Shame on Who? The Effects of Corporate Irresponsibility and Social Performance on Organizational Reputation

Abstract

This study examines the relationship between corporate irresponsibility, corporate social performance and changes in organizational reputation. By combining attribution theory with expectancy violations theory, we provide the first systematic analysis of how organizational reputations are influenced by attributions of corporate irresponsibility in the context of social expectations. Drawing on a comprehensive and unique corporate irresponsibility dataset, this study reveals that firms previously believed to be most socially responsible are penalized by evaluators when corporate culpability is verified by a court of law. Conversely, firms perceived as least socially responsible were more likely to suffer reputation penalties when accused of irresponsibility, without their culpability established through litigation. Overall, the results of our study suggest that organizational reputations are mostly stable in light of irresponsibility, in that evaluators only penalize certain firms, in certain circumstances.Specifically, reputation penalties occur when highly responsible firms are perceived hypocritical and least responsible firms were not found culpable by a court of law. Upon reflection of these findings, our study reveals that the mechanisms of social sanction previously assumed to regulate irresponsibility are weaker than currently understood.Theoretical and policy implications of this study are discussed, along with directions for future research on social evaluations. (Margolis and Walsh, 2003). In doing so, organizations may achieve enhanced corporate social performance (CSP) and be perceived favourably (Barnett and Salomon, 2012;Brammer and Millington, 2004). Yet these same organizations are often observed behaving irresponsibly.Corporate irresponsibility (CI hereafter) may generate substantial unwanted stakeholder attention on firms (Campbell, 2007;Deephouse and Heugens, 2009) because when revealed, CI -organizational behaviors which are perceived to be egregious by observers (Lange and Washburn, 2012) -can damage organizational reputations (Karpoff and Lott 1993;Mishina, Block and Mannor, 2012).Thus far, CI research lacks consensus vis-à-vis the effects of irresponsibility on organizational reputation, with one strand of research arguing that irresponsibility is generally detrimental to stakeholder evaluations of the firm (He,

Defining and deterring corporate social irresponsibility: embracing the institutional complexity of international business

“…Some studies report a significant decline in reputation-based FSA following CSI (Karpoff et al, 2005;Karpoff et al, 2008;Zyglidopoulos, 2001), whereas others illustrate a nuanced process of reputation erosion, dependent on the type of firm associated with CSI (Karpoff et al, 2005). Recently, Nardella et al (2020) found that, overall, CSI does not have a significantly negative impact on firm reputation, and that the social regulation process was only enacted for firms which had been known to be highly socially responsible, and thus violated stakeholder expectations. Conversely, they also found that stakeholders' limited expectations of firms can limit their desire to sanction CSI.…”

“…In parallel, a social regulation perspective has also emerged; whereby MNEs are understood to be deterred from behaving irresponsibly because, in addition to the risks associated with government enforced business regulation, MNEs experience significant 'informal' pressures from a range of stakeholders (Aguilera et al, 2015;Nardella et al, 2020). From a social regulation perspective, CSI is penalized and deterred as a consequence of the disapproval and sanctions evoked by non-governmental stakeholders, that may ultimately lead to diffuse alterations in stakeholders' market and non-market behavior (Barnett et al, 2020;Kölbel et al, 2017;Oh, 2019).…”

“…However, both the IB policy and social regulation perspectives regarding MNE irresponsibility often assume that CSI is fundamentally 'bad' for businesses, and in doing so, have yet to fully appreciate that the relationship between the institutional context and MNE irresponsibility may be less straightforward (Nardella et al, 2020). MNEs tend to manage numerous international operations, with complex global supply chains, in various 'formal' and 'informal' institutional environments (Fiaschi et al, 2020).…”

Tax governance: the balance between tax regulatory requirements and societal expectations

“…Several important contributions have been made on the effects of non-compliance and fraudulent behaviors on corporate reputation (e.g. Fiordelisi et al, 2014;Gottschalk and Solli-Sather, 2011;Nardella et al, 2019). However, studies have generally been sparse on the nature and consequences of situations where companies behave according to higher expectations than the law prescribes (Gunningham et al, 2004 is an exception).…”

The Role of pro‐Social Orientation and National Context in Corporate Environmental Disclosure

“…This would reflect an underlying positioning against environmental issues and practices which is relatively enduring, being an expression of corporate morality. Symbolic actions and opportunistic signalling through unsubstantiated disclosures is difficult to sustain (Jones, 1995; Nardella et al ., 2020). Such evidence would also advance our knowledge of the relationships among the social and environmental sustainability pillars on which explicit evidence is lacking.…”