Reputations in flux: How a firm defends its multiple reputations in response to different violations

Abstract

Research Summary We examine how a firm defends its capability and character reputations in response to different violations. We develop our core theoretical mechanism—stakeholders' situational expectations—to theorize that the effectiveness of a firm's response strategy following a violation depends on the nature of the violation and the reputational judgment being made. We test our hypotheses using two longitudinal violation samples and novel media‐based measures of reputation. Generally, we find that a more accommodative strategy is an effective defense following a capability violation, but it is less effective following a character violation. In supplemental analyses, we also discover that a more accommodative strategy is less effective at managing general reputation. Ultimately, our theory and findings suggest that reputation defense is more complex than previously considered. Managerial Summary We shed light on the challenges managers face in defending their multiple reputations following a violation. We suggest that the type of violation affects stakeholders' expectations of the firm, and that these expectations differentially threaten a firm's multiple reputations as well as the efficacy of its response strategy. Using a sample of capability‐based (unintentional financial restatements) and character‐based (environmental malfeasance) violations, we find that a more accommodative response strategy can defend certain reputations following a capability‐based violation but can be detrimental to other reputations. We also find accommodativeness to be generally harmful following a character‐based violation. Ultimately, our results suggest that managers should consider both the type of reputation they are defending and the nature of the violation when implementing a response strategy.

On the moral side of enterprise

“…When the mismanagement of multiple value-based identities leads to organizational actions that diverge from previously observable patterns of commitments and promises, organizations are likely to be perceived as have compromised their integrity (Connelly et al, 2016;Bundy et al, 2021;Paruchuri et al, 2021). For instance, while scholars have suggested compartmentalization as a legitimate tactic to manage multiple value-based identities, in which two or more important but antithetical identities are maintained separately and operate relatively independent from each other, this strategy might become a focal point for scrutiny if audiences find that there is an illegitimate decoupling of organizational practices (Bromley & Powell, 2012;MacLean & Behnam, 2010;Weaver et al, 1999).…”

“…In contrast, recent integrity failures, such as Wells Fargo's cross-selling of fake accounts, the Volkswagen emission scandal, and the BP Deepwater Horizon oil spill, exemplified a glaring disregard of accepted ethical, regulatory and normative principles. Such violations of self-imposed commitments have been shown to damage reputations, harm employee morale, increase regulatory costs, and evoke investor divestment (Bundy et al, 2021;Paruchuri et al, 2021;.…”

“…Importantly, constituents evaluate organizational actions as an indicator of the character of the organization. Consequently, when behaviors are profoundly inconsistent with an organization's history of past commitments and actions, audiences are likely to perceive the organization as lacking integrity and trustworthiness in its interaction with stakeholders, and they may come to question its character (Bundy et al, 2021;Park & Rogan, 2019). Flagrant integrity failures that signal a dissonance between espoused, embedded and enacted organizational values have the potential to "blemish" the character of an organization (Connolly et al, 2016;Paruchuri et al, 2021: 565).…”

“…In contrast, organizations that neglect their embraced ethical, regulatory and normative principles are likely to appear opportunistic and unreliable. Since integrity failures signal to constituents that the organization is neither trustworthy nor reliable in its interaction with stakeholders, its character is highly likely to become tarnished (Bundy et al, 2021;Connolly et al, 2016;Paruchuri et al, 2021).…”

“…Organizations are often described as behaving either courageously or ruthlessly, as being motivated by either the pursuit of profit or social responsibility, as displaying high-minded ethical principles or few at all. This reflects our tendency to attribute human qualities, traits and behaviors to organizations (Ashforth et al, 2020;Shepherd & Sutcliffe, 2015), as we do when we praise organizations for addressing social challenges or, alternatively, when we condemn the moral character and integrity of important institutions following misbehavior (Bundy et al, 2021;Connelly et al, 2016;Paruchuri et al, 2021). There is, for instance, an abundance of examples of financial firms acting irresponsibly and even violating their own standards of organizational integrity.…”