Why Companies Acknowledge or Deny: When Plausible Deniability Meets Irrefutable Culpability

We assess the relative use of denial defenses in the face of negative incidents by a group of organizations which particularly cherish their organizational image and reputation. We develop and test hypotheses on the relative use of denial strategy using data from media reports and press releases on 635 negative incidents addressed by the top 50 companies in Fortune Magazine’s “World’s Most Admired Companies” ranking in 2010. We find that the “deniability” of a negative incident depends on its incident type or characteristics as well as its context, especially as deniability relates to the stakeholders who are affected by the negative incident and to whom organizations are most accountable. We find that the deniability, the ability or acceptability of denying blame, is negatively related to the irrefutable blameworthiness of negative incidents in the eyes of affected stakeholders. Furthermore, an organization’s present financial performance affects the organization’s decision frame of reference in assessing whether to employ denial defenses in addressing negative incidents. We find that organizations’ present financial performance interacts with the characteristics or nature of negative incidents in influencing an organization’s decision to adopt denial defenses or not. We use the Prospect Theory to explain and understand an organization’s risk assessment in adopting denial defenses based on the organization’s projection of affected stakeholders’ trust calculus process.