Digital Innovation & Entrepreneurship
ENTREPRENEURSHIP AND ENTERPRISE
When to go
alter reputations and a firm's standing remains relatively stable. Stakeholders tend to view scandals through the lens of their existing perceptions and often dismiss events that contradict their views. This may be concerning to some, as it suggests companies will attract few social sanctions for any transgressions, thereby undermining what is often thought to be an important means by which organisations are discouraged from behaving irresponsibly. On the other hand, it also highlights how resilient a company’s standing can be, and therefore, the value of investing in gaining a positive reputation in the first place. People will often look the other way if a ‘socially responsible’ company does something questionable. Endless accusations of tax avoidance have not harmed the reputation of Google (now Alphabet) – a staple fixture in Fortune’s most admired top 10. However, if a business that people already dislike is embroiled in scandal, they see it, to a large extent, as merely confirming what they already thought. It is worth noting that our research looked at the perceptions of financial analysts, corporate executives, and others surveyed by Fortune . Further research is needed to find out if these results are equally true for other groups, such as employees or customers. But it seems Buffett ’s favourite maxim may need updating – a reputation is not always ruined by a corporate scandal, though it may be the best defence against one.
with your gut
feeling
When is it safe for entrepreneurs to trust their instincts? by Deniz Ucbasaran
particularly if they already have a favourable view of that business. If a firm’s culpability is confirmed by a court, then top CSR-performing firms do suffer a drop in reputation as they are seen to be hypocritical, but without that court-determined culpability stakeholders tend to perceive firms with a good reputation as innocent until proven guilty. In essence, there is a ‘ halo effect ’ on these businesses, whereby past investments in social responsibility offer some protection to their reputation. In contrast, firms that are seen as the least socially responsible suffer further damage to their reputation when accused of irresponsibility, whether or not their culpability has been proved by a court of law. Firms with a poor reputation for CSR incurred the most substantial damage to their reputations when an
irresponsible event was associated with harming vulnerable people, without evidence of significant harm to them or corporate culpability identified by the courts. An example of this could be the tobacco industry. The likes of British American Tobacco and Imperial Brands are constantly accused of irresponsible behaviour and experience customer boycotts and stakeholder distrust, despite not always being found culpable, by law, of allegations associated with harming vulnerable parties – such as accusations of using child labour and the mistreatment of employees in developing countries. Broadly speaking, these results – the first systematic, large-scale empirical examination of the effects of corporate social irresponsibility on reputation – suggest that corporate irresponsible events often do not significantly
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