Petitions in the digital age : an analysis of the determinants of corporate response to social activism voiced through Change.org

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Petitions in the Digital Age: An Analysis of the Determinants of

Corporate Response to Social Activism Voiced through

Change.org

Maike Steffens

Student ID: 11596422

Master Thesis - Final Version

MSc in Business Administration – International Management January 26th, 2018

Supervisor: Dr. Michelle Westermann-Behaylo Second reader: Dr. Markus Paukku

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Statement of Originality

This document is written by Maike Steffens who declares to take full responsibility for the

contents of this document.

I declare that the text and the work presented in this document is original and that no sources

other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of

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Abstract

Social activism is commonly used by people to express their dissatisfaction with

corporate behavior. Recently, social media has changed the environment in which social

activism takes place. The aim of this study was to test the impact of non-governmental organizations’ (NGO) involvement and a negative change in the target company’s stock price on corporate response time to online petitions. Moreover, the study was designed to

investigate whether the impact of stock price change on corporate response time is moderated by the corporate governance model of the target’s home country. We did not find significant evidence of a relationship between NGO involvement and a negative change in stock price on

corporate response time of Fortune Global 500 companies to petitions filed on the

Change.org petition website. However, the analysis showed that, contrary to our expectations,

the number of supporters a petition gains is positively related to the corporate response time

to an issue. This study identifies activism expressed via social media as an interesting area to

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1. Introduction

In 2015, the chairman of the American Bar Association’s Animal Law Committee Chris

Green filed a petition on the Change.org petition platform which requested Delta Airlines to

end the transport of exotic animal hunting trophies. By that time, Delta Airlines was the only

US carrier offering direct flights to South Africa. Green asked Delta Airlines to be sensitive

to the feedback of the majority of the company’s customers who as he claimed were in favor

of this ban. The petition went viral within hours. It was shared on various social media

platforms such as Facebook and Twitter, was covered by several newspaper articles, and the

filer of the petition was invited to TV shows to report on the case’s recent developments

(CNN, n.d.). With nearly 400,000 signatures the petition became victorious 90 days after it

was filed. Delta Airlines declared to officially ban worldwide shipment of wildlife trophies

which was an important step towards increased animal welfare.

Since the beginning of the digital era, social media has developed as a channel to

connect with people and to share, discuss, and co-create user-generated content (Kietzmann,

Hermkens, McCarthy, & Silvestre, 2011). Social media is defined as “activities, practices,

and behavior among communities of people who gather online to share information,

knowledge and opinions using conversational media” (Safko, 2010, p.6). Recently, social media has also been used to bring peoples’ concerns to a company. When a company is targeted by social activists it needs to make several choices such as how and when to respond

to the issue. The response time to a campaign is important and in the time of social media

companies should take into consideration the time they take to respond to an issue as it may

go viral within hours or even minutes, thereby, damaging the company (Istanbulluoglu,

2017).

Literature has studied the impact of social activism on company actions and

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Researchers suggest that companies being targeted by social activists suffer from a decrease

in stock price, bad reputation, and a disruption of its operations (Eesley & Lenox, 2006; King

& Soule, 2007). The degree of these negative outcomes is influenced by the response time of

the company to the issue (Istanbulluoglu, 2017).

Prior research fails to incorporate recent developments into the analysis. It remains underexplored how social media changes companies’ positions and the way their managers respond to social issues. Nevertheless, this relationship is important and can have

implications for various interest groups. First of all, the analysis is a step to clarify the impact

of social media on companies. Managers are informed about the financial impact of social

media campaigns on their company and, thereby, have more information available in

corporate decision-making processes. Moreover, stakeholder groups which want to effectuate a change in a company’s actions such as non-governmental organizations (NGOs) or individuals understand through this study the extent to which they can evoke a timely

response to social issues on behalf of the target.

Literature has not investigated which factors influence a company’s response time to

issues raised through social media. Until now, it has not been studied to what extent the change in the target company’s stock price attributable to the event of being targeted by social activism has an impact on a company’s response time. Moreover, the impact of NGO involvement in social media induced campaigns on corporate behavior remains

underexplored.

This thesis examines the impact of change in stock price due to specific social media

induced activist campaigns and NGO involvement on companies’ response time.

Furthermore, it aims to test whether a company’s corporate governance system moderates the

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hypotheses, petitions which are filed on the Change.org website, targeting the publicly traded

Fortune Global 500 companies (year 2013-2017) will be analyzed.

The analysis does not find a significant relationship between the NGO involvement

and a change in stock price attributable to the petition on the target company’s response time

to the issue. Surprisingly, it shows that an increase in the number of signatures is significantly

related to a longer corporate response time.

The study broadens the analysis of social activism by taking into account recent

developments in the field of social media. Social media changes the way in which people

share their opinions and their expectations of the adequate response time of a company. The

analysis shows that the determination of factors which influence a company’s response time

to social media petitions is complex. In this first attempt to determine the impact of NGO involvement and stock price change on a company’s response time we failed to find a relationship between the variables. However, this analysis contributes to existing research by

introducing several factors which have to be considered when analyzing social media

petitions and their impact on corporate response. Thus, it is an attempt to facilitate people’s

understanding of companies’ actions to social media campaigns. It increases the awareness of

social activists by introducing a variety of factors to consider when demanding corporate

change via online petitions. Moreover, it helps activists to review their design of social

actions to increase the likelihood of a timely response. Furthermore, the study informs

managers about the financial impact of social media campaigns on the target company and

increases their sensitivity to changes in stakeholders’ expectations which result from the

increase in communication options such as social media.

This thesis first reviews literature on social activism, NGO involvement and social

media. Furthermore, literature on the impact of social activism on companies with a focus on

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social activism will also be presented. Chapter three develops hypotheses which describe the

relationships between the change in stock price, NGO involvement, corporate governance system of a company’s home country, and the corporate response time. In Chapter four, the data sources will be given and the selection of statistical methods will be justified before the

statistical tests will be run to test the hypotheses. Finally, the results will be stated and

discussed, taking into account the contributions, and implications of the analysis as well as

suggestions for future research.

2. Literature Review

This chapter introduces existing literature on the studied topics. The first theme

comprises the social issues and social activism constructs. In the following two subchapters,

characteristics and effects of mechanisms through which these issues are raised, namely NGO

involvement and social media, are illustrated. Afterwards, literature on the impact of social

activism on companies and related stock price effects are reviewed. Moreover, corporate

response techniques to social activism are presented. Lastly, research on corporate

governance models is assessed, taking into account behavioral differences between

companies which potentially arise due to differences in corporate governance systems.

2.1 Social issues and social activism

Companies do not always behave in the way their stakeholders expect them to. Therefore, gaps between a company’s behavior and the expectations of the society occur (Sethi, 1979). In these situations, social issues arise. A social issue can broadly be defined as “a matter that directly or indirectly affects members of society and is considered to be a

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problem or point of concern in that it challenges a social standard” (Young & Leonardi, 2012, p. 231).

Eesley and Lenox (2006) explain that stakeholders have different options how to react

to inconsistencies between their expectations and a company’s behavior. They emphasize that

shareholders of the company can communicate their expectations through actions such as

submitting resolutions or by opting out by selling their shares. Moreover, the authors depict

that employees can bring up issues in meetings with upper management and take measures

such as strikes or resignation if an issue which they consider to be important is not dealt with

adequately by their employer. Stakeholders which are external to the company can take

actions such as engage in protests, civil suits, and letter-writing campaigns or organize a

petition to bring their concerns to the attention of the company and the public (Eesley &

Lenox, 2006). These actions are classified under the term social activism which comprises situations in which “specific companies or sectors [are] put under pressure by means of highly visible campaigns and/or boycotts to change practices” (Cranenburgh, Liket, & Roome, 2013, p. 497).

Social activists can pressure companies to change their strategies and actions through direct and indirect mechanisms. They can have a direct effect on a company’s performance by disrupting organizational routines and imposing costs on the target company (Andrews,

2001; Luders, 2006). For example, in July 2013, activists of the NGO Greenpeace tied

themselves to the ropes of a ship which was supposed to transport whale meat. The shipment

was canceled and the meat was not loaded, which resulted in costs for the companies

involved in selling the product (Greenpeace, 2013).

Moreover, social activists can indirectly impact companies by appealing to the public,

thereby, shaping public perceptions of the firm (King, 2008). As the target company has its

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potential negative effects on the company’s reputation. Therefore, social activists cannot only

evoke corporate change by directly targeting companies, but also indirectly by taking actions

to change public perceptions.

Summarizing, social issues are common features of the relationship between companies

and stakeholders and they are regularly addressed through various forms of social activism.

Hence, social activism is a mechanism through which otherwise powerless people can have

an impact on the actions of a company (King & Soule, 2007). Non-governmental

organizations often take part in social activism by enabling individuals to join forces, thereby,

supporting them in the attainment of their goals.

2.2 NGO involvement

A non-governmental organization (NGO) is a “non-profit organization that operates

independently of any government, typically one whose purpose is to address a social or political issue” (NGO, 2017). NGOs can take on different roles. As classified by Lewis (2007), they can act as implementers by providing necessities to people in need. Moreover,

he suggests that NGOs can take on the role of catalysts by providing information and

facilitating and inspiring people to reconsider their positions and actions to achieve change.

Additionally, NGOs can act as partners by teaming up with governments, the private sector or

donors (Lewis, 2007).

NGOs can support social media campaigns by providing resources that are unavailable

to stand-alone activists. Some NGOs have gained a legitimate role in the society and have a

closely connected network with other organizations. Furthermore, they can contribute

financial funds to facilitate the implementation of projects. Therefore, established NGOs are

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needed to incentivize the target company to comply with the activists’ demands (Eesley &

Lenox, 2006).

NGOs can shape public perceptions and point out that companies are not operating

within the bounds of socially acceptable behavior which questions corporate legitimacy.

Legitimacy theory asserts that companies want to ensure that they are perceived as legitimate

as this is a precondition for corporate survival (Deegan, 2013). Therefore, NGOs can pressure

companies to take on corrective actions to restore their legitimacy (Deegan & Islam, 2014).

Many companies recognize the strategic importance of NGOs. As stakeholder

expectations on corporate social responsibility issues are on the rise, companies often decide

to collaborate with NGOs to meet their corporate social obligations (Austin, 2000; Millar,

Choi, & Chen, 2004). Partnerships between corporations and NGOs have often been

promoted as the most effective way to achieve sustainable development (Rein & Stott, 2009).

Hence, collaboration between these parties can often be observed.

All in all, research suggests that secondary stakeholders, such as NGOs, can influence

companies to comply with their requests (Thijssens, Bollen, & Hassink, 2015). By promoting the organization’s view of ethical and socially responsible business practices, NGOs can evoke significant changes in corporate management, strategy, and governance (Doh &

Teegen, 2003). As a result, NGOs do not only reflect new norms in society, but also take

action in its creation and institutionalization (Lawrence, Hardy, & Phillips, 2002; Keck &

Sikkink, 1998).

NGO involvement in social activist campaigns can increase public attention. However,

the speed of information dissemination does not only depend on the characteristics of

supporters and the amount of resources they can mobilize, but also on the channels used to

spread the message. Shim’s (2014) study about strategic choices of a Korean health NGO

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and impact of social media. The 2016 Global NGO Online Technology report (Nonprofit

Tech for Good, 2017) shows similar trends. The report demonstrates that NGOs recognize the

high potential of social media to raise awareness and attract donations. Consequently, NGOs

tend to invest time and effort in their social media appearance. The report explored that in

2016, 95% of NGOs worldwide had a Facebook page and 83% had a Twitter profile. Large

NGOs in Europe have on average more than 170,000 likes on Facebook (Nonprofit Tech for

Good, 2017).

The dissemination of social issues has been influenced by the growing opportunities

that social media offers to NGOs and stand-alone activists (Shim, 2014). Social media

facilitates the globalization of NGOs by easing international communication and the

transferal of knowledge (Baguley, 2005).

2.3 Social media

With the rise of social media, the environment in which social activism takes place has

changed. Social media has multiple facets and can be defined as

activities, practices, and behavior among communities of people who gather online to

share information, knowledge and opinions using conversational media.

Conversational media are web-based applications that make it possible to create and

easily transmit content in the form of words, pictures, video, and audio. (Safko, 2010,

p. 6)

Since 2006, the Internet usage has grown at a rapid rate. Worldwide, the number of

internet users more than tripled from 2006 to 2016 (Internet Live Stats, 2017). The increase

in popularity of the internet positively impacted the rate of social media usage. The number

of US-based internet users who are active on the social media platform Facebook steadily

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only the number of users increased, but also the average daily usage time of social media

worldwide. In 2016, global internet users spent on average 118 minutes per day on social

media, up from 109 daily minutes in 2015 (Statista, n.d.).

Social media fundamentally changes the way in which people communicate with each

other. It increases the speed of communication while decreasing the associated costs.

Furthermore, social media gives ordinary people a platform to communicate perceived norm

violations to the public (Dennis, 2008; Harrington & Bielby, 1995). User-centered social

media allows publics to become content-creators who can collaboratively and proactively

engage with companies by showing support for and commenting branded content, and by

sharing it within their personal social networks (Muntinga, Moorman, & Smit, 2011).

Social media also alters how social activism is organized. Rost, Stahel, and Frey (2016)

argue that social media decreases the costs and required time of participation and allows

people who are geographically distant from each other to voice their opinions without taking

the risk of bodily harm. They conclude that this mobilizes former free riders to participate,

leading to a higher participation rate than traditional forms of protests. Additionally, social

media can lead to an exponential growth of public attention towards an issue raised by

individuals or groups (Hanna, Vanclay, Langdon, & Arts, 2015). In fact, geographic

boundaries can easily be overcome by social media. A study shows that more than a quarter

of reported corporate reputational crises spread internationally within an hour and over

two-thirds within 24 hours (Freshfields Bruckhaus Deringer, 2013). Those crises which spread to

international media on average reach eleven countries (Freshfields Bruckhaus Deringer,

2013). Therefore, information spread through social media can be defined to be

uncontrollable (Lee, Oh, & Kim, 2013).

Social media changes peoples’ expectations on how long a company may take to

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expect companies to respond within 1-3 hours on Twitter and within 3-6 hours on Facebook.

Moreover, the analysis reveals that a quick first response has a positive impact on protesters’ satisfaction with the company’s complaint handling procedure.

Combining the characteristics of information spread via social media with its potential

impact on companies, it becomes apparent that social media shifts power from companies to

individuals and provides them with opportunities to enforce social norms (Kietzmann et al.,

2011; Rost et al., 2016). In addition, it highlights the importance for businesses to adapt their

strategies to respond to issues brought to them through social media (Hanna et al., 2016).

Developing strategies to respond to stakeholder concerns expressed via social media and

introducing codes of conduct to regulate the usage of social media and ensure consistency of

communication becomes an important task for companies (Aula, 2010; Mainiero & Jones,

2013; McDonnell & King, 2013). In particular, companies have to recognize that as the

speed of communication increases, decreasing the response time becomes a powerful vehicle to minimize the damage to a company’s reputation and performance (Johnson & Peppas, 2003; Luttrell, 2015).

2.4 Potential consequences for companies being targeted by social activism

Becoming a target of social activists can have various impacts on a company. It can

lead to a rise of direct operational costs, such as public relations expenses and legal fees

(Luders, 2006). Nevertheless, there also exist contradictory findings as Vasi and King (2012)

do not find a direct impact of social activism on financial performance. However, they

anticipate an impact via public attention. This assumption is verified by various researchers

as follows who found that social activism can negatively influence a company’s reputation as

the public becomes aware of its actions. It can decrease a company’s ability to attract and

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retention and the recruitment process and make it difficult for a company to appease

shareholders and regulators (Eesley & Lenox, 2006). Furthermore, a bad reputation increases a company’s cost of equity (Cao et al., 2015). McDonnell and Werner (2016) also find a significant impact of social activism on companies. They discover that political actors are less

willing to publicly engage with companies which are targeted by activists. This in turn leads

to less government contracts and invitations to congressional appearances. While these

previous streams of research focus on the outcomes resulting from a negative reputation,

Pava and Krausz (1996) argue that companies that are perceived as socially responsible

generally have a higher financial performance than other companies.

Summarizing, social activists can have a considerable impact on a company’s

reputation and performance. Stock price movements serve as an indicator of the financial

impact of petitions on a company.

2.5 Relative change in stock price

The adequacy of a company’s response to an issue can be quantified by analyzing its profitability and growth (Sethi, 1979). The stock price is one of the most often used financial

performance measures in the literature. According to the efficient market hypothesis, a company’s stock price reflects all publicly available information about the company (Nath, 2015). Prior research identified several factors which influence stock price movements. Some

examples are supply chain disruptions, management change and new product announcements

(Bonnier & Bruner, 1989; Hendricks & Singhal, 2008; Mann & Babbar, 2017).

Stock price movements depend on several factors, with some of them being internal

and others external to the company (Schweitzer, 1989; King & Soule, 2007). Examples of

those external factors are economic downturns and industry effects, for example, if new

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driven by factors beyond a company’s control (Bacidore, Boquist, Milbourn, & Thakor, 1997). Thus, when analyzing the change in a company’s financial performance due to an

event it is important to isolate the impact of this event on the stock price (King & Soule,

2007).

Becoming the target of social activism can have various impacts on a company.

Protests can communicate new information about a company, with negative information

leading to increased perceived riskiness and difficulties for a company to maintain its stock

price (King, Bozos, & Koutmos, 2017; King & Soule, 2007). King and Soule (2007) show

that firms that were targeted by activists suffered from a decrease in stock price attributable

to the event as protests are expected to lead to constraints on future cash flows. According to

Jory, Ngo, and Susnjara (2017), firms targeted by activists have a lower return on assets

(ROA) and higher debt. However, Clifford (2008) finds evidence that activism from hedge

funds leads to an increase in ROA which results from an elimination of underperforming

assets.

Companies are aware of the importance of their financial performance measures such

as their stock price. Therefore, in order to align companies’ and their managers’ interests, it is

common practice for companies to partly tie executive compensation to financial

performance measures, for example, by introducing stock options or incentive payments.

Thus, managers are incentivized to pay attention to factors which influence the corporate

financial performance. As various streams of research suggest that social activism impacts the target’s stock price, companies have to develop strategies to respond to social issues brought to them via social media.

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2.6 Corporate response to social activism

If a company is targeted by social activists its managers have to develop an adequate response to alleviate the consequences on the company’s reputation and performance. Therefore, crisis communication is integral in the crisis management process (Pearson and

Clair, 1998). Conlon and Murray (1996) find evidence for this claim as they detect that if a

company responds to an issue by apologizing, providing a justification and accepting

responsibility, it has a positive impact on customer satisfaction and their continued brand

loyalty.

Various researchers examined how firms respond to social activism. Companies that

have been targeted by high levels of social activism tend to adopt social management devices

which are actions and strategies that demonstrate an increased level of commitment to social issues, thereby, defending the company’s reputation (McDonnell, King, & Soule, 2015). Furthermore, Eesley and Lenox (2006) conclude that companies are more likely to elicit a

positive response which means adapting their actions according to stakeholders’ request, if

the request is considered to be legitimate by the public and if the stakeholders have a greater

power relative to the target company in terms of resources. Moreover, the higher the costs

associated with actions by social activists the higher the likelihood of change by the company

(Giugni, 1998). Thijssens et al. (2015) explain this behavior by stating that companies face

resource constraints and base the decisions about the employment of these resources on a

cost-benefit assessment. Therefore, companies only employ resources to respond to social

activism if they expect this action to result in higher benefits or a higher decrease in costs for

the company compared to other available alternatives.

However, according to Bansal and Sharma (2015), there exist differences in decision

making between companies as some frame social issues narrowly, others more broadly. Some

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economic benefits for the company such as impacts on reputation, while still others only

focus on verbal, non-numerical information of social issues (Bansal & Sharma, 2015).

Moreover, academic research suggests that corporate response to an issue raised by the

public is based on its relationship with the company’s organizational identity and the strategic

frame (Bundy, Shropshire, & Buchholtz, 2013). The idea that managers analyze their

situation thoroughly to develop a response is based on the assumption that companies can

take significant time to develop an optimal response by evaluating a variety of options they

have to deal with the issue.

Mahon and Waddock (1992) explicitly add the factor of time to the discussion by

introducing the issue lifecycle model which shows that the options a firm has to respond to

public signals decrease over time as the signals’ magnitude increases. Hence, it is important

for a company to assess environmental changes and threats and develop a quick and thorough

response to prevent negative impacts on the company such as destruction of reputation and

credibility and loss of legitimacy (Mahon and Cochran, 1991). The response time to requests

is identified as a key factor in cultivating stakeholder relationships and trust (Augustine 1995;

Strong, Ringer, & Taylor, 2001).

The evaluation of the adequacy of response time depends on the available channels of

response. While traditionally, stakeholders were only able to contact companies via

comparatively slow channels such as letters, social media gives stakeholders a channel where

information are shared and spread at a fast pace. Companies adapt to this trend as in 2016,

86% of Fortune 500 companies used Facebook and 84% used Twitter to connect with the

public (Barnes & Griswold, 2016).

Summarizing, an organization’s post-crisis communication determines whether the effects of the crisis on the firm are aggravated or alleviated (Ulmer, Seeger, & Sellnow,

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managers developing communication strategies (Zhu, Anagondahalli, & Zhang, 2017).

However, other factors besides the communication channel used by social activists are likely

to impact how companies respond to social activism. For example, company characteristics,

such as its home country, are found to shape companies’ strategy formation processes (Yip,

Johansson, & Roos, 1997). Therefore, characteristics of the company’s home country should

be considered when studying the corporate response to social activism. In this respect, one

factor which potentially influences corporate behavior is the corporate governance system of the company’s home country.

2.7 Corporate governance models

Corporate governance (CG) concerns “the structure of rights and responsibilities among the parties with a stake in the firm” (Aoki, 2001, p. 11). Various streams of research find that even in a time of increased globalization, companies share considerable ties with their

country of origin (Hu, 1992; Ruigrok & van Tulder, 1995).

CG models differ between countries, giving way to the theory of comparative corporate

governance (Clarke, 2007; Duong, Kang, & Salter, 2015). Different CG systems evolve due

to differences in cultural and social values, legal traditions, and structures of financial

markets (Larcker & Tayan, 2008). CG systems develop in line with the concept of

path-dependency, creating a fit with the country’s national business system. Whitley (1999)

introduced the concept of ‘national business system’ and suggests that a country’s national

business system is shaped by the financial system, the skills development and control system,

the role of the state in the economy, and trust and authority relations.

A company’s country of origin has been proven to have a significant effect on various

corporate decisions and adopted practices. For example, research shows that a company’s

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resource management practices, the adoption rate of a global strategy, and other strategic

choices (Budd, 2012; Lubatkin, Calori, Very, & Veiga, 1998; Ngo, Turban, Lau, & Lui,

1998; Yip et al., 1997). This stream of research lends support to the theory, that national

differences between countries exist and have a considerable impact on organizational

structures, processes, and decisions.

CG systems can be analyzed by comparing factors such as companies’ board structures,

the impact of investment banks in the market, and the role of the government with each other.

Whitley (1999) suggests that such formal institutions tend to influence human actions. CG

provides the incentives, sets performance measures, and provides rules for transparency and

accountability (Clarke, 2007). Hence, companies from different home countries may behave

differently and consider the internalized CG system in their decision-making processes.

CG models also differ in the focus of their systems. Some companies have strong moral

concerns for all their stakeholders, while others favor requests from shareholders over those

of other stakeholders (Jones, Felps, & Bigley, 2007). While the US and the UK have adopted

a shareholder-centric (Anglo-Saxon) model, Germany and other European nations adopted a

stakeholder-centric model. This classification suggests that European companies attach more

importance to satisfying stakeholders other than their shareholders compared to American

and British companies (Whitley, 1992).

Various studies identify behavioral differences between companies from countries with

different CG models. Simnett, Vanstraelen, and Chua (2009) study sustainability reports of

companies and the relationship between the voluntary choice of assurance provider and the CG model of the companies’ home countries. In particular, the researchers compare CG systems by distinguishing between companies from stakeholder-oriented and

shareholder-oriented countries. The study identifies a significant relationship between the choice of

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with companies from stakeholder-oriented countries being more likely to voluntarily select

the auditing profession as an assurer. Furthermore, Ball, Kothari, and Robin (2000) discover

that properties of accounting earnings differ between companies from countries with different

CG systems. Therefore, there is evidence that the corporate governance system of a company’s home country impacts corporate decisions. This effect can potentially also be observed when studying corporate response to social activism.

In conclusion, companies need to take social issues seriously as they potentially have

far-reaching consequences for the company’s performance. This study is inspired by the

research suggestions by Aaltonen and Sivonen (2009, p. 139) who state that “the dynamics of

response strategies [to stakeholder pressures] are an important research area that deserves more attention”. Furthermore, it has not been examined so far why target firms respond differently to the same campaigns with similar potential negative impacts (Waldron, Navis, &

Fisher, 2013).

Despite the growing importance of social media, literature has paid little attention to

quantifying the factors which influence company response to social media induced issues.

Even recently published studies that examined scandals based their research on outdated data

and, therefore, the question arises whether the theories developed and results obtained are

still applicable in the digital age of social media. Thus, this research is an attempt to help

managers understand the importance of response time, especially in the era of social media.

This thesis aims to fill the gap by answering the following questions: How does a company’s change in stock price due to social activism through the social media channel and the extent of NGO involvement impact the company’s response time to the issue? How does a company’s corporate governance system influence the relationship between stock price change and corporate response time?

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3. Conceptual Framework

This chapter establishes the relationships between the key variables and develops the

hypotheses which will be tested. It introduces common business goals which define the

strategic actions undertaken by companies. Moreover, the chapter demonstrates how social

activism can initiate corporate change by imposing non-financial and financial costs on the

target.

It is common practice for companies to evaluate corporate performance using financial

and non-financial performance measures. Financial goals of a company are often defined in

terms of profitability and growth measures related to sales revenue, contribution margin,

operating income, and gross margin (Dossi & Patelli, 2010). Non-financial performance

measures can take on various forms, such as customer satisfaction and loyalty measures,

innovative capability, ethical and environmental performance, and product and service

quality (Datar, Kulp, & Lambert, 2001; Ibrahim & Lloyd, 2011). Companies take these

financial and non-financial goals into consideration in their strategy formation processes.

Social activists can pressure companies to comply with their requests by organizing

actions which make it more difficult for the target to achieve its corporate performance objectives. They can disrupt the target’s operations and direct the public’s attention to the questionable behavior of the company. As a result, the target company’s non-financial, and

financial performance can be negatively influenced by social activism.

Non-financial consequences of social activism for the target company comprise

reputational effects. These non-financial results are often not easily quantifiable due to their

intangible nature. As discussed in the section on consequences of social activism, activists

can change public perceptions of a company. An unfavorable reputation can have negative effects on the company’s relationships with various parties, such as employees, regulators, and shareholders (Eesley & Lenox, 2006).

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The impact of social activism on companies also depends on the power of the protest to

change public perception. Various researchers introduce petition characteristics which influence a petition’s power to change public perceptions and thereby, corporate response. For example, King (2008) argues that corporate targets are more likely to change according

to social activists’ expectations if there is a high level of media attention involved.

Additionally, social movement theory suggests that well-endowed stakeholder groups are

more likely to achieve a positive firm response (Eesley & Lenox, 2006). Prominent NGOs

have the resources needed to increase public attention to a social issue, thereby, also

attracting media coverage. Furthermore, social media facilitates the dissemination of

information by NGOs which results in a fast generation of public attention. Moreover, the extent to which NGOs are involved in a social activist campaign signals the stakeholders’ spread of dissatisfaction with the company’s behavior (King & Soule, 2007). Thus, companies need to consider adapting their response to social issues if NGOs are involved as they have the power to undermine a firm’s legitimacy with stakeholders, decrease its market value and employee morale as well as limit its strategic options (Yaziji & Doh, 2009).

As discussed previously, companies generally seem to be aware of the power of NGOs

(Rein & Stott, 2009). Therefore, it is likely that target companies are more responsive to

social activist campaigns if NGOs support them. The higher level of responsiveness is likely

to be represented by a shorter time a firm takes to succumb to the activists’ requests.

Therefore, the following hypothesis is suggested:

Hypothesis 1: NGO involvement in social activism via social media decreases the response time of a company to an issue compared to when there is no NGO involved.

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Social activists cannot only evoke corporate change by imposing non-financial costs

on the target corporation, but they can also cause financial costs for the company. However,

the consequences of social activism on a company cannot strictly be classified as financial or

non-financial. Research suggests that some non-financial consequences such as reputation are

likely to result in financial consequences for the target company (Roberts & Dowlings, 2002).

For example, if a company is accused of producing under poor working conditions, it may

have a negative impact on its reputation. Reputation is often classified as a non-financial

consequence of activism. However, negative reputational effects which arise from social

activism can make it difficult for companies to attract and retain customers (Eesley & Lenox,

2006). If social activists are able to convince people to boycott the company’s products, the

reputational effect translates into financial losses for the company.

Social activists cannot only have an impact on the target’s financial performance via reputational effects, but they can also potentially impact the target’s financial performance in other ways. As discussed previously, social activism can cause direct operational costs for the

company (Luders, 2006). Examples of those costs are higher investments into PR activities,

increased warehousing costs, and legal expenses. Furthermore, social activism may require the target to invest in R&D to verify or find evidence against the activists’ claims. Companies who become the target of social activism also often face a higher cost of equity (Cao et al.,

2015). The cost of equity needs to be considered into the net present value calculation which

is used to evaluate potential investment opportunities. Therefore, some projects will appear

unprofitable due to more costly financing resulting from social activism.

All in all, research shows that the stock price of companies which become the target

of social activism is likely to decrease as a result of this event (King & Soule, 2007). As

discussed previously, becoming the target of social activism communicates new information

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social activism, the market adjusts the target company’s stock price to reflect already incurred

and expected operational costs and revenue losses.

Therefore, besides NGO involvement, the impact of an event on the company’s stock price may influence managers’ response time to social issues. Upper level managers consider their company’s stock price movements to be important for several reasons. First of all, managers often have salary incentives or stock options which are a way to tie the compensation to the company’s stock price. Furthermore, especially founders of the company often own a significant number of outstanding shares which makes them sensitive to stock

price movements. Stock price movements do not only have an impact on managers, but also

on the company as an entity. As seen above, the stock price is often perceived to be a

barometer for financial health. Thus, a decline in stock price decreases the options and

increases the costs of external financing. Hence, a company may not be able to invest in

profitable projects. Consequently, financial threats resulting from social activism, such as

changes in stock price, appear to exert pressure on companies to issue a timely response

which appeals to activists and the public.

Hypothesis 2: A negative change of stock price as a result of being targeted by social activism through social media decreases the response time of a company to the issue compared to no or a positive stock price change.

Whitley (1992) suggests that companies from home countries with different CG

systems differ in the selection of the stakeholders they favor in their decision-making

processes. Some companies focus on the financial performance, which is in line with the

endeavors of the shareholders while other companies try to balance the requests of several

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Hence, companies from stakeholder-focused countries tend to be more concerned about the

attitude of various groups of stakeholders about the company while companies from

shareholder-focused countries tend to focus on their shareholders’ requests and financial

performance. As a result, it is likely that companies from shareholder-oriented countries are

more concerned about negative changes in stock price resulting from social activism than

companies from stakeholder-oriented countries which also explains differences in corporate

response time.

Hypothesis 3: If a company originates from a shareholder-focused country, the decrease in response time as a result of a negative stock price change is stronger than in the case of a stakeholder-focused country.

The hypothesized relationships are illustrated in Figure 1.

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4. Research Methodology

This section discusses the methods used in this study, starting with the sample

selection, followed by a discussion of the measurement levels of all variables. Lastly, the

statistical tests chosen to test the relationships between the variables are introduced.

4.1 Sample and data

The sample consists of all publicly traded Fortune Global 500 companies from year

2013 to 2017. The Fortune Global 500 list is an annual ranking of the best-performing 500

companies measured by revenue. The sample is selected because it comprises companies

from various industries and nationalities. Hence, a justification for the sample choice is that it

facilitates the usage of the results of this study as a benchmark for corporates from different

global contexts. All privately held companies were excluded because their stock is not

commonly traded and company data, such as stock price movements, are only publicly

available for publicly held Fortune Global Fortune 500 companies.

Petitions targeting these companies via the petition website Change.org which were

victorious before September 2017 will be analyzed, with the earliest victories being achieved

in January 2010. The search terms were the company names and commonly used

abbreviations. Additionally, we included petitions against brands and subsidiaries of the

Global 500 companies as it is likely that people that are not satisfied with a brand will choose

it as the petition target instead of the parent company. A petition was only included in the

analysis if the company name was stated as the target in the corresponding blank space and

was not only mentioned in the petition text.

The petition website Change.org was selected as a source of data. The website was

founded in 2007 and became the largest and most widely used e-petition platform, counting

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individuals and social movement organizations from various countries. Moreover, the

platform has more than 1.5 million likes on Facebook and on its website the organization

claims to achieve a victory every hour (Change.org, 2017). People who are passionate about a

cause can register on the website and initiate a signature campaign which other registered and

unregistered users can sign electronically to show their support (Van de Rijt, Kang, Restivo,

& Patil, 2014). Filing and signing petitions is free of charge for the users and the platform

offers opportunities to share the petitions on the social media channels Facebook and Twitter.

Change.org commits to keeping the amount of censoring to a minimum and it gives filers of a

petition the full responsibility to declare a petition a victory when they are satisfied with the

company response.

In line with Briscoe and Gupta (2016) this study will only look at social activism,

which is defined as activism which wants to reach a social goal, and not actions which only

want to capture financial benefits. Therefore, we do not consider petitions which request a

company to adjust their offerings to better fit people’s personal preferences such as changes

of color or adjustments to increase product functionality. Moreover, petitions which only aim

to satisfy one individual’s need, for example by offering this person a refund or support are

excluded. Finally, only petitions with at least three signatures were taken into consideration.

The final sample consists of 197 petitions targeting 72 companies from 14 countries with the

companies being classified on the basis of where they are incorporated.

4.2 Measurement of variables

Response Time. The study’s dependent variable is the response time of a company to

the petition. It is defined as the days between the date on which a petition was filed on

Change.org and the date on which the company responded in a manner that satisfied the filer

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time does not refer to the time until the target solely takes a stance on the issue without

making or announcing any changes. The day the petition is filed takes on the value “1”.

This study has two independent variables, namely Negative Stock Price Change and

NGO Involvement.

Negative Stock Price Change. As the stock price of a company depends on several

factors, some of them being internal and others external to the company, the effect of the

social media campaign needs to be isolated to draw conclusions from this stock price

movement. Therefore, the stock price change in excess of the market movement is used as an

approximate for the isolated effect of the studied event on the company. The S&P 500 index

serves as a measure for the average market return. The historical stock prices are retrieved

from Nasdaq.com and Yahoo Finance.

Research suggests that prices of securities which are actively traded react quickly to

news, often within 15 minutes (Dann, Mayers, & Raab, 1977). Thus, the closing stock price

of the trading day before the petition was filed is compared to the closing price of the petition

day. If the petition day is a non-trading day, the closing price of the following trading day is

used in the calculation. In case the day before the petition is a non-trading day, the preceding

trading day’s closing price is used. Equation 1 was used to calculate the isolated change in

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Calculation of the Isolated Stock Price Change

Isolated Stock Price Δ =

Stock price Company (P) − Stock price Company (P − 1) Stock price Company (P − 1) −

S&P 500 (P) − S&P 500 (P − 1) S&P 500 (P − 1)

Stock price Company (P): Closing stock price of the company on the petition day

Stock price Company (P-1): Closing stock price of the company on the day before the petition S&P 500 (P): Closing stock price of the S&P 500 portfolio on the petition day

S&P 500 (P-1): Closing stock price of the S&P 500 portfolio on the day before the petition

The isolated change in stock price was transformed into the dummy variable Negative

Stock Price Change, which takes on the value “0” if there was a positive or neutral effect and

“1” if there was a negative change in stock price attributable to the event.

NGO Involvement. The independent variable NGO Involvement is codified as a binary

variable, which can either take on the value “0” or “1”. The Change.org platform does not

provide information about the status of the involved organizations. Therefore, organizations

which were stated on the Change.org petition sites were classified as an NGO if they have the

US American 501 (c) status (tax-exempt nonprofit organization) or a comparable

classification from another country. An NGO was identified to be involved in a petition if it

was the filer or the posts on the petition page showed that the NGO took actions to support

the petition.

Corporate Governance System. In order to analyze the impact of nationality of a

company on the relationships under investigation, the corporate governance model of the companies’ countries in which they are listed will be studied. It is hypothesized, that the CG model moderates the impact of the change in stock price on the company response time.

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The home countries of the companies will be grouped in line with the classification of

Ball et al. (2000). They consider common law countries to have a shareholder-oriented CG

model while code law countries have a stakeholder-oriented CG model. Therefore, the

variable CG system is designed to be a categorical variable with two categories. Consistent

with Ball et al. (2000), the countries Australia, Britain, Canada, India, Japan, Malaysia and

the US were classified to have shareholder-based CG systems. China, France, Germany,

Spain, Switzerland, and the Netherlands form the group of stakeholder-oriented countries.

Moreover, Russia was added to the group of countries with stakeholder-based CG systems.

4.3 Choice of statistical tests and control variables

The impact of the change in stock price attributable to the event (H1) and NGO

involvement (H2) on the response time will be tested by conducting a hierarchical regression

with the software IBM SPSS Statistics. If the hierarchical regression finds a significant

relationship between the negative change in stock price and the response time, the SPSS macro “PROCESS” written by Preacher and Hayes (2008) will be used to test to what extent the CG model moderates this relationship (H3).

As it is likely, that the response times to social issues varies between companies from

different industries, two control variables related to the industry in which the target mainly

operates are included in the hierarchical regression. All target companies were grouped by the

first two digits of the NAICS classification codes. Then, dummy variables were constructed

for the two industry groups with the highest numbers of cases, namely Industry 31-33:

Manufacturing and Industry 44: Retail Trade. We decided not to distinguish between other

categories as they only had a low number of petitions, often just targeting a single or a few

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on response time they would in fact result from company-specific instead of industry-specific

factors.

Besides the two industry control variables, we control for the number of signatures of a

petition. As large protests are found to be more threatening as they can bring greater

disruption to their targets (Earl, Soule, & McCarthy, 2003; Earl, Martin, McCarthy, & Soule,

2004) the number of signatures is included as a control variable which measures the scale of

the protest.

5. Results

First, the results of the descriptive and correlation analysis will be provided.

Subsequently, the direct effects of the independent variables on the Response Time will be

tested by using a hierarchical regression. Then, the moderating impact of CG System on the

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5.1 Correlation analysis

A correlation analysis was run to check for multicollinearity. Table 1 reports the means,

standard deviations and correlation matrix for all variables.

Table 1

Means, Standard Deviations and Correlations

Variables M SD 1 2 3 4 5 6 7

1. Number of Signatures 51852.1 112497 -2. Industry 31-33: Manufacturing .130 .330 .000 -3. Industry 44: Retail Trade .390 .480 -.001 -.309**

-4. CG System 1.110 .316 -.055 .100 -.182*

-5. Negative Stock Price Change .470 .500 .086 -.064 -.073 .023 -6. NGO Involvement .180 .387 .231** .087 -.105 .083 .031 -7. Response Time 149.910 284.327 .229** .073 -.078 -.003 .089 .109

-Note: N=197

* Correlation is significant at the 0.05 level (2-tailed). ** Correlation is significant at the 0.01 level (2-tailed).

The means of the variables give information about the distribution of the sample. Table

1 shows that the mean Number of Signatures was 51,852 with a standard deviation of

112,497, so there is a large amount of variation in the variable. Some companies responded

according to the petitioner’s expectations on the day the petition was filed while a few

petitions were declared successful several years after they were filed. The sample consists of

more companies from countries with a shareholder-based CG system than from countries

with a stakeholder-based CG system (M=1.11, SD=.316). In the majority of cases there was

no NGO involved (M=0.18, SD=.387). Approximately half of the cases resulted in a negative

stock difference (M=0.47, SD=.500). The mean response time of a company was 149.91 days

(with day “1” being defined as the day the petition was published) with a standard deviation

of 284.33.

The correlation matrix shows that the Number of Signatures is significantly correlated

to the NGO Involvement (p<0.01). The effect is positive and according to Cohen (1988), it

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significantly correlated to the Response Time. The effect is positive and, following the

classification of Cohen (1988), its strength is small to medium. The correlation matrix shows

that that there is a significant negative correlation between Industry 31-33 and Industry 44

(p<0.01).

Summarizing, the correlation matrix ascertains that we do not face multicollinearity of

the data as we do not have correlation coefficients higher than 0.8. Therefore, the correlation

matrix shows that we can investigate the relationships between the variables further without

making adjustments such as excluding variables.

5.2 Direct effects

In order to test the impact of the change in stock price and NGO involvement on the company’s response time, a hierarchical multiple regression was performed. The results are reported in Table 2. In the first step, of the hierarchical regression, the three control variables

Number of Signatures, Industry 31-33: Manufacturing, and Industry 44: Retail Trade were

included in the model. The model was statistically significant (p<0.01) and explained 6.1 %

of the total variance in the dependent variable Response Time. If the number of signatures

increases by 1 unit, the response time increases by 0.229 standard deviations. Moreover, the

results show that the response time was not significantly different for companies operating in

retail trade (p=.405) or in the manufacturing sector (p=.462) compared to companies from

other industries.

In Step 2 of the analysis, the variables NGO involvement and Negative Stock Price

Change were added to the model. This adjusted model was not statistically significant

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Table 2

Hierarchical Regression Model of Response Time

R R² R² Change SE β

Step 1 .247 .061*

Number of Signatures .000 .229*

Industry 31-33: Manufacturing 61.453 .054

Industry 44: Retail Trade 42.729 -.061

Step 2 .260 .069 .007

Number of Signatures .000 .212*

Industry 31-33: Manufacturing 61.924 .058

Industry 44: Retail Trade 43.153 -.050

NGO Involvement 53.098 .047

Negative Stock Price Change 40.139 .069

Note : N=197; *p<0.01

The hierarchical regression fails to reject our null hypotheses of H1 and H2. Therefore,

there is not significant evidence of an impact of NGO involvement and change in stock price

on the response time of a company to a petition. The number of signatures was positively

related to the response time. This is in contrast to our intuition as we expected the number of

signatures to pressure companies to respond earlier to petitions via social media.

Furthermore, the R2 of the first model is .061. Therefore, the model only explains 6.1% of the variation in the response time.

5.3 Moderating effect

In the hierarchical regression, we failed to reject the hypothesis of no impact of stock

price change in response time. This makes the analysis of the moderating effect of the CG

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6. Discussion and Conclusion

In this section, the findings of the statistical tests and their implications will be

discussed. As this analysis did not find a significant effect of our independent variables on

our outcome variable, potential explanations and room for improvement with regard to the

hypotheses development, method, and sample selection will be proposed as suggestions for

future research.

The paper presented three main findings. First, the statistical analysis did not find

evidence for an impact of NGO involvement on corporate response time although we

expected NGO involvement to reduce the response time of a company to an issue. Academic

research demonstrates that the impact of NGOs’ actions on public and corporate behavior

depends on various characteristics. Mitchell and Stroup (2017) argue that the reputation of NGOs influences external audience’s perceptions of the consequences of their behavior. They suggest that an NGO’s reputation consists of its visibility, perceived favorability and other attributes and that it determines the extent to which the organization can influence others.

Following this argumentation, the non-significance of the relationship between NGO

involvement and response time may be based on the fact that some of the analyzed petitions

were supported by NGOs which are not reputable enough to significantly decrease the

corporate response time compared to when there is no NGO involved. An example of an

NGO which potentially can only exert a low level of influence on companies is “The Truth about Nursing”. It is a US 501(c) non-profit organization which seeks to educate the public about the contribution of nurses. Moreover, the organization fights against misrepresentation

of the nursing profession by the media. The NGO administers a website and connects with its

supporters in a Facebook group which has less than 4,500 members. However, it does not

have an official Facebook page. In 2013, The Truth about Nursing filed a petition on

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statement about nurses which was made in one of Disney’s episodes. Therefore, the NGO

asked Disney to stop making degrading comments about nurses in future episodes. The

petition was victorious 39 days after it was filed with approximately 1,550 signatures.

However, it is questionable to what extent the NGO had an impact on the corporate response

as its ability to gain a high level of public attention appears to be rather limited due to its low

visibility which is indicated by its relatively low number of supporters.

Additionally, it is likely that the response time of a company to an issue does not only

depend on the number of signatures the petition gained, but also on the involved NGO’s

number of members or supporters. This measure of performance depends on, but also contributes to an NGO’s perceived effectiveness and reputation (Beetham, 2013).

Moreover, the analysis did not differentiate between different levels of NGO

involvement. While in some cases, there is no evidence of active involvement of NGOs

besides lending their name and credibility to the petition, in other cases the NGO actively

promoted the social issue through various communication channels. Therefore, it is likely that

the level of involvement had an impact on the public pressure the company perceived and, as

a result, on their timeliness of response.

Second, our statistical analysis showed that there is no evidence of an impact of a negative change in stock price attributable to the petition on the company’s response time although we expected a negative change in stock price to decrease the time a company takes

to respond to an issue. In our sample, only 47% of the cases led to a negative change in stock

price for the target company. A few studies found that the stock price increases as a result of

petitions because target companies often imply very effective damage control measures

(Koku, Akhigbe, & Springer, 1997). However, this finding is in contrast to the majority of

Petitions in the digital age : an analysis of the determinants of corporate response to social activism voiced through Change.org