Removing the shadow of suspicion

Denials, apologies are key to repairing trust in business

Can Martha Stewart regain the trust of her customers or could Enron’s former chief Ken Lay get a new job under the clouds of suspicion left in the wake of their legal problems?

It depends upon the match between how they respond to the allegations and the extent to which the alleged offense is perceived to involve their integrity or their competence, according to a recent study by Washington University in St. Louis professor Kurt T. Dirks and three colleagues.

Martha Stewart
Martha Stewart

“Once a breach of trust is attributed to someone’s integrity, it is very difficult to repair trust because individuals weigh the negative act more than they will weigh any subsequent positive displays of repentance,” said Dirks, an associate professor or organizational behavior at the John M. Olin School of Business at Washington University.

The research paper, “Removing the Shadow of Suspicion: The Effects of Apology versus Denial for Repairing Competence- Versus Integrity-Based Trust Violations,” was published in the February 2004 issue of the Journal of Applied Psychology. Dirks conducted the study along with Peter H. Kim of the University of Southern California, Donald L. Ferrin of the State University of New York at Buffalo and Cecily D. Cooper of Southern Methodist University.

Apologies are not always beneficial, the study found. “Whereas an apology can repair trust more effectively than a denial when the violation concerns matters of competence, a denial is more effective than an apology when the violation concerns matters of integrity,” Dirks said.

The researchers conducted two studies to examine the implication of an apology versus a denial for repairing trust after an alleged violation. The results revealed that trust was repaired more successfully when mistrusted parties apologized for violations concerning matters of competence but denied guilt for violations concerning integrity. Trust was also repaired successfully when the mistrusted parties had apologized for violations when evidence of guilt surfaced later but had denied guilt when evidence later showed innocence.

The studies involved undergraduate and graduate students in business, who were asked to assume the role of a manager in charge of hiring a senior-level tax accountant. Participants read interview transcripts and viewed videotaped interviews, which revealed that the candidate had been accused in a previous job of filing an incorrect tax return that understated a client’s capital gains income. In one version of the interview, the applicant was accused of filing the incorrect return due to inadequate knowledge of the tax codes. In another, the applicant was accused of filing the return intentionally. Alternate interviews were also taped showing different responses by the applicant, either denying or apologizing.

The participants were asked to rate the likelihood that they would hire the applicant and if so, what level of job responsibilities should be entrusted to the applicant.

A second study was designed to determine whether the would-be employer’s willingness to trust persisted after the accused party’s actual guilt or innocence was subsequently revealed.

Trust was repaired more effectively when later evidence showed the mistrusted person was innocent than guilty, and only when the evidence was consistent with the accused’s claim of guilt or innocence, the study showed. But even when evidence of guilt or innocence becomes known, that doesn’t eliminate the relative benefits of apologizing rather than denying guilt for competence-based violations or for denying guilt instead of apologizing for integrity-based transgressions.

“These effects are even more interesting when we consider that the actual violation studied was the same, an improperly prepared tax return,” Dirks said. “The violation was simply framed differently — to some participants as a competence-based matter and to others as an integrity-based matter. This highlights the notion that many violations are ambiguous enough to be framed in multiple ways and that the framing of such violations can be just as important as evidence regarding guilt or innocence or the kind of response that the accused person might provide.”

In Stewart’s case, she denied initial charges of insider trading and the charge was later dropped. She also denied charges of obstruction of justice — lying to the government, also an integrity-based offense — but was found guilty in court. An appeal is pending, and Stewart continues to deny guilt, offering apologies only for the disruption affecting employees, stockholders, customers and family. Immediately after her five-month sentence was imposed, stock in Martha Stewart Living Omnimedia soared, although ad sales at her magazine have since dropped.

Enron’s Ken Lay remains unapologetic after his recent indictment on 11 charges related to a broad conspiracy that defrauded investors and led to the collapse of the energy corporation he chaired. Lay has denied these integrity-based offenses by offering a defense of incompetence — he was unaware of the activities of his subordinates. He expressed regret only for the pain caused by the company’s failure. Although that legal case is still pending, the verdict may already be in on how Lay would fare trust-wise should he ever seek another job or try to start another company.

Dirks and his fellow researchers are currently involved in follow-up studies. One study examines how apologies might be more or less effective based on whether the individual accepts more or less responsibility for the act. For instance, is a Lay-style apology attributed to external causes (“I’m sorry people suffered, but it happened because I was misinformed”) more or less effective at repairing trust than one in which the individual accepts full responsibility? Dirks hints that results from this study are likely to surprise some.

In other research, they are examining the effectiveness of alternative responses that organizations can take when one of their senior executives is alleged to have taken such an act.

“Indeed, given how little we truly know about the trust repair process, ” the study states, “it is hoped that all of these questions receive significant attention in the future.”

The study was supported by a grant from the University of Southern California’s James H. Zumberge Research and Innovation Fund.