To me, that bad press can be a catalyst for strategic change in a business is not a surprising research finding. That bad press can have no influence when a business is doing well is again not terribly surprising. These are some of the conclusions in a forthcoming paper, “Burr Under the Saddle: How Media Coverage Influences Strategic Change,” by Michael K. Bednar, Steven Boivie, and Nicholas R. Prince. The authors look at 40,000 articles covering 250 firms over the course of five years, analyzing how boards react to negative media coverage (abstract and gated copy of paper here; press summary here).
What I find a more interesting finding is that bad press has a greater effect on strategic change when a businesses’s board of directors is comprised of outsiders—independent board members with no previous ties to the firm’s management (such as being family, friends, or former business relationships).
I’m wary to post blasé “practical” advice like “be aware of the outside/insider composition of your startup’s board of directors.” I don’t find this kind of messaging particularly helpful, and I’ve sat through infinite numbers of talks/presentations with the bullet point “choose board wisely,” so I’m pretty sure people are hearing this message already. But when I read things such as Wasserman’s The Founder’s Dilemmas and see all the instances of founders being replaced at their startups (for various reasons), and then I see this research about insider and outsider dynamics in boards, I’m inclined to add some nuance to board composition and “choosing wisely.”
As your startup grows, it seems very likely that a board would grow to include both ‘insiders’ and ‘outsiders.’ These groups will have different behavioral characteristics, with one of them being the interpretation of bad news. Perhaps you can extrapolate this bad news sensitivity to a broader behavioral characteristic: outsiders place more weight on outsider information. That is, they are more willing to take cues from outsiders, for better or for worse. So as the composition of your board changes, perhaps adding more outsiders as the startup grows, be more prepared to deal with reactionary changes from any bad press. The struggle over strategy will be harder than it was in the beginning.