They can apologize, for example, or release a legalese statement. They can play down the severity of the issue or share a backstory as an explanation. Or, to use the language of HBO’s Succession, they can make a blood sacrifice and send a top executive packing.

Are any one of these options best able to shield a company’s stock price from a sell-off? Not at all. What’s most important in these moments is coherence, says Matt Hersel, assistant professor at Clemson University and lead author of a new study that looks at how the market responds to a company’s handling of misconduct.

The paper zeroes in on companies caught in accounting scandals that subsequently fired executives connected to the misdeeds. Rather than investigate crisis communication or executive dismissals alone, Hersel explains, he and his coauthors wanted to see how shareholders interpret a board’s words and actions. They looked at historical data from S&P 1500 companies in one study and ran an experiment using hypothetical scenarios in a second. In both cases, the research showed consistency through a storm was key to reducing share price volatility, while mixed signals scared off investors.

For instance, if a company pins an accounting problem on a digital transition, but the board fires the CFO weeks later, that sets off alarm bells for shareholders, says Hersel. “That’s where we see pretty strong negative stock market reactions to the dismissal.” 

While such takeaways may seem self-evident, the research reveals how often companies do not get it right. People want companies to walk the talk, says Ashley Gangloff, assistant professor of management at Elon University and a study coauthor. “It seems ridiculous that any one leader, any group of leaders, any organization would do anything different, but what we found in the actual data is that firms are all over the place.”

To avoid a mismatch between public statements and corporate actions, boards need to become engaged with a crisis early and take some control over how the company reacts, says Hersel. The question shouldn’t be, “How quickly can we respond?” but, “How will our next move be received in relation to our previous statements or planned actions?”

Boards ought to be engaged enough to preempt problems, which is part of the lesson here. When a company finds itself in a flap over anything—a financial transgression or a right-wing backlash to a savvy, laudable marketing campaign (see Budweiser)—what’s often behind a company’s confused response and executive departures is weak management that went unnoticed.

Lila MacLellan
lila.maclellan@fortune.com
@lilamaclellan

Noted

“I finally feel like I found how I want to run the company.”

—Airbnb CEO Brian Chesky tells Fortune about the six months he spent living in his platform’s rentals, getting into the “nitty gritty” of his core business

On the Agenda

👓  An empirical study of ChatGPT integration at an unnamed Fortune 500 company found signs that the A.I. tool can improve productivity. In the long run, however, it may exacerbate income inequality.

🎧 Florida Gov. Ron DeSantis on Tuesday enacted a law banning public officials from investing public money into ESG investments and prohibiting the sale of municipal ESG bonds. Earlier this year, Bloomberg’s Big Take podcast explored why DeSantis is actually “a little bit woke,” though it’s disguised.

📖 Although 85% of board members say they “take human capital issues into account when advising management,” only 40% feel they have “direct exposure to frontline and junior employees,” according to a recent survey of S&P 500 board members.

In Brief

- Fewer than 1% of board members identify as LGBTQ+, compared to 7% of the U.S. population. The cofounders of Colorful Capital explain why this underrepresentation damages corporate performance.

- FTC chair Lina Khan wants the government to regulate generative A.I. before dominant tech players monopolize the market and build large troves of user data.

- Mary Dillon thought she’d play pickleball and sit on a few boards after retiring as Ulta Beauty’s CEO. Instead, missing the thrill of running a company, she returned to work, taking over at Foot Locker. She talked to Fortune’s Phil Wahba about her goals for the retailer.

- Foreign businesses in China, including Bain & Company, received surprise visits from Chinese security agents, raising fears that a state effort to gain “data supremacy” will hamper the country’s post-pandemic reopening to global corporations.

Editor’s Pick 

Vanity Fair’s deeply reported May cover story on Rupert Murdoch and the succession question hanging over his Fox News media empire is packed with juicy insider revelations about the media mogul’s health scares, his isolation period during the pandemic’s early months, and his views on former President Donald Trump. Some of the most compelling sections, however, cover the family’s internal politics.

Murdoch appears intent on leading until he dies, according to the piece. At that point, his voting rights on the board of the trust that controls Fox Corp board will be divided between his four eldest children: Elisabeth, Lachlan (CEO of Fox Corp), James, and Prudence. “The question is how are the children aligned?” asks a former News Corp executive who spoke to journalist Gabriel Sherman.

Here’s a snippet:

“The central fault line remains the rift between James and Lachlan. According to sources, the brothers no longer speak. James is horrified by Fox News and tells people the network’s embrace of climate denialism, white nationalism, and stolen election conspiracies is a menace to American democracy. But to overthrow Lachlan and get control of Fox, James needs Elisabeth and Prudence to back him—and that is hardly assured. ‘James is a lone wolf,’ the former News Corp executive said. Politically, Elisabeth is liberal, but she has remained close with Rupert and Lachlan; she sat in a box with the pair at the Super Bowl. A person close to Elisabeth says she wants to enjoy the time she has left with her father. ‘She’s terrified of Rupert dying mad at her,’ the source said. Prudence, who has stayed out of the family business, ‘is a wild card,’ the former News Corp executive said.”

Read the full piece here, and enjoy your weekend.