Insincere sorry can scupper a stock

Researchers at London Business School use a facial action coding system to assess the sincerity of public apologies by executives at listed firms.

When the chief executive of Toshiba, Hisao Tanaka, made a deep bow and resigned before news cameras at the company's Tokyo headquarters last week, researchers at the London Business School were more interested in his facial expressions than his words.

Having scanned, frame by frame, hundreds of hours of videotaped press conferences in which corporate leaders, including Tony Hayward, BP's CEO at the time of the Deepwater Horizon disaster, apologised for bad behaviour, their focus is on the physiognomy behind the sorry.

While earlier studies have determined the most effective time for a CEO to publicly apologise and even the most effective wording of an apology, hardly any studies have delved into how one should behave when apologising, said Gabrielle Adams, co-author with Leanne ten Brinke of the London Business School report.

A pro forma "I'm sorry" accompanied by a smile, like the one offered by Netflix CEO Reed Hastings, which is cited by Adams and ten Brinke in Saving Face? When emotional displays during public apologies mitigate damage to organisational performance, can have a negative corresponding impact on share price.

Chimps and chins

The LBS study is not based on the ancient Chinese practice of face reading though it may owe a debt of gratitude to Sarah-Jane Vick et al's Cross-species comparison of facial morphology and movement in chimpanzees using the facial action coding system.

The methodology of Adams and ten Brinke relies not a little on concepts derived from this earlier application of FACS, the system for coding facial expressions, which researchers have used to "compare the repertoire of facial movements" in two species of hominoids — chimps and humans — and better allow for the "objective and standardised measurement of facial movement based on the underlying mimetic musculature."

Insincere chimps were not, as an animal rights activist theorised at the time, playing along for bananas.

"Elaborate facial communication is a primate adaptation and a comparative approach has long been integral to our understanding of facial expressions," Vick wrote reassuringly, noting that chimps have "much less cheek fat and no bony chin boss."

FACS and figures

Adams and ten Brinke said their findings, based on data obtained by mapping the expressions of contrite executives using FACS, suggest a correlation between shareholders' perceptions of the sincerity (or lack thereof) in the mien of the company representative and the subsequent stock market performance of the company.

Shareholders, Adams told FinanceAsia, tended to reward genuine remorse. The more sincere the apologiser's face, the more likely a stakeholder would stick with the company, whatever the nature of the crisis or transgression requiring public contrition, be it an ethical lapse, loss or theft of confidential customer information, or sex scandal. 

The key identifier of insincerity, according to the research, is the so-called "deviant affect" in the person issuing an apology. Insincerity is most readily observed when a "leakage of happiness" occurs during the apology. The desire to appear warm and likeable may make an apologiser appear happy when he should appear sad. An untiemly grin or smile can also spring from the thrill of lying, known clinically as "duping delight," while schadenfreude, taking pleasure in the misfortune of others, may also produce an inappropriate facial expression, according to the findings.

A number of factors may account for the perception of happiness in the apologiser (nervous laughter is not uncommon) but those observing an inappropriate smile or chuckle perceive it as "apologiser ambivalence... or remorselessness."

The researchers conclude by urging organisations to "carefully consider the nonverbal behaviour of apologetic representatives in the wake of transgressions."

One can almost hear a new branch of public relations consultancy being born.

Japan litmus test

Shortly after the spectacle of Tanaka's resignation from Toshiba, another Japanese firm — Mitsubishi Materials — apologised to an elderly former American prisoner of war and victim of forced labour in Japan during the Second World War. The company said it would also apologise to Chinese victims of forced labour and pay them compensation — one of the first, if not the fist, Japanese companies to do so.

Mitsubishi Materials share price has fallen by almost 6% since the gesture, underperforming a 1.6% slide in the Nikkei 225 index. 

Several Japanese prime ministers have also apologised for wartime atrocities. These gestures have for the most part been criticised as insincere by victims of Japan's wartime aggression. But, more to the point, they may suffer from a variation of Adams' and ten Blinke's deviant affect. Their facial expressions and actions, such as visiting Yasukuni shrine where several class A war criminals are honoured, may have undermined the apologies.

Meanwhile, news of Tanaka’s resignation sent Toshiba's share price up 6.1% to ¥399.90 on 21 July amid hopes that the rot might have been stopped and investors had a more precise idea of the scale of the accounting irregularities. However, the shares have retreated since then, closing at ¥379.20 Tuesday.

Additional reporting by Danny Leung
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