November 15, 2002
Good corporate reputation isn't born it's nurtured and managed
WEST LAFAYETTE, Ind. Corporations must manage their reputations if they hope to be rewarded by stakeholders in good times and not be faulted by them in bad times, according to the winner of a national contest for MBA papers.
Andrea Sjovall, a 2002 MBA graduate from Purdue University's Krannert School of Management, won the Best MBA Paper in Corporate Citizenship, awarded by the Center for Corporate Citizenship at Boston College. She took home a $5,000 prize for her paper, "From Actions to Impressions: Cognitive Attribution Theory and the Formation of Corporate Reputation."
Sjovall's paper draws upon cognitive psychology theory to understand how people form opinions about companies.
"Psychology research suggests that people's behavior good or bad can be attributed either to their personality or to external factors that forced people to behave in the way they did," Sjovall says. "I apply this theory to show how stakeholders may attribute corporate behavior either to a company's personality, culture and way of doing business, or to the influence of external factors, such as the economy."
Sjovall has ideas why good corporate citizens can end up with bad reputations.
"My paper talks about how corporations can end up with bad reputations when they have strong public service programs. For example, if a company incurs a scandal and soon after initiates some good works, the public will attribute them to the external constraint the bad press and not to corporate disposition.
"On the flip side, corporations can conduct public service initiatives but nevertheless have disreputable business practices. In this case, the stakeholders attribute the disreputable practices to corporate disposition and the good deeds to external influences, making them less valuable in terms of corporate reputation."
In the paper, Sjovall cautions that companies can't create a favorable reputation among shareholders, customers and the general public by waving a wand or passing a giant check to some worthy cause or organization. Rather, being considered a good corporate citizen is the result of a consistent and recognizable long-term management effort.
"Corporate citizenship is not only the job of the public relations director in publicizing grants to worthy causes and other good deeds, but also the job of the CEO and board of directors in directing the core business operations. I think the public recognizes that."
Sjovall provides four suggestions for those responsible for corporate reputation management:
1. Civic initiatives should be highly visible and noticed by a broad range of stakeholders. "Anonymous actions do nothing to enhance the reputation of a company, so media coverage or direct interaction with a broad range of stakeholders in the course of a community program is important," she writes. "In addition, the action must be unambiguously beneficial to a maximum number of stakeholders so that it will be interpreted and judged as being appropriate and worthwhile."
Sjovall cautions, however, that companies are in something of a bind when increasing the visibility of their good will. Trumpeting their civic virtue through advertising can be offensive and lead the public to attribute the civic virtue to more of an attempt at profiteering.
"There have been several recent advertising campaigns based on companies' social responsibility efforts," Sjovall says. "That some of these campaigns went over only marginally well suggests the advertising may have left some in the public with the feeling that the corporation was more interested in its own image and profitability than in the recipients of the corporate largesse."
2. First impressions are important. Stakeholders tend to retain initial observations positive or negative of a company. In the big picture, Sjovall writes, "Consistent good citizenship across decades leads to development of impressions among potential customers or other stakeholders relatively early in life, and these impressions are highly resilient across their life spans."
Sjovall cites Johnson & Johnson as an example of a company that holds a long-term good reputation. This is based on its products being viewed as high quality and its socially responsible behavior, highlighted by its effective dealing with the Tylenol crisis in the 1980s (with its clear and uncontrollable external cause).
3. Benevolent works should be conducted in a way to encourage attribution to corporate personality. Sjovall cautions companies not to wait until a negative situation arises to do good works as "public service initiatives begun soon after reputation-damaging publicity, such as a scandal, will be seen as attempts to divert attention from the negative event.
"Contrast that with corporations that consistently and visibly practice good citizenship, in the absence of any apparent external cause, being more likely to have their good works attributed to corporate disposition," adds Sjovall.
The eBay Foundation is an example of a company that handled the timing of the announcement of its foundation in a fashion that added more to its corporate reputation.
"The foundation was established in a stock transfer from eBay Inc. that occurred before the initial public offering of the company," Sjovall writes. "So stakeholders attributed the foundation positively to the disposition of eBay because it was established near the inception of the company and in the absence of any salient external cause."
4. Negative news should be presented in a way to encourage attribution to external causes. Sjovall writes that the 9/11 terrorist attacks "and subsequent reduced ridership almost certainly contributed to the scope and speed of the layoffs in the airline industry, but some layoffs were already planned. ... The terrorist attacks released any given airline company from the reputational liability that would normally follow a large layoff."
The Center for Corporate Citizenship at Boston College annually sponsors the "Best MBA Paper in Corporate Citizenship." The award is part of an initiative to support and encourage research in the area of corporate social responsibility among MBA students and faculty in North America. Sponsors of the 2002 competition were Clorox Co., Coca Cola Co., Merck & Co. Inc. and Prudential.
Sjovall's adviser for her paper was Arnold C. Cooper, Louis A. Weil Jr. Professor of Management at the Purdue Krannert School. Sjovall is currently working in Illinois.
Writer: Mike Lillich, (765) 494-2077, firstname.lastname@example.org
Sources: Andrea Sjovall, (217) 898-0930, email@example.com
Arnold C. Cooper, (765) 494-4401, firstname.lastname@example.org
Purdue News Service: (765) 494-2096; email@example.com
Related Web site:
The impressions of a corporation held by stakeholders is an important determinant of financial success, and managers justifiably go to lengths to enhance and protect the reputation of their corporation, often through efforts towards corporate citizenship and social responsibility. What are the mechanisms by which the actions of a corporation affect its reputation among individual stakeholders? Answers may be obtainable from the work of academic psychologists, who have long studied mechanisms by which people form impressions about others based on observed behavior. The principal finding has been that behavior can be attributed either to factors internal to the observed person, such as disposition and personality, or to aspects of the external situation that constrain possible actions. Moreover, identified cognitive processes can influence the nature of this attribution. Here, we describe some of these processes, and discuss their applicability to the formation of impressions of corporations based on corporate behavior. Managers can more effectively use public service initiatives to enhance the reputations of their corporations if the initiatives are conducted in a manner that invites observers to attribute them to the disposition of the corporation rather than to situational constraints.