When Netflix CEO Reed Hastings publicly apologized for hiking prices in 2011, he exacerbated rather than mitigated the effects of a poorly communicated business decision. Netflix users cancelled their subscriptions by the thousands. In less than three months, Netflix had lost 53% of its net value and $8 billion dollars in shareholder worth.
A new study from Harvard Business Review gives leaders like Hastings a formula for navigating the treacherous waters of organizational apologies. For serious transgressions, HBR suggests that senior leaders “immediately express candor, remorse, and a commitment to change in a high-profile setting — and make it sincere.”
Public apologies can be the best plan of action for companies, but as Hastings’ example showed, the task can prove challenging for CEOs. HBR suggests why: “It can be difficult for business leaders accustomed to displaying power and self-confidence to strike the right repentant tone.” In his apology, Hastings failed to exhibit remorse as he smiled broadly throughout the three-minute video.
New research in the Organizational Behavior and Human Decision Processes journal sheds light on the tangible impact of these kinds of emotional expressions. The authors Leanne ten Brinke and Gabrielle Adams explain that Hastings’ smile ran “counter to the emotions we expect an apology to include” and appeared insincere within the eyes of investors and customers.
When a company representative smiled during an apology, it correlated with reduced investor confidence and detrimental losses — stock performed poorly for as long as three months after the apology first aired. These effects were more pronounced when a CEO apologized, as the “relative powerlessness (in comparison with the powerful CEO) experienced by the observer increases attention to others and promotes accurate emotion detection.”
Just as a smile undermines the value of a well-said “I’m sorry,” displays of sadness deepen the perceived sincerity of an apology. CEOs who offered public apologies through frowns and furrowed brows experienced mitigated losses, allowing business to move “forward as normal.” An effective apology with appropriate displays of emotion even implied increased investor confidence and stock market value in the long-term.
It’s important to note that only a CEO can guide a company to its pre-transgression returns with a sincere apology; other company representatives fail to counter loss of confidence in the same way. This particular finding fortifies HBR’s stance that the more detrimental the perceived mistake — either to stakeholders or to the company’s identity — the more important it is that an apology come from a senior leader, despite the increased risk of further damage.