Mistakes happen and we say we're sorry. However, all corporate apologies aren't created equal.
According to the Harvard Business Review, two new studies have identified characteristics of effective apologies and what causes others to backfire.
In one study, Leanne ten Brinke, PhD, of the UC Berkeley School of Business and Gabrielle S. Adams, PhD, of the London Business School examined how investors reacted to CEOs delivering apologies.
Researchers analyzed 29 online videos of apologies from executives made between 2007 and 2011 using the Facial Action Coding System, an established system for distinguishing facial expressions. The researchers watched the tapes second by second without any sound to track the expressions the CEOs made while delivering apologies.
Leaders who apologized with a smile on their face saw their companies' stock drop post-apology, most likely because it seemed insincere. The more the leader smiled, the worse the company performed, according to the report.
Leaders whose faces appeared genuinely regretful while making an apology had no real impact on stock price. "Normative emotions simply allow the company to move forward," Drs. ten Brinke and Adams wrote.
When an apology was delivered by a CEO who looked sad, the company's stock price rose after the apology, the researchers found. "A good apology can build investor confidence," the study authors wrote, especially in the long run.
In a follow-up experiment, Drs. ten Brinke and Adams hired an actor to portray an airline CEO apologizing for a computer malfunction that resulted in the cancellation of 140 flights, leaving thousands of passengers stranded. The fictional apology contained all the verbal elements of a complete apology, as determined by previous research (an explicit "I'm sorry," an offer of repair, an explanation, taking responsibility and a promise of forbearance).
Test subjects watched the fictional CEO apologize, either happily, sadly or neutrally. Study participants rated the sad CEO as more sincere, and were more likely to want to reconcile with him, according to the report. In contrast, when the actor delivered the apology with a smile on his face, study participants were less likely to trust him, and the apology seemed to even intensify their negative feelings about the situation.
A paper by researchers Don Chance, James Cicon and Stephen P. Ferris published in the Journal of Corporate Finance examined 150 press released from 1993 to 2009 to measure how companies fared when they took the blame for poor performance rather than blaming outside factors. The researchers found companies are twice as likely to place the blame on external factors when they don't perform well. However, this leads to financial decline.
On the flipside, companies that take responsibility for missed earnings stabilize quicker and eventually improve financial performance — though the groups were equally likely to fire their CEOs.