reputation and character

What is in a reputation anyway? Organizational scholars have had a lot to say about this recently as reputation, along with status, has become one of the driving concepts of inquiry in organizational theory in the last decade or so. Scholars have different views on this. Some say reputations are merely signals of quality, others believe that reputations indicate symbolic conformity to norms and cultural rules, and others think that reputations convey an audience’s approval of an organization’s desirable character traits. Geoffrey Love and Matt Kraatz put these ideas about the basis of reputation to test in an article in the most recent issue of the Academy of Management Journal.  They examine the effects of corporate downsizing on reputational changes (as measured by position in Fortune‘s Most Admired Companies index).  If reputation is merely a signal of quality or technical efficiency, then once you take into account the performance effects of downsizing, downsizing shouldn’t have a direct effect on reputational change. If reputation displays symbolic conformity, then downsizing should lead to positive reputational changes (especially given that the audiences who evaluate firms in the Fortune index are peer executives and industry analysts who should value a firm’s willingness to become more efficient). If reputation is about organizational character, then downsizing should lead to reputational decline, given that it demonstrates that a firm is willing to renege on commitments to key stakeholders. Reneging on its prior commitments is a violation of the firm’s established character.  The results provide support for the latter hypothesis but they also suggest that over time (from the mid-80s to mid-90s) the negative effect of downsizing on reputational change dissipated. That is, as downsizing became more common, audiences began to perceive it less as a character flaw.

Although analysts and executives clearly took character into account in adjusting the reputations of downsizing firms, it was not the only signal they considered, and they did not weight it equally in all times and all cases. As Figure 1 shows, downsizing had a strongly negative effect at the outset of the study period: this effect almost completely dissipated by 1994. This large decrease in effect suggests that changing cultural norms may play a key role in determining what counts as an opportunistic act. Though downsizing never acquired the positive reputational valence posited under the symbolic conformity explanation, it did appear to shed its negative connotations as it became more and more ubiquitous (330).

I’m a big fan of the idea that organizations develop distinct characters or identities and that their identities “become infused with value.”  This study is a nice contribution in that it shows exactly how reneging on one’s serious commitments leads to devaluation, even under conditions when the market should otherwise reward a firm for doing something that makes it more technically efficient, but it also shows how those characters are situated in a larger cultural environment. Audiences are less willing to punish organizations for failing to live up to their character commitments when cultural norms become permissive of these types of violations.

Written by brayden king

April 16, 2009 at 2:33 pm

4 Responses

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  1. Are you talking about “reputational capital?” (Isn’t that the phrase that is verboten as it has been trademarked.)



    April 16, 2009 at 4:44 pm

  2. “Audiences are less willing to punish organizations for failing to live up to their character commitments when cultural norms become permissive of these types of violations”

    See the NYT article “Triple A Failure” of how the ratings agencies (reputation graders) contributed to the downfall of the economy


    Byron Woodson

    April 16, 2009 at 4:47 pm

  3. I haven’t read the referenced article, but based on the precis I would argue that if the position on the Fortune list is the sole basis for judging changes in reputation, then downsizing efforts are indeed positive based on the very small and select audience that chooses the positions of the companies on the list (including the organizations’ own executives who believe in their own decisions). In my judgment that is not the best indicator of a company’s reputation among the many other stakeholders of the listed companies, and to truly understand the reputational implications of downsizing you must expand the list of stakeholders.


    Linda Locke

    April 17, 2009 at 12:53 pm

  4. Linda – You misunderstood the result. Downsizing had a negative effect on reputation, although it became less negative over time as downsizing became more prevalent. I agree with you that the Fortune list is only one measure of reputation, but it happens to be the ranking that favors the perceptions of those who you would expect to value technical efficiency, which is what makes this finding surprising.



    April 17, 2009 at 1:16 pm

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