Fake news and corporate reputation: what companies can do

In today’s hyperconnected digital era, the relentless proliferation of fake news poses an ever-growing threat to the integrity of information, the foundations of public trust and the stability of organisations worldwide.

Catapulted into the global spotlight during the first term of US president Donald Trump the term ‘fake news’ is by no means a modern invention. Propaganda and misinformation campaigns have been woven into the fabric of history for centuries. However, the spread of fake news mirrors the rapid and uncontrollable nature of a wildfire in our current digital age. Alarmingly, more than 38 per cent of social media users in the US have inadvertently shared a fake news story, according to one estimate. While in the UK, a 2019 study reported that around 43 per cent of social media users admitted to sharing inaccurate or false news, with 17 per cent doing so knowingly. 

Meta CEO Mark Zuckerberg’s recent decision to discontinue third-party fact-checking on Facebook, Instagram and Threads, replacing it with a 'community notes' system, has drawn sharp criticism as it is unlikely to help improve the situation. In a landscape already rife with misinformation, the move simply risks exacerbating the spread of falsehoods, raising profound concerns about its repercussions for society and businesses.

The business impact 

A growing number of fake news stories now target businesses directly and sometimes as part of deliberate disinformation campaigns. These often take the form of fabricated CEO statements, false media reports, or doctored social media posts. Such misinformation can provoke adverse reactions, instil panic and significantly damage a company’s reputation and operations.

For example, when fake news surfaced on pharmaceutical group Eli Lilly’s official Twitter account in November 2022, falsely claiming that the company would provide free insulin, the misinformation caused the company’s stock value to drop by four per cent, unsettling investors concerned about potential profit impacts and reigniting heated public debates over the affordability of insulin. 

The impact of fake news on businesses underscores the precarious nature of corporate reputation. While reputation is a critical asset that drives investor confidence, partnerships, and talent acquisition, it remains exceptionally susceptible to rapid erosion. As Warren Buffet famously said: “It takes 20 years to build a reputation and five minutes to ruin it.”

The study

But just how dangerous is fake news to companies and their reputations? Can consumers and investors tell the difference between what is true and what is fake? And can a good reputation buffer a company from the negative effects of fake news?

To address these questions, my colleagues from Emlyon (Marta Pizzetti) and King’s College London (Michael Etter) and I, together with Simone Mariconda, a Swiss-based communication expert, conducted three experimental studies aimed specifically at investigating the impact of fake news on corporate reputation.

Our research showed that fake news does indeed affect the public’s perceptions of a company, while also revealing that the reputational damage it causes operates in a more complex way than one might expect. All managers should therefore regard the potential reputational damage caused by fake news with great seriousness. Here are some of our findings.

The findings

Our research reveals that fake news affects so-called ‘first-order’ reputation judgments (that is, individuals’ own views of a company’s reputation) differently than ‘second-order’ reputation judgments (ie what individuals believe others think about a company’s reputation). These findings are consistent with evidence that people tend to assume that media messages have a greater impact on other people than on themselves, or the so-called ‘third-person effect’. 

Intriguingly, the third-person effect is particularly strong for fake news about companies with a strong or positive reputation. In other words, the stronger a company’s reputation, the more people believe that fake news will affect others’ judgments of that company. This is contrary to the commonly held belief that reputable organisations might be more immune to misinformation, highlighting a significant gap in our understanding of how fake news influences perceptions and decision-making, on both an individual and societal scale.

Awareness doesn’t help

The study also shows that people tend to align their own views with what they believe others believe. The important but worrying implication here is that fake news can influence judgments and behaviours even when people are aware that the news is fake.

So, while a piece of news may be clearly fake, the consequences remain real. This helps explain collective behaviours triggered by the spread of fake news, such as mass stock selloffs seen in the case of Eli Lilly, or sudden bank runs during major financial crises, where misinformation sparks widespread panic.

Being made aware of the false nature of information, as fact-checking alerts attempt to do, appears to do very little to mitigate the impact of fake news. In short, even when people are aware that they are confronted with fake news, their reputational judgments are still negatively affected. 

Looking ahead

The implications for corporate managers are profound. Our research shows that traditional crisis management strategies, such as merely labelling news as fake, may not be entirely sufficient in addressing the indirect effects of fake news. This is because people’s judgment will be negatively affected whether they are aware or not of the false nature of a piece of information. 

We believe that an effective crisis response should include ‘social proof’ strategies, which involve leveraging others’ opinions or behaviours to shape and reinforce second-order reputation judgments and build public trust. So, to counter fake news, companies can use tools that demonstrate public support, such as surveys, or endorsement from credible experts to showcase that opinions and behaviours remain positive and unaffected by fake news, thereby reassuring public opinion and safeguarding the organisation’s reputation.   

The hour is nigh and organisations must act swiftly to reassess their current crisis management strategies and consider developing new approaches that complementing fact-checking

To combat the escalating and potentially devastating threat of fake news, organisations must act swiftly. In particular, they must reassess their current crisis management strategies and consider developing new approaches that complement and go further than fact-checking alone.

‘Fooling Them, Not Me? How Fake News Affects Evaluators’ Reputation Judgments and Behavioural Intentions’ by Simone Mariconda, Marta Pizzetti, Michael Etter and Patrick Haack is available from the journal Business & Society.