With business journalists always ready to jump on the latest corporate misdeed, the fear of incurring blaring headlines that will shock shareholders is more powerful than any regulatory changes, so says a recent study from the University of Chicago.

The research paper, “Candid Camera: The Role of the Media in Corporate Governance,” by Luigi Zingales, a professor of entrepreneurship and finance at the university’s Graduate School of Business, examined the impact of high-profile, negative business stories and was able to link the cases to changes in executive behavior.

For example, in September 2003, Richard Grasso, then chairman of the New York Stock Exchange (NYSE), lost his job after his lavish pay was exposed and vilified in the press. Although all directors of the NYSE had voted in favor of his compensation, once the information became public— even the most pro-business newspapers characterized Grasso’s compensation in a very negative light—many directors changed their position.

Zingales claims that this is a perfect example of unfavorable press coverage leading to a quick reversal of acts that were previously approved. The desire to avoid the harsh media glare seems to exert pressure on corporate managers, forcing companies to behave more in the interest of shareholders.

Perhaps most surprisingly, Zingales concludes that the fear of negative publicity is a more powerful regulatory tool than actual government regulation. According to the study, corporate executives often feel that fines and most other punitive government action have little impact, especially over time. But even just a few days of negative media coverage can have lasting consequences: immediate loss of prestige, calls for resignations and even demands for serious government intervention – something which tends to lead to more bad press.

It all comes down to public reputation management – i.e., the business of PR and media relations. As opposed to damage control – what happens after one is deemed guilty and has to prove innocence in the press – sound PR measures seeks to ensure that the company gets attention for its positives actions in the area of corporate responsibility. By conducting business ethically, then promoting such conduct through media relations, a company is assured that it will receive a fairer hearing should it be met with accusations of wrongdoing because of the banking of goodwill it will have accrued from its relationship with the press.