Blood diamonds? Responses of open-source software developers to the Facebook-Cambridge Analytica scandal

Abstract

Research Summary: Corporate scandals often create moral struggles for ecosystem stakeholders who collaborate with scandal-tainted firms on mutually beneficial projects. We examine how these stakeholders navigate their relationships with such firms. Drawing on cognitive dissonance theory, we posit that stakeholders typically withdraw from such collaborations after a scandal. However, if stakeholders continue their engagement, they tend to emphasize the importance of collaborative projects and counterintuitively increase their project contribution. Stakeholders' responses depend on their choice space for comparable projects and their social embeddedness in the focal projects. By examining the Facebook–Cambridge Analytica scandal and the contribution of open-source software (OSS) developers to Facebook projects with a difference-in-differences approach, we find supporting evidence for our hypotheses. Our study contributes to the stakeholder management literature with practical implications. Managerial Summary: Firms are increasingly adopting ecosystem strategies and engaging diverse stakeholders for value creation. Managers must therefore consider how to maintain stakeholder engagement when adverse events occur. In this study, we examine the reactions of OSS developers to the Facebook–Cambridge Analytica scandal of 2018. We found that after the scandal, OSS developers with more project choices and less social embeddedness in Facebook projects were more likely to disengage from Facebook. Interestingly, however, developers who continued their engagement with Facebook projects tended to rationalize their continued involvement and surprisingly increased their commitment to those projects. This unusual effect suggests that stakeholder retention not only ameliorates the negative effects of scandals but also has positive outcomes, thus warranting the allocation of extra resources from scandal-tainted firms.