Toward a Theory of Organizational Apology
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TOWARD A THEORY OF ORGANIZATIONAL APOLOGY: EVIDENCE FROM THE UNITED STATES AND CHINA A DISSERTATION SUBMITTED TO THE GRADUATE DIVISION OF THE UNIVERSITY OF HAWAI‘I AT MĀNOA IN PARTIAL FULFULLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY IN BUSINESS ADMINISTRATION JULY 2017 BY Eric Rhodes Dissertation Committee: Dharm P.S. Bhawuk, Chairperson Victor Wei Huang, Member Sonia Ghumman, Member James Richardson, Member Kentaro Hayashi, University Representative We certify that we have read this dissertation and that, in our opinion, it is satisfactory in scope and quality as a dissertation for the degree of Doctor of Philosophy in Business Administration. © Eric Rhodes All rights reserved. i ACKNOWLEDGEMENTS No duty is more urgent than that of returning thanks. -James Allen My sincere appreciation to all my teachers in life, especially Chairperson Dharm P.S. Bhawuk as well as the other members of my Dissertation Committee. I’d like to acknowledge and thank Dr. Victor Wei Huang, Dr. S. Ghon Rhee, and Jaeseong Lim, my co- authors, for their insights and guidance for the paper that I wrote and presented at AoM 2016. Essay 1 of this dissertation was the foundation for that paper. I am responsible for the idea and all the data presented in Essay 1. ii ABSTRACT A multi-method approach was used to develop a theory of organizational apology. In Essay 1, the impact of public apologies made by U.S. and Chinese companies on their stock market investment returns was examined. It was found that the overall impact of organizational apologies on cumulative abnormal return was significantly negative, as was the impact of apologies arising from perceived integrity violations. By contrast, the impact of apologies arising from perceived competence violations was found to be positive but nonsignificant. In Essay 2, a grounded theory method was used to analyze organizational apology following some transgression. It was found that statements of contrition and assurances of non-recurrence were the most frequently included elements of organizational apology, while empathy statements were used less frequently. Concerns over negative publicity were the most frequent antecedent event to an organizational apology and the implementation of an easy fix was the most frequent consequent event. Seven descriptive transgression categories emerged, and were found to align with the 4Ps of marketing as well as the five SERVQUAL dimensions of service that customers care about. It was also uncovered that apologies from the Chinese organizations were longer and included more references to government and nationality. In Essay 3, a longitudinal examination of apologies issued by Apple and Kingsoft was undertaken to assess for cultural differences in organizational apology. Findings suggest that apologies issued by U.S. and Chinese organizations are structurally similar, and reflect the strategic approaches of their CEOs. iii Consumers' perception that an organization has done something wrong is often the antecedent of organizational apology, with a perceived ethical breach more damaging than a performance-related miscue. The elements of an organizational apology include an explicit statement of contrition and an assurance of non-recurrence and sometimes include a responsibility acknowledgment, compensation offer, and/or values statement. Sometimes blaming of third parties is also found. The consequents of organizational apology include complete or partial resolution of the customer's complaint when effective and escalation of complaints when ineffective, impacted by the adequacy of compensation, contrition, and cultural congruence. Twelve templates of organizational apology are presented for bench marking. iv CONTENTS ABSTRACT ............................................................................................................................. iii LIST OF TABLES .................................................................................................................... ix LIST OF FIGURES ................................................................................................................... x INTRODUCTION ................................................................................................................... 11 1 Literature Review ............................................................................................................ 14 1.1 Apology Origins ........................................................................................................ 14 1.2 Etymological Origins ................................................................................................. 15 1.3 Religious Origins ....................................................................................................... 15 1.4 Literary Origins ......................................................................................................... 16 1.5 Performative Utterances ............................................................................................ 18 1.6 Corporate Liability .................................................................................................... 22 1.7 Apology Definition .................................................................................................... 25 1.8 Apology Process ........................................................................................................ 31 1.9 Apology Timing ........................................................................................................ 34 1.10 Apology Effectiveness ............................................................................................. 35 1.11 Competence Versus Integrity Classification ........................................................... 37 1.12 Gender as a Moderator ............................................................................................ 37 1.13 Other Moderators ..................................................................................................... 38 1.14 Levels of Analysis ................................................................................................... 38 1.15 Corporate Level of Analysis .................................................................................... 43 1.16 Cultural Differences ................................................................................................ 45 ESSAY I: IMPACT OF APOLOGIES ON STOCK PRICE ................................................... 47 1 Introduction ..................................................................................................................... 47 2 Literature Review ............................................................................................................ 50 2.1 Apologies ................................................................................................................... 50 2.2 Negative Consequences ............................................................................................. 52 2.3 Stock Performance ..................................................................................................... 53 2.4 Competence Versus Integrity Violations ................................................................... 54 3 Research Method ............................................................................................................. 55 3.1 Cumulative Abnormal Returns (CAR) ...................................................................... 55 3.2 Dataset ....................................................................................................................... 57 3.3 Transgression Identification Process ........................................................................ 58 3.4 Typology Coding ....................................................................................................... 59 3.5 Control Variables ....................................................................................................... 60 4 Results ............................................................................................................................. 60 4.1 Descriptive Statistics ................................................................................................. 60 4.2 Correlation Analysis .................................................................................................. 61 4.3 Industry Effects.......................................................................................................... 61 4.4 Typology .................................................................................................................... 62 5 Discussion ....................................................................................................................... 63 ESSAY 2: ORGANIZATIONAL APOLOGIES .................................................................... 65 1 Introduction ..................................................................................................................... 65 2 Methodology ................................................................................................................... 67 2.1 Overview ................................................................................................................... 67 2.2 Organizational Transgressions .................................................................................. 68 2.3 Event Selection Process ............................................................................................. 68 v 2.4