7.1. Discussion
This PhD thesis explored the relationship between corporate irresponsibility and reputation penalties by attending to a comprehensive analysis of event characteristics as well as a number of contingencies that shape the attributions stakeholders make in light of irresponsibility. This study modeled for the effects of both extant typologies and broad categories of irresponsibility on changes in corporate reputation - as well as more recent theoretical offerings from the attribution theory perspective (Lange and Washburn, 2012). In the later empirical chapters, this study also explored the position that reputational assessments are ‘path dependent’ (Mishina, Block and Mannor, 2012). To test this theory, I explored the possible contingencies within the relationship between irresponsibility and changes in corporate reputation by adding various contextual information regarding stakeholders’ prior beliefs (social responsibility reputation and celebrity status) and knowledge (history of corporate irresponsibility and financial performance). The aims of this study were threefold; (1) first, this research aimed to assess the relationship between distinct aspects of corporate irresponsibility and how stakeholders interpreted them (2) Second, to unpack how stakeholder’s prior beliefs influenced the process of social judgements and impressions formation. (3) Finally, this thesis aimed to understand the extent to which stakeholders reevaluate firm reputations in light of stakeholder knowledge. Due to the relative scope of these research aims, here I go on to discuss the some of the key findings of my exploration of the relationship between corporate irresponsibility and reputation penalties. In view of my overall findings, I find reputation updating appears to be only a relatively modest and infrequent phenomenon. Reputations therefore appear to be more resilient in the face of irresponsibility than previously thought, contradicting a long held assumption that reputation is a distinctly fragile asset (Koronis and Ponis, 2012; Minor and Morgan, 2011; Scott and Walsham, 2005) and also the more recent notion that assessors have a distinct cognitive bias towards negative information (Gordon et al, 2008; Hamlin, Wynn and Bloom, 2010; Hanson and Mendius, 2009; Mishina, Block and Mannor, 2012). Furthermore, irrespective of differences in firm attributes, incidents of a financial orientation – such as accounting controversies - appear to be more broadly impactful on reputations than social or environmentally oriented harms. Accounting irresponsibilities may undermine what may be considered the primary function of the organisation i.e. the accumulation and distribution of financial resources, which in turn, may have the most fundamental and far reaching effects on reputations. Additionally, another key finding of my research is that firm characteristics matter to the process of stakeholder attributions of irresponsibility. As a result, reputational penalties appear to be largely contingent upon - not only what firms ‘do’ - but also, what firms are thought of ‘being’.
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Subsequently, my results show firms with the most populous histories of corporate irresponsibility are particularly prone to reputation penalties for events which - for the most part – tend not to be penalised. These events include environmental harms and issues concerning stakeholder equality. This may imply that rather than irresponsibility existing in isolation, stakeholder assessments of the firm and its behaviour is a more dynamic process achieved through multiple observations over time. In this manner, stakeholders may gather a ‘sense’ of whether the firm is a responsible or irresponsible actor by assessing its behaviour in different contexts and towards various stakeholder groups. Finally, my research suggests that celebrity organisations are distinctly more vulnerable to reputation penalties when connected to acts of corporate irresponsibility in the media than non-celebrity firms. These findings are particularly interesting, as they largely contradict extant research which suggests celebrities to be shielded from the negative outcomes of irresponsibility (notably, Pfarrer, Pollock and Rindova, 2010). Consequently, my research finds evidence toward the seemingly more logical position that the enhanced capacity of celebrity firms to capture greater stakeholder attention may be a distinct disadvantage when the news about the firm is negative. Consequentially, these findings also imply a number of theoretical, practical and policy implications that will be discussed here in more detail.
From a theoretical perspective, my empirical exploration of the attribution framework offered by Lange and Washburn (2012) compared to several extant typologies, suggests a number of conceptual implications for future work. Though the results presented here were somewhat mixed, the attribution framework of irresponsibility presented by Lange and Washburn (2012) was less effective overall than the broad categories of irresponsibility employed by much of the market-penalties research (Alexander, 1999; Engelen and Essen, 2012; Karpoff and Lott, 1993; Karpoff, Lott and Wehrly, 2005). I attribute this to either a potential oversimplification of the model to only three core facets namely, ‘effect undesirability’, ‘perceived culpability’ and ‘affected party non-complicity’ (Lange and Washburn, 2012) or a number of possible contingencies that were not considered here. Relatedly, the overarching finding of my PhD research - that reputations are more resilient in the face of irresponsibility than previously thought - may imply a process of stakeholder attribution which is shaped by a number of mediators. I specifically explored the mediating effect of stakeholder perceptions of the firm’s social responsibility and celebrity status, as well as more objective assessments of the organisation’s history of past offences and financial performance. In this way, my research finds
some strong evidence to suggest that reputation penalties appear ‘path dependent’, in that
assessors’ prior beliefs tend to shape how current events are interpreted (Mishina, Block and Mannor, 2012). Even so, there may be other potential contingencies that have not been explored in this study; such as the firm’s perceived innovativeness, brand value, environmental performance, as well as aspects of the business model or pricing strategy. For instance, an
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interesting line of potential future questioning could be; do stakeholders attribute social irresponsibility to firms offering luxury goods and services more so than to low-cost providers? And are there greater reputation penalties associated with these? In this way, future research should empirically explore the remaining contingencies within the stakeholder attribution process, of which authors have already conceptualised a number of potential mediators at length (see Lange, Lee and Dai, 2011).
Moreover, the broad finding that reputations appear more resilient than previously thought may also implicate a more complex process of stakeholder forgiving, forgetting or apathy which may account for why firms are often not penalised for irresponsible behaviour (Barnett, 2014). As the majority of reputation penalties research to date focuses on the immediate effects of irresponsibility on reputational change (e.g., Alexander, 1999; Engelen and Essen, 2012; Karpoff and Lott, 1993; Karpoff, Lott and Wehrly, 2005), my longitudinal research suggests that measures of reputational assessments may be distinctly time-sensitive, as over time, assessors may forgive or even forget the behaviour of the firm. In this way, measures of reputation taken immediately after the event has occurred may not be representative of the reputation penalties phenomena because individuals, particularly shareholders, tend to overreact to news of corporate irresponsibility in the short term (Gillet et al, 2010). By using a longitudinal research strategy, I observe a very different effect of corporate irresponsibility on reputational change. One which appears significantly less impactful than previously assumed by research that utilised stock market proxies of reputation penalties.
Relatedly, this research also implicates the potential importance of management of events. I highlight this point specifically because following the analysis, I found a number of incidents whereby the firm was associated with both corporate irresponsibility and reputational enhancements. Whilst this may appear counterintuitive, the crisis management literature has long suggested that firms which actively and successfully manage irresponsibility, may enhance their audience’s perception of the firm through a mechanism of affirming organisational commitment to their social responsibilities (Kash and Darling, 1998; Mitroff, 1994; Ulmer, Sellnow and Seeger, 2013). In this way, future research should elucidate the ways in which this mechanism impacts the relationship between irresponsibility and changes in corporate reputation and most importantly, assess which of the potential management and communications practices most effectively achieve this?
Furthermore, it should also be pointed out that there may be some audience-specific effects associated with my research - in that the Fortune dataset utilised here evaluates only the views of managers and market analysts. Other stakeholders may respond differently to news of
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irresponsibility. Future research should therefore assess the views of other relevant stakeholder groups when examining the effects of corporate irresponsibility on reputation penalties.
Even so, the finding that reputations are more resilient than previously suggested (Koronis and Ponis, 2012; Lange, Lee and Dai, 2011; Minor and Morgan, 2011; Scott and Walsham, 2005) has a number of practical implications. Whilst the management approach I advocated is one of caution, due to the ‘non-reputation’ penalties that may be associated with acts of corporate irresponsibility, celebrity organisations should be aware that the reputation penalties associated with corporate irresponsibility may be more substantial for them. Resultantly, celebrity organisations should be more proactive and prepared to allocate increased resources to the appropriate management of corporate irresponsibility, should the need arise. That being said, the main but controversial result of my research is that for the most part, irresponsibility is only infrequently associated with significant reputational impacts. This finding generally corroborates the many ‘real-life’ examples of corporate misconduct, where firms appear seemingly reputationally unharmed following widely publicised acts of corporate irresponsibility. From a policy and regulatory perspective, my research suggests that seldom do incidents which injure or fatally injure stakeholders, damage corporate reputations. The CSR literature has long stated that stakeholder expectations perform a ‘quasi-regulatory’ influence on organisations to behave more responsibly (Aguilera et al, 2007; Brammer, Jackson and Matten, 2012; Campbell, 2007). The logic being, that firms are encouraged to act responsibly in order to avoid the associated reputational costs of being found to have behaved objectionably. However, my results suggest that publics infrequently penalise firms for irresponsible behaviour. Therefore, the ‘quasi- regulatory’ mechanism performed by reputation as suggested in the institutional theory strand of CSR research, may only play a marginal role in discouraging bad behaviour. In this way, more appropriate regulation may be advisable to promote better corporate social performance as well as to discourage irresponsibility, particularly for incidents that injure or fatally injure stakeholders.
7.2. Conclusion
By situating assessors at the center of the reputation penalties process and by measuring reputational change over a significant length of time, this research contrasts the majority of extant works on reputation penalties which utilise short-run stock market declines as a proxy for reputation damage (Alexander, 1999; Engelen and Essen, 2012; Karpoff and Lott, 1993; Karpoff, Lott and Wehrly, 2005). I proposed that the conclusions drawn by the extant body of literature may be distinctly inaccurate because many ‘real-life’ examples of corporate irresponsibility are seemingly not associated with the significant decline in reputation (Alexander,
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1999; Karpoff and Lott, 1993; Karpoff, Lott and Wehrly, 2005; Murphy, Shrieves and Tibbs, 2009). More specifically, the thematic assumption that reputation is in some fundamental sense a fragile asset, jars with examples of corporate irresponsibility such as Apple’s price fixing of e- books, the discrimination and exploitation controversies associated with Wal-Mart’s operations, the human rights abuses associated with Primark’s business model, the tax avoidance at Google, and so on. This doctoral thesis problematised the existing assumptions in the literature by exploring both alternative theoretical and methodological approaches to reputation penalties in light of observed irresponsibility. More specifically, this thesis models both extant typologies of irresponsibility and theories of attribution utilising large-scale survey data to longitudinally explore reputational change over time. The results of this empirical research suggest that irresponsibility may, in fact, only be associated with significant reputational decline under certain contextual circumstances.
My findings suggest that issues of a financial orientation, specifically accounting controversies, tend to be associated with broad reputational effects. Yet, after further empirical exploration of the contingencies of various firm characteristics - namely perceptions of social responsibility, celebrity status, history of corporate irresponsibility and financial performance - I found evidence to suggest that reputation penalties may be shaped by pre-existing firm attributes and stakeholder perceptions. In this way, my research lends support to the position that reputational assessments are ‘path dependent’ (Mishina, Block and Mannor, 2012) in that reputational assessments tend to be shaped by assessors’ pre-existing beliefs and knowledge. My findings also highlight that celebrity firms may be distinctly vulnerable to reputational penalties in light of irresponsibility, in that enhanced celebrity status may be something of a ‘double-edged sword’. More specifically, being a distinctly prominent firm helps garnering greater stakeholder attention for positive business activities (Wartick, 1992) and greater stakeholder criticality when associated with negative ones. This said, I found that only some types of irresponsibility were significant under certain conditions. Contradicting the view of much of the market penalties literature. I also find that environmental events are associated with significant reputation penalties for firms with extensive histories of irresponsibility. This suggests that, this form of irresponsibility tends not to be penalised, unless the firm has already a propensity for irresponsibility.
Moreover, my research implies that assessors may observe firm behaviour over time before arriving at negative conclusions about the firm’s character and/or capabilities. This finding is in line with a long history of observation in social psychology, which suggests that seldom do individuals update their perceptions when confronted with contradictory evidence (Asch, 1946; Darley and Gross, 1983; Fryer et al, 2013; Lord, Ross and Lepper, 1979). This research explored incidents with potential for reputation updating to take place, though what I found