential for the media to play a significant governance role, several barriers limit its effectiveness in this capacity. For example, media outlets have their own set of interests that they must strive to fulfill, and journalists often succumb to several cognitive biases that could limit their ability to successfully hold leaders accountable.

While significant progress has been made in understanding the governance role of the media, future research is needed to better understand the specific conditions in which the media is effective in this role. Understanding how social media is changing the nature of journalism is just one example of the many exciting avenues for future research in this area.

Keywords: corporate governance, media, celebrity, legitimacy, reputation

Brief Review of Corporate Governance

Corporate governance generally refers to the ways in which firms are directed and controlled, and its study largely focuses on the mechanisms that firms put in place to hold leaders accountable for the decisions they make. Much of the scholarly research on corporate governance has been based on agency theory, which describes how agents (i.e., managers) act on behalf of principals (i.e., owners), and it outlines some of the problems that tend to arise out of this arrangement (Dalton, Hitt, & Certo, 2007; Fama & Jensen, 1983). For a variety of reasons, agents may not always act in the best interests of the principal and so agency costs result that make the firm less efficient and ultimately less profitable. Corporate governance scholars have largely focused on identifying internal and external mechanisms that can help reduce agency costs by ensuring that managers are actually pursuing the interests of shareholders or other important stakeholders rather than simply acting on their own behalf. However, a seemingly endless stream of corporate scandals and mounting scholarly evidence suggest that many of the mechanisms designed to correct agency problems may not be very effective in curbing managerial misbehavior (Bhagat & Black, 2001; Dalton, Daily, Ellstrand, & Johnson, 1998).

Research drawing on sociological, behavioral, and even psychological perspectives beyond agency theory has explored the conditions under which various governance mechanisms are more or less effective. So for example, the board of directors is perhaps the most studied governance mechanism because it acts as a first line of defense to ensure that managers are held accountable for their actions. Much research has been devoted to understanding when the board may act as an effective monitor of management and when it may be less likely to fulfill this role due to factors such as social relationships inside and outside of the board room, dysfunctional group dynamics, overwhelming information demands or a number of other potential obstacles (Boivie, Bednar, Aguilera, & Andrus, 2016). Much of the current and traditional research on governance has been devoted to identifying internal governance mechanisms such as the board of directors, various levels and types of firm ownership, and different incentive and compensation arrangements that can curb managerial misbehavior and ensure maximum managerial effort. However, more recently scholars have begun to identify and study a number of external governance mechanisms such as external auditors, analysts, ratings agencies, and the media that may also play a role in holding managers accountable for their actions (Aguilera, Desender, Bednar, & Lee, 2015; Coffee, 2006).

The amount of media attention given to governance related topics has substantially increased over the past several decades. Scandals at firms such as Enron, Tyco, and WorldCom at the turn of the century piqued public interest in governance related topics and caused scholars and practitioners alike to want to better understand why mangers engage in value-destroying behavior. This increased public interest has resulted in continued media coverage of corporate scandals but also more of a focus on the governance mechanisms that are supposed to curb managerial self-interest. For example, media attention to CEO compensation has increased, and annual lists of the best and worst CEOs and corporate boards are published in prominent media outlets. Researchers have begun to examine the question of whether the increased scrutiny of these issues by the media has a meaningful effect on subsequent firm behaviors and whether the media may help to improve some governance related problems. This article focuses on the ways in which the media may play a role in the larger corporate governance landscape by disseminating information and evaluating the actions of firms and leaders.

Roles of the Media

The term media generally refers to the collective means of mass communication by which information is communicated to various audiences. Much of the scholarly research on the media has focused on the mass media and the traditional channels used to disseminate information to the public including print newspapers and broadcast television. Studies of the media also tend to focus on the professional journalists that make up the collective body considered as the media.

A vast body of research in the communication and journalism literature has focused on the role that the mass media plays in identifying topics of interest for the general public. The agenda setting perspective in particular suggests that the mass media does not necessarily tell people what to think, but it does set the agenda of what people think about through the selection of stories that receive substantial coverage (McCombs & Shaw, 1972). From this perspective, the media acts as a filter of the many issues and stories that could potentially be covered and thus shapes perceptions of what are generally considered important issues. Although the agenda-setting perspective suggests that the media can have a powerful influence on the public, it has been less concerned with the potential influence of the media on organizations.

However, more recently, organizational and economic scholars have built on this idea of the media as a powerful influencer and have begun to study how the media can have significant effects on organizations and the decisions of important organizational actors. While the media has been conceptualized in many ways, its role with regard to organizations can be divided into two broad categories. First the media functions as a disseminator of information about organizations, and second, it acts as an evaluator of organizations, organizational leaders, and the actions that organizations take. With regard to the dissemination of information, studies have shown that the business press can act as an information intermediary that can reduce information asymmetry between firms and important market actors such as investors (Bushee, Core, Guay, & Hamm, 2010). By reducing information asymmetry between these actors, the media can help to reduce uncertainty and facilitate more efficient markets. Furthermore, the spread of certain types of information can also deter or even change behavior that is potentially questionable or that could damage a firm or manager’s reputation in the minds of key audiences (Bednar, Love, & Kraatz, 2015). For example, by broadcasting potentially questionable behavior, the media can actually push firms to improve their corporate governance practices (Dyck, Volchkova, & Zingales, 2008). By exposing questionable behavior to a wider audience, the media can play a type of watchdog role that encourages managers to act in ways that are beneficial for the firm and its stakeholders. The fear of exposure of questionable behavior and the resulting potential for negative press can act as a deterrent that keeps managers from behaving in self-interested ways for fear of the reputational damage that could occur if their actions were widely known. Thus, by reducing information asymmetry in its information dissemination role, the media reduces one of the core causes of agency problems in modern firms.

Yet, in addition to broadcasting information about firms, the media also makes evaluative judgments about these same firms. This evaluative role, coupled with the ability to make those evaluations widely known, gives the media the potential to have a significant influence of firms. Much of the research on this evaluative role of the media has come from the organizational and management literatures, which have largely focused on the resources and positive outcomes that are conferred upon firms through positive media attention (Deephouse, 2000). For example, researchers have conceptualized the media as a “propagator of legitimacy” that confers benefits to certain firms by making them appear more legitimate to evaluating audiences (Pollock & Rindova, 2003). In this role, the media helps to screen firms with a high degree of uncertainty by making evaluative judgments about their quality. These judgments are then broadcast to various external audiences and can ultimately affect important outcomes for firms. For example, in an IPO context, firms that receive greater amounts of media coverage and more favorable coverage, subsequently enjoy more positive IPO outcomes (Pollock & Rindova, 2003). Other work in this area has found that positive media coverage of a firm’s environmental policies increased the legitimacy of these practices in the eyes of investors and helped to reduce unsystematic risk in subsequent stock returns (Bansal & Clelland, 2004). Similarly, research has suggested that journalists can help to confer celebrity status on firms and CEOs by writing stories that put organizations and their leaders at the center of dramatic narratives (Hayward, Rindova, & Pollock, 2004). This research suggests that journalists try to construct compelling narratives by writing about a few firms that they can portray as overcoming conflict through bold actions (Rindova, Pollock, & Hayward, 2006).

The status and legitimacy that can be conferred by the media through increased coverage and more positive coverage can lead to certain benefits for firms and managers. Therefore, in general, being viewed positively in the media is something that most firms strive for. In fact, research has shown that positive media coverage is a valuable, rare, and difficult to imitate firm resource that can enhance firm financial performance outcomes (Deephouse, 2000). In writing about the evaluative role of the media, researchers have conceptualized the media as a type of social arbiter that helps to define what types of behavior are acceptable. In this role, the media helps to set and enforce certain social norms. This means that in addition to conferring legitimacy on firms, the media can also play a role in stigmatizing those that are deemed to act in inappropriate ways by creating negative narratives about the firm and its leaders (Wiesenfeld, Wurthmann, & Hambrick, 2008; Zavyalova, Pfarrer, & Reger, 2017). Stigmatization is related to the idea of shaming where attention is purposely brought to nonconforming or questionable behavior as a way of inflicting punishment on the offender (Kahan & Posner, 1999). This ability to stigmatize, or to try to shame, is at the heart of the media’s ability to play a governance role. In fact, negative press may be especially effective at prompting change because it can damage the reputations of executives not only in their own firms but also in the larger business community and even among other friends and associates. Thus, even though both positive and negative press can affect firms, much of the work on the governance role of the media has tended to focus on the deterrent effect of negative media coverage.

The Media’s Influence on Organizations

While theory suggests that the media can greatly influence firms by disseminating information and making evaluative judgments, disentangling the effect of the media on organizations empirically has been somewhat difficult. This difficulty stems from the fact that the media reports on the actions of firms and often, the media simply reflects what firms are doing. This makes it difficult to separate the influence of the media coverage from the influence of the firm actions that the media may be covering. It is important to note that the media does not always objectively mirror what firms are doing. Journalists make decisions, and not always unbiased ones, about which firms, leaders, and actions to cover and how they are going to cover them. At the same time, even after controlling for the influence of relevant firm actions, research has shown that the actual media coverage that firms receive can prompt actions focused on reducing future negative coverage and enhancing the likelihood of subsequent positive coverage (Bednar, 2012). Because of the negative reputational effects of bad press and the positive outcomes associated with good press, firms are motivated to act in response to these different types of media coverage. For example, increased negative coverage can prompt firms to engage in strategic change (Bednar, Boivie, & Prince, 2013). Other research has tied the amount and nature of media coverage to several relevant firm outcomes including CEO dismissal, compensation arrangements, financial reporting, financial performance, and other governance-related outcomes.

The media can influence firms through its reporting in at least three important ways (Bednar et al., 2013). By understanding how the media can potentially influence organizations, the media’s governance role can be understood. First, the media can potentially influence firms simply by reporting on selected events in the corporate landscape. By choosing which firms and which actions to cover, the media elucidates certain issues that otherwise may not be widely known to relevant stakeholders. This increased scrutiny can magnify the effects of firm actions that may otherwise go unnoticed. For example, research on firms investing in junk bonds in the late 1980s and early 1990s showed that intense media coverage of this behavior led to precipitous drops in market value for firms that received substantial attention. Interestingly, firms that engaged in the exact same behavior but that did not receive similar levels of intense media coverage did not suffer nearly as much (DeAngelo, DeAngelo, & Gibson, 1994). The effect of the media in this case is similar to the old philosophical question about whether a tree that falls in the forest when no one is physically present to hear it actually makes a sound. One could ask a similar question, if a firm takes an action and the media does not report on it, does it really matter? Firm actions obviously affect those closely tied to the firm but many firm actions, if not widely reported, may be less likely to prompt further scrutiny or action by relevant stakeholder groups. To the extent that the media focuses attention on governance related issues, it can highlight ineffective governance practices that may otherwise go largely undetected and increase pressure on firms to make changes.

A second way in which the media can influence firms is by providing a platform for external parties to have their voices heard. This phenomenon is seen in research on organizational protests, where the impact of organizational protests is greatly magnified to the extent that the protest receives substantial media coverage (King, 2008). In this case, protests by themselves have relatively little impact on subsequent firm actions, but firms are much more likely to engage with protesting groups and even to meet some of their demands to the extent that a protest receives significant media coverage. This same principle applies to other similar contexts as well. Activist investors can use the media as an outlet to voice disapproval with current managerial practices and push for change. In an extreme example of this type of tactic, Robert Monks, a well-known activist investor who in the 1980s had a sizable stake in the Sears Roebuck Corporation, once used a full-page advertisement in the Wall Street Journal to voice displeasure with the Sears board of directors. The advertisement had a picture of the silhouettes of each of the Sears board members with the caption “the non-performing assets of Sears.” Following the publication of this advertisement, the board did make several of the changes that Monks was advocating for (Dyck & Zingales, 2002). In addition to investors, others such as environmental groups, employee unions, and other stakeholder groups have often used the media to broadcast their views and to try to force organizational change. By giving a voice to relevant stakeholders, the media allows these groups to put pressure on firms and potentially hold firm leaders accountable for their actions. In this way, the media not only acts as a governance mechanism itself, but can also amplify the effect of other potential governance mechanisms.

In some cases, the media may uncover new information through investigative reporting. In these instances, the media is not simply reporting what the firm is doing or evaluating firm actions, it is actually creating new information and making that information publicly available. A famous example of this occurred in the Enron scandal (Borden, 2007). A reporter for the Texas regional edition of the Wall Street Journal spent months investigating Enron’s financial statements and wrote an article that questioned some of the accounting methods and questionable financial practices that seemed to be used by the firm. While this initial article was not widely circulated and did not have an immediate impact, it did lead to other investigative reporting. Eventually, Fortune reporter Bethany McLean wrote an article that was highlighted on the cover of the magazine entitled “Is Enron Overpriced?” that questioned how Enron was making money (McLean, 2001). This initial article did not explicitly accuse the firm of wrongdoing, but it did point out the complicated and opaque nature of the Enron business model. In turn, this widely disseminated article led to more investigative reporting and scrutiny from other groups that eventually helped to facilitate the downfall of the firm. The Enron example demonstrates the power of investigative reporting in prompting firm reactions and holding leaders accountable for their actions. In this investigative reporting role, the media is often seen as a watchdog for society and is one of the ways in which the media can play an important role in corporate governance.

Evidence for Media Effectiveness as a Governance Mechanism

While there is increasing evidence that the media can play a role in corporate governance by disseminating information and making evaluative judgments of firms and leaders, it is less clear how effective the media is in this role. The scholarly research on this topic is still relatively new and has provided somewhat mixed results about the question of effectiveness. Some research suggests that the media may significantly change and in many cases improve corporate governance related practices, including the uncovering and deterrence of managerial misbehavior. For example, some evidence, especially in the financial economics literature, suggests that the media can play a watchdog role by helping to uncover corporate fraud (Miller, 2006). Journalists typically perform this watchdog role largely by rebroadcasting information from other information intermediaries such as analysts or auditors, or in more rare cases, by undertaking their own independent investigation. Information gained through investigative reporting is especially impactful because it tends to be new information that is not already readily available to important firm constituents (Miller, 2006). Much has been written about specific examples, such as Enron, where journalists engaged in investigative reporting appeared to play a large role in uncovering managerial fraud (Borden, 2007).

The media tends to amplify the impact of signals made by the firm, regardless of the nature of those signals. So in cases where a firm engages in controversial governance practices for example, media coverage of that firm increases the extent to which relevant audiences inflict a reputational penalty on the managers of the firm (Bednar, Love, & Kraatz, 2015). Research shows that firms actually do respond to increased media scrutiny in some cases by making significant governance changes (Bednar, 2012; Joe, Louis, & Robinson, 2009). For example, in response to negative media coverage, firms often make changes to the composition of the board and to the makeup of CEO compensation (Bednar, 2012; Core, Guay, & Larcker, 2008). In addition, increased scrutiny from the media can lead to CEO turnover by encouraging the board to remove a leader whose reputation has been tarnished in the media (Farrell & Whidbee, 2002). Other research shows that firms that are highlighted in the business press for bad governance practices actually do make substantive governance changes as a result of the increased scrutiny. For example, firms that appeared on Business Week’s “Worst Corporate Boards” list were found to make changes in their governance structures and practices in subsequent years (Joe et al., 2009).

Media coverage may also have an influence on the effectiveness of other potential governance mechanisms and other gatekeepers such as analysts and auditors that can play a role in ensuring that managers are acting in appropriate ways (Aguilera et al., 2015; Coffee, 2006). For example, experimental evidence has shown that auditors are more likely to issue going-concern opinions when a firm has been the subject of negative press coverage (Joe, 2003). This is true regardless of whether the press coverage provides any new information about the firm. Other potential governance actors, such as institutional investors, have also used the threat of negative media coverage to enact governance changes at a focal firm (Westphal & Bednar, 2008). Large public pension funds, such as CALPERS, have also been known to try to shame firms into enacting governance reforms by broadcasting their actions in the media (Smith, 1996). Based on examples such as these, it appears that the business press is potentially a very powerful governance mechanism because it not only can have a direct influence on firms, it also can be used as a tool by other governance actors; in some cases, it may enhance the influence of certain governance mechanisms.

Barriers to Media Effectiveness as a Governance Mechanism

Despite an increase in interest and research on the media’s role in corporate governance, the media may be somewhat limited in this governance role for a variety of reasons. Unlike many of the traditional corporate governance mechanisms that have received the bulk of prior research attention, the journalists and firms that comprise the media do not necessarily intentionally pursue enhanced governance as their primary or even as a major objective. Many journalists do consider it an important part of their responsibility to hold the powerful accountable to the public. However, this objective is much broader and typically secondary in comparison to a traditional governance mechanism like the board of directors, which has a primary responsibility to ensure that mangers are acting in the best interests of the firm. Media outlets have their own set of interests that can drive media coverage, so journalists often look to provide entertaining stories that will capture the attention of readers and will lead to increased circulation of these stories (Jensen, 1979). For example, even research showing that the media can play a watchdog role in uncovering fraud, also finds that the media tends to cover those firms and events that are of the greatest interest to a broad audience and the least costly to investigate (Miller, 2006). In other words, the media’s efforts are not necessarily driven primarily by an interest in improving corporate governance, but rather by factors that help a media outlet to reach the most number of people in the most efficient way possible. Thus, in many and perhaps most cases, the media does not set out intending to fulfill a corporate governance function. Rather, the media’s effect on corporate governance is largely a byproduct of carrying out normal business activities.

In addition, journalists approach stories with their own set of biases that may influence how the news gets reported. These various biases may compromise the extent to which the media can effectively function as a governance mechanism and hold executives accountable for their actions. While many types of personal or group biases can influence how journalists report about events, the organizational literature has discussed those that can directly affect reporting on organizational issues. One of these biases is that the media as a whole tends to be quite inertial in its coverage and are slow to change existing narratives. For example, in a qualitative study of the press coverage surrounding Donald Burr, the founder of People Express airline, researchers found that the initial glowing reports of Burr as an innovative and charismatic entrepreneur who was primarily responsible for building a highly successful company greatly influenced subsequent reporting (Chen & Meindl, 1991). Even when performance at the airline declined tremendously, the coverage of Burr continued to be quite positive for quite some time. This example shows the tendency for media narratives to be self-reinforcing. The media often pick a few firms and leaders that receive substantial coverage. A narrative then emerges around those actors, and subsequent news is reported according to the existing narrative. This reinforcement of existing narratives is further strengthened by the fact that some news outlets serve as opinion leaders that end up influencing the coverage of other outlets. Once a narrative begins, especially in reports from opinion leading sources, it can sometimes be difficult to change.

Another related bias in media reporting is the tendency for journalists to attribute firm-level actions to individual leaders, a phenomenon described as the “romance of leadership” in the organizational literature (Meindl, Ehrlich, & Dukerich, 1985). Because individuals often want simple, understandable explanations for firm actions, substantial credit is often given to a single leader when things go well. Similarly, a single leader is often blamed when performance suffers. This is especially true when assigning credit or blame for firm performance. Firm performance is complex and is influenced by a number of both internal and external factors. Yet, many times success or failure is attributed to a single individual, often the CEO, even when luck or external factors may have played a large role in the observed outcome. Journalists often incorporate this bias and the need for relatively simple explanations into their news stories by making leaders, and especially CEOs, the focus of their narratives. Furthermore, journalists tend to dramatize their narratives to attract more attention (Rindova et al., 2006; Zavyalova, Pfarrer, & Reger, 2017). These actions by journalists in turn help to create CEO and firm celebrities, a relatively small group of executives and firms that receive a disproportionate amount of media attention. Having a celebrity CEO is not always a good omen for a firm. While celebrity CEOs may obtain personal benefits, they are not necessarily good for the firm’s longer-term performance prospects (Wade, Porac, Pollock, & Graffin, 2006).

In addition to biases of journalists, another potential barrier to the press serving as an effective governance mechanism stems from the fact that managers and firms constantly try to manage the media narrative and secure more positive media attention. Most firms have well-funded public relations departments whose primary purpose is to make sure that the firm is portrayed in a positive light. Journalists with tight deadlines to cover firm-related events often rely heavily on the firms themselves for information. Furthermore, direct attempts are often made to influence individual journalists by engaging in ingratiatory behaviors towards these journalists or threatening to cut off future access following negative stories. Survey research of top executives and journalists suggests that such behaviors are often quite effective in prompting more favorable coverage for firms and leaders (Westphal & Deephouse, 2011). Some degree of solidarity among corporate leaders has been observed, and these leaders use impression management tactics toward journalists on behalf of other leaders who may be at risk of receiving negative press coverage (Westphal, Park, McDonald, & Hayward, 2012). Rather than serving as objective and unbiased arbiters, journalists are susceptible to various types of social influence tactics. To the extent that this is true, it lessens the ability of the media to serve as an effective governance mechanism.

Another tactic used by managers to neutralize the effect of the media is to engage in symbolic action. Symbolic actions are those actions that portray a positive image of the firm that go beyond the substantive effects of the action itself (Zott & Huy, 2007). Firms often engage in a type of window dressing to give the appearance of change that will conform with prevailing norms of acceptable behavior without really changing much substantively in the process. For example, in response to negative media coverage about a firm’s governance and management, firms may change the makeup of the board of directors to become more independent. However, that increased independence may be somewhat superficial as new directors tend to be individuals that have prior social connections with management (Bednar, 2012; Westphal & Graebner, 2010). Similarly, in response to negative coverage about excessive CEO compensation, firms typically do not reduce the overall level of pay, but they may provide more performance-based compensation to conform with prevailing ideas about effective compensation packages (Bednar, 2012; Core et al., 2008). Journalists may be especially likely to be influenced by symbolic actions because symbolic action sends signals that a firm is behaving appropriately. These signals of conformity are unlikely to be diminished unless a journalist is motivated to investigate a firm more deeply. Given the lack of resources among many traditional news outlets for in-depth investigative reporting, symbolic action seems likely to be an effective tactic to neutralize the influence of the media in many cases.

Finally, press coverage of firms can be affected by the relationships between the media and the firms that it covers. Particularly when financial resources are increasingly difficult to secure for many traditional outlets, they may be hesitant to bite the hand that feeds them by portraying resource-providing firms in a negative light. For example, local news media use fewer negative words when covering local firms, in part because of those firms’ advertising expenditures (Gurun & Butler, 2012). Firms that spend more advertising dollars with particular outlets tend to receive greater amounts of coverage in those outlets (Rinallo & Basuroy, 2009). Similarly, ownership ties may affect the coverage of certain firms. In 2015, the Times ran an in-depth piece about Amazon that was critical of some of the harsh management practices at the firm. Interestingly, the Washington Post shortly thereafter came out with a piece about Amazon entitled “Is it really that hard to work at Amazon?” The Washington Post happens to be owned by Amazon founder and CEO Jeff Bezos. This example suggests that ownership ties between firms and the media may influence reporting and in some cases, could compromise the ability of the media to function as an unbiased, objective governance mechanism. Other types of firm ties such as interlocking board relationships may have similar effects.

Future Directions

While researchers have begun to examine the corporate governance role of the media, many exciting new avenues for inquiry are anticipated, and a number of unanswered questions related to this topic need to be addressed. One such topic is related to the issue of the different channels of distribution through which the news is spread. Historically, most of the research on the media in general and on media and organizations more specifically has focused on traditional print publication such as newspapers and magazines. Less attention has been focused on other channels of distribution such as television coverage, and more recently, other channels such as social media. In particular, social media platforms offer a new way through which individuals are obtaining information, and in some cases, they blur the lines around the definition of the term media. For example, much of the content consumed by the public now originates with non-professional journalists and is disseminated through blogs, social media, or other platforms. Social media platforms allow anyone in the general public to play a watchdog role. A famous example occurred in 2005 when a well-known blogger, Jeff Jarvis, posted an extremely critical blog posting about his malfunctioning Dell computer and a lack of customer service by the firm. Soon, a community of individuals formed who shared similar experiences about the company. As a result the reputation of Dell computers, at the time one of the largest and most successful computer companies, took a serious hit (Jarvis, 2011). This example highlights the fact that media pressure no longer comes just from those considered as traditional journalists. In many ways, social media now makes it possible for anyone to act as an investigative journalist and bring to light negative issues related to a firm or its management. While in some ways this innovation democratizes the media, one potential downside is that many of the traditional screening mechanisms put in place by traditional media outlets to ensure that only accurate information is being broadcast are no longer present. In a world in which anyone, including employees, customers, activists of various kinds and others can post whatever they want on Twitter for the world to see in real time, firms need to better understand how to respond rapidly to these different voices. Systematic research is needed to better understand how various constituencies use social media, the circumstances under which it is more or less effective in prompting change, and the effects of various firm responses. Opportunities to explore how social media affects organizations in comparison with more traditional media outlets are plentiful.

Another innovation made possible by social media is the rapid distribution of images and video that can complement traditional news reports. Traditionally, research on the governance role of the media has focused almost exclusively on written articles. Yet, images and videos can have an extremely powerful effect in prompting firms to act. Consider the example of the domestic violence suspension of NFL running back Ray Rice in 2014. Initially, Rice was suspended for two games after being indicted on charges of domestic abuse against his girlfriend. However, after a video surfaced of Rice punching his girlfriend in an elevator, public pressure on the NFL intensified and Rice was subsequently suspended indefinitely from the league. This example shows that images are often much more powerful than printed words. One could imagine circumstances in which images or video of harsh working conditions, product malfunctions, or managerial abuse would be especially likely to get the attention of the public and prompt firms to change. A 2017 video of a United Airlines passenger being pulled off of a plane led to public outrage and huge reputational damage to the airline. United was left scrambling trying to control the damage. It is unclear how much reputational damage the airline would have suffered if the event had occurred without the viral video. However, while there are many such anecdotes of impactful videos influencing organizational action, there has not been systematic research on this topic in the organization literature.

While some of the ways that the media can influence firms and the barriers that prevent it from doing so are becoming clearer, more research is needed that outlines the boundary conditions under which the media is likely to be most influential. Some work has begun to do this. For example, negative media coverage is most likely to prompt strategic change when firm performance is low and when the board consists primarily of independent outside directors (Bednar, Boivie, & Prince, 2013). Media coverage of firms is shaped in part by events in the broader industry (Zavyalova, Pfarrer, Reger, & Shapiro, 2012). However, much remains to be learned about when press coverage is likely to be influential, including issues such as which outlets are most likely to affect managerial decisions, what types of industries, firms and managers tend to be most affected by media coverage, and which response strategies to media scrutiny tend to be most effective.

Future research could also more fully explore how the media complements other more traditional governance mechanisms. Several governance scholars have called for more configurational approaches to studying governance (Aguilera et al., 2015; Misangyi & Acharya, 2014), recognizing that governance mechanisms do not operate in isolation. Much of our research does just the opposite by trying to isolate the effects of a single mechanism after controlling for several other relevant factors. The media may be an especially constructive addition to configurational approaches because other governance actors may use the media as a tool and it may amplify their effects. Future research should more fully explore the mechanisms by which the media influences other more traditional internal and external governance mechanisms.

Finally, future research needs to better deal with some methodological issues. One of the most important issues for media research has to do with endogeneity. Research on the governance role of the media is predicated on the idea that media coverage can affect firms above and beyond the effect of the events that the media happens to be covering. Researchers have used a variety of techniques, including two-stage modeling, long lists of control variables, and theoretical reasoning to deal with potential endogeneity. Ideally, future research would be able to identify powerful instrumental variables that would allow stronger causal inferences. Although finding powerful instruments for media coverage has proven quite challenging, some scholars have discovered creative ways to begin to untangle this causal relationship (Engelberg & Parsons, 2011).

Conclusion

In conclusion, the media has the potential to play a significant role in corporate governance. Sometimes that role is intentional, while other times it is a byproduct of carrying on normal journalist activities. This potentially powerful governance role stems largely from the media’s ability to broadcast information and make evaluative judgments of firms and mangers. However, several barriers make the media less effective in this governance role than some scholars have predicted. Research on this role of the media is still relatively new with exciting opportunities for scholars to better understand how the media fulfills this role, and the circumstances in which it is most effective in doing so.

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