Business groups involved in undesirable events, political or otherwise, need to regain legitimacy to defend against perceptions of organizational misconduct. We show how affiliates increase their Environmental, Social, and Governance (ESG) initiatives when their business groups are accused of misconduct. Our findings indicate that when misconduct accusations are aimed at business groups, their affiliates take ESG measures as a strategy to mitigate threats to the business groups’ legitimacy. Further, this legitimacy recovery is typically achieved through a targeted approach, wherein the affiliates selectively prioritize a specific facet of ESG directly associated with the misconduct. Lastly, we report a positive spillover effect, in which the affiliates within non-accused business groups also strive to strengthen the same specific ESG component as the affiliates within accused business group to alleviate any potential guilt-by-association. Our study unveils how affiliates strategically engage in ESG activities in response to the accusation of misconduct toward business groups.
