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In this paper, we develop a conceptual framework that emphasises the need, for the purposes of reputation building, for fit between CSR activities and other key characteristics of the firm. Furthermore, using data on a sample of 227 UK PLCs, we provide evidence in support of a role for fit in the link between reputation and social performance, which suggests a need to tailor CSR activities in light of a firm’s size and the nature of its principle business activity. Thus, we highlight the strategic importance of correctly identifying the appropriate scope and extent of CSR activism.
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Building a Good
Reputation
STEPHEN BRAMMER, University of Reading
STEPHEN PAVELIN, University of Reading
In this paper, we develop a conceptual framework
that emphasises the need, for the purposes of repu-
tation building, for fit between CSR activities and
other key characteristics of the firm. Furthermore,
using data on a sample of 227 UK PLCs, we provide
evidence in support of a role for fit in the link
between reputation and social performance, which
suggests a need to tailor CSR activities in light of
a firm’s size and the nature of its principle business
activity. Thus, we highlight the strategic impor-
tance of correctly identifying the appropriate scope
and extent of CSR activism.
Ó2004 Elsevier Ltd. All rights reserved.
Keywords: Corporate reputation, Social responsi-
bility
Introduction
Corporate social responsibility (CSR) is an issue that
has increasingly attracted business, political, and
public interest in the past decade. Anecdotal evi-
dence suggests there has been a shift in the breadth
and nature of the perceived responsibilities of com-
panies to the societies in which they operate. This
shift poses significant strategic dilemmas for corpo-
rate management. Companies are now forced to
make decisions concerning the type and degree of
responsibilities they have to stakeholders, such as lo-
cal communities, the natural environment, and
employees. Furthermore, these responsibilities must
be balanced against those they have to financial inter-
est groups such as investors and creditors. Clearly,
this task would be less complicated if one could be
sure that satisfying the expectations of social stake-
holders contributed directly to the financial health
of the organization. Unfortunately, existing evidence
provides neither good evidence in favour of the
‘business case’ for improved corporate social respon-
siveness (Griffin and Mahon, 1997), nor the means
for companies to identify those aspects of social
responsiveness that, given the nature of their busi-
ness environment, would be expected to bring the
greatest reward.
Advocates of social responsiveness often highlight
the catastrophic financial impacts of the collapse of
ethically and socially unsound businesses such as
Enron. However, this fall from grace should be
viewed alongside Enron’s formerly favourable track
record in many dimensions of social responsiveness,
such as charitable contributions and community-
based initiatives. A business case for CSR activism
derived from the desire to avoid Enron-like financial
ruin would only promote compliance with legal
requirements for proper business practices. If we
are also, and perhaps particularly, interested in those
dimensions of CSR that lie outside of, or exceed,
such requirements (e.g. charitable efforts on commu-
nity and environmental projects) we must look be-
yond Enron if we are to inform a relevant business
case.
Part of the difficulty in establishing the business case,
if any, for improved corporate social responsiveness
arises because both the desired outcomes (e.g. profit-
ability, stock performance, employee attraction,
motivation and retention, customer loyalty), and
the socially responsive behaviours (e.g. charitable
giving, investing in technologies that reduce environ-
mental degradation, improving product safety, pro-
viding safe working conditions for employees) are
fundamentally multidimensional. This permits the
study of such a wide variety of linkages that it is of-
ten possible to make, or deny, a business case for al-
most any arbitrarily chosen pair of indicators of firm
and social performance (Griffin and Mahon, 1997).
In this study, we examine the links between corpo-
rate reputation and corporate social responsiveness.
Reputation has been defined as, ‘‘a perceptual repre-
sentation of a company’s past actions and future
prospects that describe the firm’s overall appeal to
all its key constituents when compared to other lead-
ing rivals’’ (Fombrun, 1996, p. 72). As has been
704 European Management Journal Vol. 22, No. 6, pp. 704–713, December 2004
doi:10.1016/j.emj.2004.09.033
European Management Journal Vol. 22, No. 6, pp. 704–713, 2004
Ó2004 Elsevier Ltd. All rights reserved.
Printed in Great Britain
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highlighted, denitions such as this emphasise the
aggregate or summative nature of corporate reputa-
tions that reect the perceptions of a host of individ-
ual stakeholders and that, therefore, reect a broader
concept of the performance of the organization than
the various measures of nancial performance previ-
ously employed to identify the payoffs from social
responsiveness.
In the investigation of the link between business and
social performance there is much to be gained from
the addition of conceptual sophistication above that
present in many existing accounts. Among other
weaknesses, most conceptualisations suggest that
the benets (or costs) of improved social responsive-
ness apply to all types of social performance and that
they are available to, and therefore should be reaped
by, all organizations. Were this true, we should ex-
pect to see very little variance across rms in the pat-
tern of their social performance, whereas, in fact and
as we will show, such variation is considerable. In
the next section, we outline an argument, grounded
in stakeholder theory, which proposes that the repu-
tational payoffs to a rm of increased social respon-
siveness are contingent upon their being a t
between the type of socially responsive behaviour
and certain rm characteristics. This framework pro-
vides both an explanation of the variation across
rms in their social performance and predictions
regarding the circumstances under which there will
be reputational payoffs to improved social
performance.
In addition to providing a good summative proxy for
the performance of organizations, corporate reputa-
tion has been identied as an asset of considerable
interest and importance in its own right. There is
general agreement that corporate reputations con-
tribute signicantly to the long run competitive
advantages of organizations and that their manage-
ment is of critical importance to companies (Dow-
ling, 2004;Rose and Thomsen, 2004;Fombrun,
1996). However, there is less agreement concerning
the processes by which reputational capital is built
or destroyed. An important strand in this literature
has focused upon the role of social responsiveness
in inuencing perceptions of organizations in the
eyes of their stakeholders.
A seminal empirical study by Fombrun and Shanley
(1990) provides evidence that social responsiveness,
as measured by the level of corporate charitable
donations and the presence of a separately endowed
corporate charitable foundation, is positively associ-
ated with corporate reputation. Indeed, Williams
and Barrett (2000) provide more recent evidence in
support of a positive link between philanthropy
and corporate reputation. However, in a recent con-
ceptual contribution, Dowling (2004) raises the possi-
bility that attempts to enhance reputations through
demonstrating social responsiveness may not be
credible in some industries, such as tobacco, nuclear
energy, and weapons manufacture, where negative
perceptions of the industry dominate the efforts of
particular companies.
This study makes two contributions. First, our con-
ceptual framework emphasises the need for t be-
tween CSR activities and other key characteristics
of the rm if a reputational payoff is to be achieved.
Thus, we highlight the strategic importance to a rm
of correctly identifying the appropriate scope and ex-
tent of its CSR activism. Second, we analyse the link
between reputation and social performance, allowing
this link to vary across corporate characteristics.
Using data on a sample of 227 UK PLCs, we provide
evidence that for the purposes of reputation building
there is a need to t CSR activities with other key
rm characteristics.
The paper is structured as follows. The next section
develops our conceptual framework before we move
on to outline the data employed in our empirical
analyses. Subsequently, we document the variation
across companies in reputation and social perfor-
mance, and analyse the linkages between the two.
Anal section discusses the implications of the re-
search and concludes.
Corporate Reputation and Social
Performance
In developing a framework of the linkages between
corporate reputation and social performance, our
starting point is Fombrun and Shanleys seminal
model which hypothesises that corporate reputa-
tions, ‘‘represent publicscumulative judgements of
rms over time’’ which, in turn, hinge on rms, ‘‘rel-
ative success in fullling the expectations of multiple
stakeholders’’ (Fombrun and Shanley, 1990, p. 235).
Arms current reputation is determined by the sig-
nals that publics receive concerning its behaviours,
whether directly from the rm or via other informa-
tion channels, such as the media or the stock market.
Stakeholders are expected to have diverse prefer-
ences over rm actions, process and outcomes and
reputational assessments depend upon the congru-
ence between the apparent behaviours of the rm
and the expectations and preferences of those publics
(Fombrun and Shanley, 1990).
In this paper, we conne ourselves to a discussion of
the links between social performance of organiza-
tions and their reputations. In particular, we propose
that the nature and strength of these links are contin-
gent upon corporate characteristics that condition the
expectations of stakeholders concerning the conduct
of particular organizations. We will begin by outlin-
ing a general case for a link between reputation and
social performance, before extending the argument
to permit corporate characteristics to mediate this
BUILDING A GOOD REPUTATION
European Management Journal Vol. 22, No. 6, pp. 704713, December 2004 705
relationship. In so doing, we will concentrate on two
particular corporate characteristicsindustry and
rm sizethat, we argue, play a particularly impor-
tant role in conditioning the link between reputation
and social performance.
Existing work has argued that social responsiveness
promotes favourable relationships with primary
stakeholder groups. This is because social respon-
siveness facilitates the process of identication,
whereby an individual perceives a good t between
his values and his beliefs about an organization
(Dowling, 2004). Achieving such a t is important be-
cause stakeholders (such as shareholders, employees,
consumers, pressure groups, Government and regu-
lators) that do not view the rm as following legiti-
mate courses of action have the power to either rest
power from managers, or to at least hamper the exe-
cution of corporate strategy (Mitchell et al., 1997).
Such salientstakeholder groups demand attention
from corporate management and, to the extent that
rms behave in accordance with their expectations,
they will be willing to continue to participate in the
activities of the rm. To the extent that social respon-
siveness helps managers, ‘‘induce constructive con-
tributions from their stakeholders’’ (Donaldson and
Preston, 1995), we should expect it to augment the
rms reputation since the expectations both of man-
agers and other stakeholders are satised. Indeed,
contributions from the strategy literature have ar-
gued that developing and sustaining good relation-
ships with stakeholders can help to form new and
valuable intangible assets (Hillman and Keim, 2001).
However, the links between social performance and
reputation may be more complex than has been sug-
gested thus far. If the demands made of the rm are
diverse, and perhaps conicting, the response must
be balanced and multi-faceted. Furthermore, since
operationalizations of corporate reputation are typi-
cally summative, in that they assess the status of an
organization in the eyes of many of its stakeholders
(if not all and if not with equal weight), there is un-
likely to be a straightforward relationship between
social performance and reputation. Instead, it is
likely that the overall reputational impact of social
responsiveness is jointly contingent upon which
dimension of social responsiveness is under consid-
eration, and which business sector the rm is primar-
ily associated with.
We propose that distinctions between types of busi-
ness activities, and between types of social perfor-
mance, play important roles in dening the
relationship between social performance and corpo-
rate reputation. Crucially, the perceived relatedness
of social performance to a rms activities is subject
to variation both across sectors, and within sectors
across types of social performance. The spectrum of
business activities can be divided into sectors such
as resources, retail, chemicals (including pharmaceu-
ticals), construction, high technology, banking, utili-
ties, business services, etc. Similarly, we can divide
social performance according to its focus upon com-
munities, the environment or employees.
Industry may be expected to be a key inuence on
the t between social performance and rm reputa-
tion, and therefore the strength of the link between
the two, because sectors are inherently more closely
related to some types of social performance than to
others. This relatedness springs directly from the
variation across sectors in the strength of stakeholder
expectations for specic socially responsive behav-
iours. Fullment of these expectations, where they
arise, enhances the perceptions of the organization
in the eyes of these stakeholders, whereas the failure
to do so harms the reputation of the organization
among these constituencies.
For example, the existing empirical literature has
identied a number of sectors as having high envi-
ronmental impacts, e.g. the metals, resources, paper
and pulp, power generation, water, and chemicals
sectors (Clemens, 2001;Bowen, 2000;Sharma et al.,
1999;Hoffman, 1999). In contrast, other industries,
particularly newer manufacturing industries and
the service sector have signicantly lower environ-
mental impacts and are associated with fewer highly
visible environmental issues. Where rms create sig-
nicant environmental externalities, they typically
face strong scrutiny from local communities, regula-
tors, and environmental pressure groups that expect
such organizations to reduce and make reparation
for such impacts. The environmental performance
dimension of social performance is therefore more
closely related to business activities that face visible
environmental issues, and we expect good environ-
mental performance to be more positively associated
with corporate reputation in such sectors.
Conversely, where environmental issues are less
apparent, it may be that the implementation of envi-
ronmental management and reporting systems bring
negligible benets via the improved relationships
with environmentally concerned stakeholders such
as regulators, legislators and pressure groups. Given
this, the accompanying administrative costs may
cause the net effect of investment in environmental
performance to harm the nancial performance of
the organization, and so make it less likely that the
expectations of creditors and shareholders are met.
If this is the case, a high level of environmental per-
formance would be expected to harm the overall rep-
utation of the rm in the eyes of its stakeholders.
Other industries are associated with alternative is-
sues, for example, the tobacco and alcoholic drinks
industries are associated with highly visible social is-
sues. They are thought to produce large social exter-
nalities (e.g. crime and health) and are subject to
strong regulatory regimes (competition, safety and
taxation). Similarly, the defence and pharmaceutical
industries receive particular attention from ethical
BUILDING A GOOD REPUTATION
706 European Management Journal Vol. 22, No. 6, pp. 704713, December 2004
pressure groups, and the prole of workplace health
and safety concerns is relatively high in the construc-
tion, transportation, and resource extraction sectors.
In contrast, all three aspects of social performance
may be perceived to only distantly relate to the busi-
ness services and high technology sectors, due to the
relative lack of environmental impact, proximity to
nal consumers, and employee health and safety
issues.
To summarize, it is expected that the nature of the
link between reputation and social performance is
inuenced by the nature of the stakeholder environ-
ments rms face. To a great extent, expectations con-
cerning corporate social responsiveness are related to
the nature of the rms principle business activity,
such that rms are expected by stakeholders to par-
ticipate in activities designed to mitigate, or offer
compensation for, antisocial outcomes typically asso-
ciated with that line of business. Social performance
that is perceived to bear little or no relation to a
rms activities may be thought of as wasteful man-
agerial excess, and so harm reputation, whereas
examples perceived as relevant are more favourably
viewed.
In addition to a rms industry, its size may also play
a role in inuencing the nature of the link between
social performance and reputation. Size matters for
a number of reasons. First, a number of contributions
have emphasised that larger rms may be particu-
larly susceptible to scrutiny from stakeholder groups
since they are highly visible to external groups and
more commercially vulnerable to adverse reactions
among such constituencies (Roberts, 1992;Watts
and Zimmermann, 1978). The level of pressure to
demonstrate social responsiveness falls dispropor-
tionately upon large rms because they are more
availableto relevant publics, in the sense that these
publics tend to be better informed regarding their
activities (Tversky and Kahneman, 1974). Second,
larger rms have larger and more diverse stake-
holder constituencies than smaller rms because they
are, on average, more diversied across geographical
and product markets. It is more likely, therefore, that
they are subject to demands for social responsiveness
from (at least some part of) their stakeholder constit-
uency. Third, corporate size has itself become a con-
troversial issue. As some business organizations
have grown to a scale that rivals and surpasses the
economic activities of many countries, debate has
intensied surrounding the accountability of such
large organizations to individuals, local communities
and the wider society.
These arguments suggest that, for a number of rea-
sons, corporate reputation may, in general be more
closely linked to social responsiveness for large orga-
nizations than for small organizations. By demon-
strating their social responsiveness, large rms can
satisfy the expectations of their stakeholder constitu-
encies, demonstrate their accountability to society,
and encourage advantageous outcomes from the
high level of public and political scrutiny to which
they are subject. It is worth noting these arguments
suggest that the inuence of rm size on the link be-
tween social performance and reputation should ap-
ply equally across all dimensions to social
performance.
Method
Our sample consists of 227 UK PLCs chosen largely
according to the availability of reputation data (see
below
1
). Therefore, this sample, while drawn from
a wide range of industrial sectors, is not randomly
selected. Instead, there is a focus upon the largest
rms within each industrial sector, including 90%
of FTSE 100 companies. Nevertheless, there is consid-
erable variation in reputational scores both within
and between industrial sectors.
Corporate Reputation
To measure corporate reputation we utilise the
Britains most admired companiessurvey from
Management Today, 2002, which employs a similar
methodology to that used to construct the Fortune
Index, a commonly-used measure of the reputations
of US rms (e.g. Fombrun and Shanley, 1990;
McGuire et al., 1988;Fryxell and Wang, 1994). The
chairmen, managing directors and selected main
board directors of the 10 largest companies in 24
industrial sectors were surveyed, as were analysts at
a selection of leading investment companies. Partici-
pants were asked to rate each company in their sector
(excluding their own company) on a scale of zero
(poor) to 10 (excellent) for their performance in nine
criteria: quality of management; nancial soundness;
ability to attract, develop and retain top talent; quality
of products/services; value as a long term invest-
ment; capacity to innovate; quality of marketing;
community and environmental responsibility;
2
use
of corporate assets. The assessments received for each
rm were averaged across criteria and respondents to
produce a single reputational score.
Social Performance
Social performance data were obtained from the Eth-
ical Investment Research Service (EIRIS), who spe-
cialise in the measurement of corporate social
performance against a consistent and objective set
of criteria, principally for the consumption of inves-
tors. EIRIS survey rms concerning their social per-
formance, but also undertake their own research.
As a result, they are able to provide social perfor-
mance scores for a rm irrespective of whether it par-
ticipates in an EIRIS survey. They offer the largest
BUILDING A GOOD REPUTATION
European Management Journal Vol. 22, No. 6, pp. 704713, December 2004 707
and most complete multidimensional social perfor-
mance coverage of UK rms, covering issues relating
to employment, the environment, community, hu-
man rights and supply chain management. Due to
the limited availability of data regarding the last
two of these, we will restrict our attention to the rst
three dimensions of social performance.
Our indicator of employee responsibility is based
upon ve separate components relating to health
and safety systems, training and development, equal
opportunities practices, employee relations and job
creation and security. Similarly, our indicator of envi-
ronmental responsiveness is based upon four separate
components relating to the quality of environmental
policies, systems, reporting and performance. Our
indicator of community responsiveness is entered as
a single measure by EIRIS. Following the general ap-
proach used by Graves and Waddock (1994) for
KLD data,
3
we translated the EIRIS text-grade rating
for each measure into a number-grade rating. Each
environmental measure has ve text categories; the
employment measures have three text categories,
while community has four. We coded each of the envi-
ronment text scales into ve point scales, each of the
employee responsibility text scales into three point
scales and created a four-point scale for community
responsiveness. In each case, the codes began with a
value of 1 and larger numbers indicated more social
responsiveness. To summarise, our measures of the
three dimensions of social performance are:
vCommunity performance graded 1 to 4.
vEnvironmental performance: policies; systems;
reporting; and performance. Each category
graded 1 to 5. Environmental impact score out
of 20.
vEmployee performance: health and safety; train-
ing and development; equal opportunities;
employee relations; job creation; and job security.
Each category graded 13. Employment responsi-
bility score out of 18.
To arrive at a single aggregate measure (termed so-
cial performance) we summed the three scores hav-
ing normalised each to a 14 grading. This
generates an overall score out of 12.
Other Corporate Attributes
A measure of each rms size (the natural logarithm
of the value of total assets), and principle business
activity (approximately equivalent to the three-digit
NACE industry) were extracted from accounting
data courtesy of DataStream. Using the DataStream
industry classication, we allocated each rm to
one of twelve sectors: Retail, Finance, Utilities,
Chemicals,
4
Resources, Consumer products, High
technology, Construction, Business services, Trans-
portation, Engineering, Media.
Results
This section will be divided into two parts. The rst
focuses upon the patterns of reputation and social
performance across rms, as reected in the averages
across the sample as a whole, and by the manner in
which these averages vary with rm size and across
sectors. The aim is to familiarise the reader with the
scope and character of the data and provide some
useful (and scarcely reported) stylised facts in re-
spect of both corporate reputation and social perfor-
mance. The second section explores the key focus of
the paper, the link between reputation and social
performance, as reected by the correlation between
the two, and the manner of its variation with rm
size and across sectors.
Patterns in Reputation and Social Performance
Over the sample as a whole, some 227 rms, the
average reputational score is 52.8; the average social
performance score is 4.00; the average scores relating
to community, environmental and employee perfor-
mances are 1.44, 4.68 and 5.98, respectively. These
gures provide useful benchmarks against which to
assess the reputation and social performance of indi-
vidual rms (which we will not do here) or groups of
rms, suitably dened. We will begin by dening
such groups according to rm size (as measured by
total assets).
As we have rm size data for only 215 of the 227
rms, we must use this slightly smaller set of rms
for this part of the analysis. We ranked the rms in
terms of their size and divided them into ve
groups, each containing 43 rms. The size range in
group 1 is £8 m to £525 m, in group 2 is £570 m to
£1,284 m, in group 3 is £1,290 m to £2,901 m, in
group 4 is £2,968 m to £7,425 m and in group 5 is
£7,505 m to £358,534 m. Thus, there is considerable
variation in total assets across the sample and also
notable differences between groups in terms of aver-
age rm size. Table 1 presents the patterns in aver-
age reputation and social performance across the
ve size groups.
Table 1 shows that, among our sample, larger rms
tend to hold better reputations. However, the (ab-
sence of) shading in the bottom half of the table illus-
trates the reputational differences between the size
groups are largely statistically insignicant. It is only
when comparing the average reputations in groups 1
and 5 (the smallest and the largest) that one nds lar-
ger rms have signicantly better reputations than
smaller rms. Therefore, these ndings are indicative
of a general tendency for larger rms to be more
highly regarded, but one that is only starkly signi-
cant when the differences in size are approaching
the broadest found among UK PLCs.
BUILDING A GOOD REPUTATION
708 European Management Journal Vol. 22, No. 6, pp. 704713, December 2004
Regarding all aspects of social performance, again
larger rms tend to achieve higher scores. However,
these differences between size groups are far more
commonly statistically signicant. For overall social
performance, all pair-wise differences between
groups (1 & 2, 1 & 3, 1 & 4, 1 & 5, 2 & 3, 2 & 4, 2
& 5, 3 & 4, 3 & 5, 4 & 5) are signicant, and the same
is true of community performance. For environmen-
tal and employee performance, almost all differences
are similarly signicant. In each case, it is the differ-
ences between adjacent size groups (2 & 3 for the for-
mer, 1 & 2 and 3 & 4 for the latter) that are not
sufciently marked. Therefore, these ndings are
indicative of a general tendency for larger rms to
be more socially responsive, and one that is starkly
signicant across the full breadth of the size range
found among UK PLCs.
Moving away from rm size, we can return to the
full sample of 227 rms to group rms instead
according to their principle business activities. We
allocate each rm to one of twelve industrial sectors
(as described previously) to investigate the variation
in reputation and social performance across diverse
business environments. Table 2 presents the patterns
in average reputation and social performance across
the twelve sectors; Table 3 summarises, for both rep-
utation and social performance, the differences be-
tween the average score for a particular sector and
that recorded across all other rms - the sign indi-
cates whether that sector is associated with a rela-
tively high (+) or low () score, and shading
indicates whether any such differences are statisti-
cally signicant.
There is considerable and signicant variation across
sectors regarding both reputation and social perfor-
mance, and particularly the latter. However, before
inspecting individual sectors, it is worth noting a
general tendency for a sector to exhibit above aver-
Table 1 Average Reputation and Social Performance across Firms, by Firm Size
NB. Shading indicates significance at the 95% level of confidence
Table 2 Average Reputation and Social Performance across Firms, by Sector
Sector nAverage Reputation Average Social Performance
Overall Community Environment Employee
Retail 27 55.6 3.60 1.44 3.81 5.33
Finance 26 49.4 5.35 2.00 5.85 8.38
Utilities 15 47.3 6.00 2.07 7.87 7.87
Chemicals 18 52.9 4.58 1.56 5.61 6.94
Resources 9 57.6 6.69 2.22 9.11 8.56
Consumer products 21 52.1 4.30 1.52 5.19 6.29
High technology 25 49.4 2.59 1.04 2.44 4.44
Construction 31 55.3 3.39 1.06 4.71 4.52
Business services 24 55.0 2.27 0.83 2.08 4.46
Transportation 13 54.4 4.42 1.54 5.54 6.23
Engineering 8 58.8 2.96 1.00 4.00 3.75
Publishing 10 51.2 4.38 1.90 3.70 7.50
All firms 227 52.8 4.00 1.44 4.68 5.98
BUILDING A GOOD REPUTATION
European Management Journal Vol. 22, No. 6, pp. 704–713, December 2004 709
age reputations and below average social perfor-
mance or below average reputations and above aver-
age social performance. This is true of seven sectors:
Retail, Business services and Engineering adhering to
the former pattern; Finance, Utilities, Chemicals and
Consumer products adhering to the latter. This sug-
gests that the pressure for social responsiveness is
associated with a poor reputation. Perhaps CSR
activism provides a means to rebuild a bad name.
Conversely, in sectors where good reputations are
commonly found there may be less impetus to be so-
cially responsive as rms are less burdened by stake-
holder concerns regarding the strategic positioning
of the organisation.
There are ve departures from this pattern. In Re-
sources, rms exhibit relatively strong social perfor-
mance despite enjoying relatively good reputations.
This may reect the particular salience of a wide
variety of community-, environment- and employ-
ee-related issues in that sector. For example, the
end-use of extraction sites has often become a notable
local community and environmental issue and the
working conditions of miners throughout the world
are subject to continuing debate. A similar pattern
is found in the Transportation sector, where the
external pressure may primarily be exerted by the
extensive regulatory infrastructure that is brought
to bear on much of that industry. Conversely, the rel-
atively poor social performance of High Technology
rms may reect the absence of salient social issues
in that sector.
The other two exceptions derive from unusual pat-
terns of behaviour across the three dimensions of so-
cial performance. In particular, in all but two sectors
there is, in all three dimensions, either relatively high
or relatively low performance. However, in Con-
struction, relatively poor community and employee
performance is matched with relatively good envi-
ronmental performance; in the Media sector, rela-
tively good community and employee performance
is matched with relatively poor environmental per-
formance. It is worth noting that these behaviours
seem to reect the relative importance and unimpor-
tance of environmental issues in the Construction
and Media sectors, respectively.
Table 3 Mean Differences in Reputation and Social Performance, by Sector
NB. Shaded cells indicate that the difference in means is signicant at the 95% level of condence
Table 4 Correlations between Reputation and Social Performance, by Size Group
Size Group Correlations between Reputation and Social Performance
Overall Community Environment Employee
1 0.062 0.100 0.048 0.014
2 0.134 0.253 0.042 0.083
3 0.131 0.123 0.124 0.072
40.023 0.124 0.085 0.107
5 0.444
***
0.408
***
0.369
**
0.290
*
All rms 0.257
***
0.286
***
0.210
***
0.157
**
*
The coefcient is signicantly different from zero at a 90% level of condence
**
The coefcient is signicantly different from zero at a 95% level of condence.
***
The coefcient is signicantly different from zero at a 99% level of condence
BUILDING A GOOD REPUTATION
710 European Management Journal Vol. 22, No. 6, pp. 704713, December 2004
The Link between Reputation and Social
Performance
We have shown a tendency for larger rms to have
both better reputations and better social performance.
However, we have also shown a tendency at the sec-
tor-level for better average reputations to be matched
with poorer average social performance. While one
can interpret the latter as evidence that social perfor-
mance can be used to augment reputation, it is fair to
say that the link between the two is somewhat unclear
from the preceding analyses. Our next aim is, to at
least some extent, clarify the nature of this link as it
exists among our sample of rms. To do so, we will
inspect the rm-level correlations between reputation
and our measures of social performance. Firstly, we
group rms according to their size.
Table 4 presents the correlation coefcients between
reputation and each of overall social performance,
community performance, environmental perfor-
mance and employee performance, for each of the
ve size groups. The coefcients that are signicantly
different from zero (at a 90% level of condence or
greater) are indicated with asterisks. Across the sam-
ple as a whole, there are signicant positive coef-
cients relating to all four measures of social
performance. This indicates a positive rm-level link
between reputation and social performancethat
better social performance is associated with a better
reputation. However, only four of the coefcients
that relate to the ve size groups are statistically sig-
nicant, all of which are positiveagain indicating a
positive link between reputation and social perfor-
manceand all of which relate to group 5indicat-
ing that the link is most pronounced among the
largest rms. It is worth noting that these ndings
are consistent with a reputation-building property
of social performance that is, across all types of
CSR activities, strongest among the largest rms.
As such, they are consistent with the predictions of
the conceptual framework outlined previously.
Table 5 presents the results of the same type of rm-
level correlations, but with rms grouped according
to their principle business activity, rather than size.
Again, all coefcients that are statistically different
from zero are also positive. However, there is consid-
erable variation across sectors. For example, in only
four sectors (Finance, Chemicals, Resources and Con-
sumer products) is there a signicant link between
reputation and overall social performance. Further-
more, there is marked variation across the three
dimensions of social performance both across and
within sectors. For example, in Retail the insignicant
coefcients on environmental and employee perfor-
mance, and indeed on overall social performance,
are matched with a signicant positive coefcient
on community performance. This perhaps reects
that sectors proximity to nal consumers, and the lo-
cal communities in which they live. In contrast, a po-
sitive and signicant link between reputation and
social performance is found for all three dimensions
in the Consumer products sector. This suggests that
the manufacturing activities of such rms ensure they
face a broader set of salient social issues.
Looking down the columns of Table 5, it is worth
noting, for each dimension of social performance,
in which sectors there is a signicant positive link
to reputation. For community performance, such a
link is found in Retail, Finance, Utilities, Chemicals,
Consumer products and Business services. For envi-
ronmental performance, such a link is found for
Chemicals, Resources and Consumer products. For
employee performance, such a link is found for Fi-
nance and Consumer products. These patterns are
Table 5 Correlations between Reputation and Social Performance, by Sector
Sector nCorrelations between Reputation and Social Performance
Overall Community Environment Employee
Retail 27 0.296 0.349
*
0.227 0.241
Finance 26 0.573
***
0.663
***
0.293 0.576
***
Utilities 15 0.424 0.452
*
0.302 0.354
Chemicals 18 0.586
**
0.599
***
0.461
*
0.345
Resources 9 0.759
**
0.389 0.970
***
0.430
Consumer products 21 0.651
***
0.567
***
0.639
***
0.395
*
High technology 25 0.285 0.329 0.228 0.203
Construction 31 0.282 0.229 0.243 0.167
Business services 24 0.230 0.367
*
0.153 0.043
Transportation 13 0.407 0.399 0.300 0.439
Engineering 8 0.371 0.045 0.479 0.489
Media 10 0.201 0.028 0.261 0.169
All rms 227 0.257
***
0.286
***
0.210
***
0.157
**
*
The coefcient is signicantly different from zero at a 90% level of condence
**
The coefcient is signicantly different from zero at a 95% level of condence
***
The coefcient is signicantly different from zero at a 99% level of condence
BUILDING A GOOD REPUTATION
European Management Journal Vol. 22, No. 6, pp. 704713, December 2004 711
broadly consistent with expectable cross-sector vari-
ation in stakeholder environments. The sectors
highlighted for community performance are (apart
from Business services) close to nal consumers (as
Chemicals includes Pharmaceuticals and Finance in-
cludes a large number of High Street banks and
insurers). Those highlighted for environmental per-
formance are closely associated with environmental
concerns. That those highlighted for employee per-
formance have large workforces, but encounter few
salient health and safety issues, is somewhat surpris-
ing and perhaps reects a general pressure to dem-
onstrate social responsiveness in those sectors.
Conclusion
In this paper, we develop a conceptual framework
that emphasises the need, if a reputational payoff is
to be achieved, for t between CSR activities and
other key characteristics of the rm. Furthermore,
using data on a sample of 227 UK PLCs, we provide
evidence in support of a role for t in the link between
reputation and social performance. In particular, our
ndings suggest that, for the purposes of reputation
building, there is a need to tailor CSR activities in
light of both a rms size and the nature of its princi-
ple business activity. Thus, we highlight the strategic
importance to a rm of correctly identifying the
appropriate scope and extent of its CSR activism.
Regarding the importance of t, organisational attri-
butes other than size and industry may also be rele-
vant. There is ample scope for future work to
investigate the importance, for the purposes of repu-
tation building, of t between social performance
and rm characteristics such as broad corporate
strategy, media exposure and protability. It could
be, for example, that the positive reputational im-
pacts from good social performance are contingent
upon nancial performance that is acceptable in the
eyes of nancial stakeholders, or upon the rm pur-
suing a wider strategy to develop, among its custom-
ers, an association with quality-provision rather than
cost-minimisation.
As we argued at the outset, examination of the link
between the social responsiveness of organizations
and their general performance has produced mixed
results. Our analysis suggests that this link is more
complex than has been appreciated in much of the
existing literature, and specically that the payoffs
to being socially responsive are contingent upon
organizational characteristics. Further research that
deploys this central logic in an investigation of the
relationship between social and nancial perfor-
mance would, we suggest, prove fruitful. In addition,
future research of this kind may rene and extend
the distinctive normative prescriptions for corporate
strategy in the area of social responsiveness devel-
oped here.
Notes
1. We have reputation data for 240 rms. However, restricted
availability of other data (principally regarding social perfor-
mance) necessitated the loss of 13 of these rms from the
sample.
2. Given our focus upon the links between social performance and
reputation, it would be preferable to remove a score for
perceived social (community and environmental) responsive-
ness from these reputational scores. Unfortunately, we cannot
do this. However, we believe that this component, which
contributes only one ninth of the score, is dominated by other
aspects of reputation. Furthermore, existing evidence suggests
that similarly constructed aggregated measures of reputation
speak most directly to a rms reputation as an investment (e.g.
Fryxell and Wang, 1994).
3. Kinder, Lindenberg, Domini and Company (KLD) is a social
choice investment advisory rm that objectively rates (mainly
US) rms on nine dimensions of social performance.
4. The chemicals sector includes pharmaceuticals. We tested the
sensitivity of our ndings to this aggregation and found the
omission of pharmaceutical companies from the chemicals
sector brought no material change in the results.
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STEPHEN BRAMMER,
Department of Manage-
ment, University of Bath,
Claverton Down, Bath
BA2 7AY, UK. E-mail:
mnssjab@management.bath.
ac.uk
Stephen Brammer is Lec-
turer in Business Eco-
nomics at the University
of Bath, UK. His current
research addresses empiri-
cal issues in the business and society field from the
perspective of strategic management. Recent publica-
tions include articles in the Journal of Business
Ethics and Business Ethics: A European Review.
STEPHEN PAVELIN,
The Business School,
University of Reading,
Reading RG6 6AH, UK.
E-mail: s.pavelin@reading.
ac.uk
Stephen Pavelin is Lec-
turer in Economics at the
University of Reading,
UK, having previously
held posts at the Univer-
sity of East Anglia, UK
and University College Dublin, Ireland. His current
research interests include foreign direct investment and
corporate social responsibility, and recent publications
include articles in the International Journal of
Industrial Organisation and Business Ethics: A
European Review.
BUILDING A GOOD REPUTATION
European Management Journal Vol. 22, No. 6, pp. 704713, December 2004 713
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While all companies would like a better corporate reputation, many are not sure what it takes to create a good reputation and others are not sure that they should use their good reputation to compete in their various markets. Mimicking the behavior of respected companies does not provide a reliable resolution to these dilemmas. This article presents a framework to help managers create a better corporate reputation for their organization and assist them in deciding whether to use this as a primary basis for competition. The article also exposes some of the main costs for an organization that decides to compete on its corporate reputation.
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We test the relationship between shareholder value, stakeholder management, and social issue participation. Building better relations with primary stakeholders like employees, customers, suppliers, and communities could lead to increased shareholder wealth by helping firms develop intangible, valuable assets which can be sources of competitive advantage. On the other hand, using corporate resources for social issues not related to primary stakeholders may not create value for shareholders. We test these propositions with data from S&P 500 firms and find evidence that stakeholder management leads to improved shareholder value, while social issue participation is negatively associated with shareholder value. Copyright © 2001 John Wiley & Sons, Ltd.
Article
We test the relationship between shareholder value, stakeholder management, and social issue participation. Building better relations with primary stakeholders like employees, customers, suppliers, and communities could lead to increased shareholder wealth by helping firms develop intangible, valuable assets which can be sources of competitive advantage. On the other hand, using corporate resources for social issues not related to primary stakeholders may not create value far shareholders. We test these propositions with data from S&P 500 firms and find evidence that stakeholder management leads to improved shareholder value, while social issue participation is negatively associated with shareholder value. Copyright (C) 2001 John Wiley & Sons, Ltd.
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Many decisions are based on beliefs concerning the likelihood of uncertain events such as the outcome of an election, the guilt of a defendant, or the future value of the dollar. Occasionally, beliefs concerning uncertain events are expressed in numerical form as odds or subjective probabilities. In general, the heuristics are quite useful, but sometimes they lead to severe and systematic errors. The subjective assessment of probability resembles the subjective assessment of physical quantities such as distance or size. These judgments are all based on data of limited validity, which are processed according to heuristic rules. However, the reliance on this rule leads to systematic errors in the estimation of distance. This chapter describes three heuristics that are employed in making judgments under uncertainty. The first is representativeness, which is usually employed when people are asked to judge the probability that an object or event belongs to a class or event. The second is the availability of instances or scenarios, which is often employed when people are asked to assess the frequency of a class or the plausibility of a particular development, and the third is adjustment from an anchor, which is usually employed in numerical prediction when a relevant value is available.
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Stakeholder theory has been a popular heuristic for describing the management environment for years, but it has not attained full theoretical status. Our aim in this article is to contribute to a theory of stakeholder identification and salience based on stakeholders possessing one or more of three relationship attributes: power, legitimacy, and urgency. By combining these attributes, we generate a typology of stakeholders, propositions concerning their salience to managers of the firm, and research and management implications.