The Reputational Landscape

Charles Fombrun, NYU-Stern School of BusinessCees Van Riel, Erasmus University, The Netherlands

Welcome to the inaugural double issue ofthe Corporate Reputation Review. At a timewhen disciplines are fragmenting intoever-more specialized domains, we arepleased to announce the creation of anintegrative medium for research and prac-tice about reputation management. Indeed,the primary purpose of the Review is toprovide a forum for research-based discus-sions about corporate reputations. Weexpect these conversations to re¯ect thediversity of academic disciplines that areactively contributing to knowledge in thisarea, whether grounded in strategic man-agement, organization theory, economics,marketing, communications, accounting,or ®nance. As such, the Review willassemble emerging scholarship about anarea that is proving to be of considerableinterest to scholars with widely divergentorientations. In this way, we hope toencourage a closer examination of corpo-rate reputations and thereby stimulate thegrowth of knowledge about the complexsocially constructed environments inwhich companies operate.We also intend the Corporate Reputation

Review to address the proliferatingdemands by practitioners for answers toquestions about how reputations a�ectcompetitive positioning, about how toexamine and value corporate reputations,about how to build, maintain, and defendthose reputations (Hall, 1992). Many pro-fessionals have a vested interest in develop-ing answers to these questions, be theychief executive o�cers or strategic plan-ners, brand managers or identity specialists,accountants or ®nanciers, heads of publicrelations, community relations, investor

relations, customer relations, or employeerelations. In their everyday life, each isdeeply involved in managing a company'sreputational assets. Yet all too few can iden-tify and provide well-reasoned and defensibleanswers to questions about corporate reputationand reputational dynamics.A key purpose of the Corporate Reputa-

tion Review, then, is to help remedy thatlack. Through conceptual articles, empiri-cal research, case studies of best practice,and occasional book reviews, we hope todraw on the expertise of leading researchersand practitioners concerned with corporateidentity and identi®cation, the strategicmanagement of stakeholders, corporatebranding, the valuation of intangibles,communication, crisis management, andthe socioeconomic analysis of competition.

CORPORATE REPUTATION: A

CROSSROADS OF CONVERGING

DISCIPLINES

Although corporate reputations are ubiqui-tous, they remain relatively understudied(Fombrun, 1996). In part, it is surelybecause reputations are seldom noticeduntil they are threatened. In part, however,it is also a problem of de®nition. Accord-ing to the `American Heritage Dictionary'(1970: 600) `reputation' is `the general esti-mation in which one is held by the public'.Yet how does such a de®nition apply tocompanies? Who constitutes `the public' ofa company, and what is being `estimated'by that public? Given the diversity of audi-ences companies address themselves to,whose perceptions and judgments countthe most? Those of investors, employees,

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®nancial analysts, communities, regulators,CEOs?The lack of systematic attention to cor-

porate reputations can be traced to thediversity of relevant academic and practi-tioner literatures that explore di�erentfacets of the construct (Fombrun and Rin-dova, 1996). We point here to six distinctliteratures that are currently converging intheir emphasis on corporate reputations askey but relatively neglected features ofcompanies and their environments.

The economic view

Economists view reputations as either traitsor signals. Game theorists describe reputa-tions as character traits that distinguishamong `types' of ®rms and can explaintheir strategic behavior. Signalling theoristscall our attention to the informational con-tent of reputations. Both acknowledge thatreputations are actually perceptions of®rms held by external observers.Weigelt and Camerer (1988: 443) point

out that `. . . in game theory the reputationof a player is the perception others have ofthe player's values . . . which determine his/her choice of strategies'. Information asym-metry forces external observers to rely onproxies to describe the preferences of rivalsand their likely courses of action. Consu-mers rely on ®rms' reputations becausethey have less information than managersdo about ®rms' commitment to deliveringdesirable product features like quality orreliability (Grossman and Stiglitz, 1980;Stiglitz, 1989). Similarly, since outsideinvestors in ®rms' securities are lessinformed than managers about ®rms'future actions, corporate reputationsincrease investor con®dence that managerswill act in ways that are reputation-consis-tent. For game theorists, then, reputationsare functional: they generate perceptionsamong employees, customers, investors,competitors, and the general public about

what a company is, what it does, what itstands for. These perceptions stabilize inter-actions between a ®rm and its publics.Signalling theorists concur: reputations

derive from the prior resource allocationsmanagers make to ®rst-order activitieslikely to create a perception of reliabilityand predictability to outside observers(Myers and Majluf, 1984; Ross, 1977; Stig-ler, 1962). Since many features of a com-pany and its products are hidden fromview, reputations are information signalsthat increase an observer's con®dence inthe ®rm's products and services.Naturally, then, managers can make stra-

tegic use of a company's reputation tosignal its attractiveness. When the qualityof a company's products and services is notdirectly observable, high-quality producersare said to invest in reputation-building inorder to signal their quality (Shapiro,1983). Their prior investments in reputa-tion-building allow them to charge pre-mium prices, and may also earn them rentsfrom the repeat purchases that their qualityproducts will generate. In contrast, low-quality producers avoid investing in repu-tation-building because they do not foreseerepeat purchases (Allen, 1984; Bagwell,1992; Milgrom and Roberts, 1986).In fact, similar dynamics may operate in

the capital and labor markets. For instance,managers routinely try to signal investorsabout their economic performance. Sinceinvestors are more favorably disposed tocompanies that demonstrate high andstable earnings, managers often try tosmooth quarterly earnings and keep divi-dend pay-out ratios high and ®xed, despiteearnings ¯uctuations (Brealy and Myers,1988). Sometimes companies pay a pre-mium price to hire high-reputation audi-tors and outside counsel. They rent thereputations of their agents in order tosignal investors, regulators, and other pub-lics about their ®rm's probity and credibil-ity (Wilson, 1985).

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The strategic view

To strategists, reputations are both assetsand mobility barriers (Caves and Porter,1977). Established reputations impedemobility and produce returns to ®rmsbecause they are di�cult to imitate. By cir-cumscribing ®rms' actions and rivals' reac-tions, reputations are therefore a distinctelement of industry-level structure (Fom-brun and Zajac, 1987).Reputations are di�cult to duplicate

because they derive from unique internalfeatures of ®rms. By accumulating thehistory of ®rms' interactions with stake-holders they suggest to observers whatcompanies stand for (Freeman, 1984;Dutton and Dukerich, 1991). Reputationsare also externally perceived, and so arelargely outside the direct control of®rms' managers (Fombrun and Shanley,1990). It takes time for a reputation tocoalesce in observers' minds. Empiricalstudies show that even when confrontedwith negative information, observersresist changing their reputational assess-ments (Wartick, 1992). Therefore, reputa-tions are valuable intangible assetsbecause they are inertial (Cramer &Rue¯i, 1994).Like economists, then, strategists call

attention to the competitive bene®ts ofacquiring favorable reputations (Rindovaand Fombrun, 1997). They implicitly sup-port a focus on the resource allocationsthat ®rms must make over time to erectreputational barriers to the mobility ofrivals (Barney, 1986). Since primaryresource allocations also stand to improveorganizational performance directly, how-ever, it proves di�cult to isolate theirunique impact on performance and reputa-tion. This explains why empirical studieshave had di�culty untangling a causalordering: both are produced by the sameunderlying initiatives (McGuire, Sundgren,and Schneeweiss, 1988; Chakravarthy,1986).

The marketing view

In marketing research `reputation' (oftenlabeled `brand image') focuses on thenature of information processing, resultingin `pictures in the heads' (Lippmann, 1922)of external subjects, attributing cognitiveand a�ective meaning to cues receivedabout an object they were directly or indir-ectly confronted with. `Objects' in market-ing research are predominantly `products'(beer, detergents, computers), while consu-mers seem to be the principal `subject' ofanalyses.According to the notions of the Ela-

boration Likelihood Model of Petty andCacioppo (1986), information processingresults in three layers of elaboration: high,medium and low. A high degree of ela-boration of information about an objectresults in a complex network of meaningschunked in memory, enabling a subject togive a sophisticated description of anobject. A low degree of elaboration resultsin simple descriptions like `good/bad' or`attractive/unattractive'. A medium degreeof elaboration creates a set of attributesenabling a subject to describe an object interms of salient beliefs and evaluations(Azjen and Fishbein, 1975; Poeisz, 1988).The degree of elaboration is a conse-quence of the existing knowledge of anindividual, the level of involvement of thesubject with the object, and the intensityand integrated nature of the marketingcommunications (Schultz, Lauterbron andTannenbaum, 1994) through which acompany tries to create an attractive,desirable brand.Building brand equity requires the crea-

tion of a familiar brand that has favorable,strong and unique associations (Keller, 1993).This can be done both through the initialchoice of the brand identity (the brandname, the logo) and through the integra-tion of brand identities into the supportingmarketing program so that consumers pur-chase the product or service.

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Companies apply three types of brand-ing strategies (Olins, 1978; Kotler, 1991):individual names for all products withoutany explicit mention of the company; allproducts refer to the company, identifyingthe company name on all products; orcombining the company name with theproduct brand names. Preferences for oneof the three branding strategies has to bebased on the similarity between the endor-ser and the inferred product/service. Mostmarketing literature deals with an endorse-ment of one brand by another brand in thesame product category (image transfer byline extensions, Aaker and Keller, 1990;Park, Milberg and Lawson, 1991), productscomplementing each other (co-branding,Rao and Ruekert, 1994) or linking organi-zational associations (eg social responsibilityand ®nancial performance) to product asso-ciations (Belch and Belch, 1987; Keller andAaker, 1994). An endorsement will bemore successful if consumers perceive simi-larity between the core brand and itsextension (Boush and Loken, 1991).Umbrella branding (Kapferer, 1992;

Dawar, 1993) or more speci®c `corporatebranding' (all processes that are inclined toenhance the value of the corporate brand,Maathuis and Van Riel, 1996) will bemore successful if the information asym-metry between buyer and seller creates anincentive for service providers to capitalizeon a ®rm's reputation and introduce newservices for existing customers (Nayyar,1990); when consumers perceive a highdegree of risk acquiring the product/ser-vice; and ®nally, when the endorser's attri-butes are highly relevant in the context ofthe intended processes of image transfer(Keller, 1993; Brown and Dacin, 1997).

The organizational view

To organizational scholars, corporate repu-tations are rooted in the sense-makingexperiences of employees. A company'sculture and identity shape a ®rm's business

practices, as well as the kinds of relation-ships that managers establish with key sta-keholders. Corporate culture in¯uencesmanagers' perceptions and motivations(Barney, 1986; Dutton and Penner, 1992).Corporate identity a�ects how managersboth interpret and react to environmentalcircumstances (Meyer, 1982; Dutton andDukerich, 1991). Shared cultural valuesand a strong sense of identity thereforeguide managers, not only in de®ning whattheir ®rms stand for, but in justifying theirstrategies for interacting with key stake-holders (Miles and Cameron, 1982; Poracand Thomas, 1990).Thick cultures homogenize perceptions

inside a ®rm and so increase the likelihoodthat managers will make more consistentself-presentations to external observers. Bycreating focal principles, that is, generalunderstanding of the right way of doingthings in a ®rm, thick cultures contributeto the consistency of ®rms' images withstakeholders (Camerer and Vepsalainen,1988).Identity and culture are related. Identity

describes core, enduring, and distinctivefeatures of a ®rm that produce sharedinterpretations among managers abouthow they should accommodate to externalcircumstances (Albert and Whetten, 1985).For instance, a comparative study of BayArea hospitals showed how each institutionresponded di�erently to a strike because oftheir distinct self-images (Meyer, 1982). Acase study of how the Port Authoritycoped with the problem of homelessness inNew York demonstrated how an organiza-tion's self-image as a high-quality, ®rst-class institution played a central role inconstraining managers' action to cope withthe problem (Dutton and Dukerich, 1991).These reports suggest that ®rms withstrong, coherent cultures and identities aremore likely to engage in systematic e�ortsto in¯uence the perceptions of stakeholders.Managers in such ®rms will probably

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attend carefully to how their ®rms' keyaudiences feel about them (Albert andWhetten, 1985).

The sociological view

Most economic and strategic models ignorethe socio-cognitive process that actuallygenerates reputational rankings (Granovet-ter, 1985; White, 1981). In contrast, organi-zational sociologists point out that rankingsare social constructions that come intobeing through the relationships that a focal®rm has with its stakeholders in a sharedinstitutional environment (Ashforth &Gibbs, 1990). Firms have multiple evalua-tors, each of whom apply di�erent criteriain assessing ®rms. However, these evalua-tors interact within a common organiza-tional ®eld and exchange information,including information about ®rms' actionsrelative to norms and expectations. Thus,corporate reputations come to representaggregated assessments of ®rms' institu-tional prestige and describe the strati®ca-tion of the social system surrounding ®rmsand industries (Shapiro, 1987; DiMaggioand Powell, 1983).Faced with incomplete information

about ®rms' actions, observers not onlyinterpret the signals that ®rms routinelybroadcast, but also rely on the evaluativesignals refracted by key intermediaries suchas market analysts, professional investors,and reporters. Intermediaries are actors inan organizational ®eld. They transmit andrefract information among ®rms and theirstakeholders (Abrahamson and Fombrun,1992). An empirical study of ®rmsinvolved in nuclear-waste disposal andphotovoltaic cell development demon-strated how in both these industries reputa-tional status depended, not only onstructural factors like company size andeconomic performance, but also on a ®rm'sposition in the interaction networks linking®rms in each institutional ®eld (Shrum andWuthnow, 1988).

To sociologists, then, reputations areindicators of legitimacy: they are aggregateassessments of ®rms' performance relativeto expectations and norms in an institu-tional ®eld. Sociologists point to the multi-plicity of actors involved in the process ofconstructing reputations and their intercon-nectedness.

The accounting view

A vocal group of academic accountants hasrecently acknowledged the insu�ciency of®nancial reporting standards in document-ing the value of intangibles. They highlightthe widening gap between factual earningsreported in annual statements and themarket valuations of companies. They alsocriticize accepted practice that requiresmanagers to expense research and develop-ment (R&D) activities, advertising, andtraining expensesÐactivities which strate-gists recognize as critical enhancements of®rms' actual and perceptual resource posi-tions (Scheutze, 1993; Lev and Sougiannis,1996). As Deng and Lev (1997: 2) suggest,current accounting practice induces a mis-match in the allocation of costs to reven-ues, and so misleads observers about theearning capabilities of ®rms and the truevalue of their assets. In regards to thevaluation of R&D, they conclude that`. . . hundreds of corporate executives, alongwith their auditors appear to be able tovalue R&D and technology in the devel-opment stage. This apparent inconsistencybetween the current regulatory environ-ment which sanctions immediate expend-ing of R&D and a fast developing businesspractice, obviously deserves a carefulexamination . . .'Instead, many accounting researchers are

now calling for a broad-based e�ort todevelop better measures of how invest-ments in branding, training, and researchbuild important stocks of intangible assetsnot presently recorded in ®nancial state-mentsÐassets that, not coincidentally, are

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Fombrun and Van Riel

said by strategists to build higher reputa-tional assessments among observers (Rin-dova and Fombrun, 1997; Barney, 1986).Appropriate capitalization of these expen-ditures would better describe the value of acompany's investments in what are funda-mentally reputation-building activities.

Towards an integrative view

Jointly, these ®ve academic literatures sug-gest that reputations constitute subjective,collective assessments of the trustworthinessand reliability of ®rms, with the followingcharacteristics (Fombrun and Rindova,1996).

Ð Reputations are derivative, second-ordercharacteristics of an industrial systemthat crystallize the emergent status of®rms in an organization ®eld.

Ð Reputations are the external re¯ectionof a company's internal identityÐitselfthe outcome of sense-making byemployees about the company's role insociety.

Ð Reputations develop from ®rms' priorresource allocations and histories andconstitute mobility barriers that constrainboth ®rms' own actions and rivals'reactions.

Ð Reputations summarize assessments ofpast performance by diverse evaluatorswho assess ®rms' ability and potentialto satisfy diverse criteria.

Ð Reputations derive from multiple butrelated images of ®rms among all of a®rm's stakeholders, and inform abouttheir overall attractiveness to employees,consumers, investors, and local commu-nities. Simplifying the complexconstruct of performance helps obser-vers deal with the complexity of themarketplace.

Ð Reputations embody two fundamentaldimensions of ®rms' e�ectiveness: anappraisal of ®rms' economic performance,and an appraisal of ®rms' success in

ful®lling social responsibilities (Etzioni,1988; Lydenberg et al., 1986).

Consistent with these characteristics, wetherefore propose the following de®nition(Fombrun and Rindova, 1996): A corporatereputation is a collective representation of a®rm's past actions and results that describes the®rm's ability to deliver valued outcomes to mul-tiple stakeholders. It gauges a ®rm's relativestanding both internally with employees andexternally with its stakeholders, in both itscompetitive and institutional environments.

OUR DOMAIN . . . OUR CHARTER

The Corporate Reputation Review invitesoriginal research that explores the growingconvergence between these six academicliteratures, between corporate reputationand strategic positioning; corporate iden-tity, communications, and image; brand-ing and pro®ling; valuation andperformance. In particular, we welcomerigorously conducted research, includingquantitative, qualitative, experimental, and®eld studies.At heart, therefore, the Corporate Reputa-

tion Review discourages contributions thatare exclusively focused on a narrow disci-plinary perspective, whether from advertis-ing, public relations, speechcommunication, journalism, media studies,organizational analysis, or strategic man-agement. These belong in appropriate spe-cialized publications. Suitable articlesshould reveal authors' familiarity andunderstanding with complementary posi-tions in relevant disciplines. For instance,relevant articles might examine how repu-tations:

Ð evolve from employee communicationsthrough a process of organizationalidenti®cation;

Ð relate to a ®rm's social responsibilityand its grassroots management activ-ities;

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Ð develop from consolidated approachesto marketing, organization, andstrategy;

Ð are orchestrated internally through jointprograms for managing investors,employees, customers, analysts, andregulators.

The Corporate Reputation Review alsoinvites contributions from practitionersthat address the strategic development andmaintenance of corporate reputations.Practitioners' articles will be reviewed bythe editors and by members of our Execu-tive Advisory Panel. Topics could includebest practice in crisis management, mediarelations, employee involvement programs,packaging and design, advertising cam-paigns, strategic reorientations, and theirimplications for a company's reputation.Occasionally, the Review will also publishrelevant book reviews that address impor-tant topics related to reputational manage-ment.Ultimately, the Corporate Reputation

Review targets a core audience of aca-demics, client practitioners, journalists, andmanagement consultants interested in repu-tation management. The Review shouldalso be of considerable relevance to seniorexecutives responsible for nurturing anddefending corporate reputations. In addi-tion, likely to welcome the Review are pro-fessionals whose everyday life revolvesaround building, maintaining, or defendingreputation, be they identi®ed with strategicmanagement, investor relations, publicrelations, marketing, advertising, employeecommunications, or public a�airs.

THE CONFERENCE ON CORPORATE

REPUTATION, IMAGE, AND

COMPETITIVENESSÐJANUARY 17±18,

1997

To iniatiate dialogue and celebrate thelaunching of the Corporate ReputationReview, we organized a conference at the

Stern School of Business at New YorkUniversity on January 17±18, 1997. Theconference was sponsored by the RoyalDutch/Shell group of companies, andbrought together a multi-disciplinarygroup of international scholars and practi-tioners to discuss their research and experi-ence in the area of reputation management.We organized the presentations around®ve themes.

Ð How reputations developÐ How valuable are reputationsÐ How reputations a�ect corporate

performanceÐ How reputations have other favorable

and unfavorable consequencesÐ How reputations should be managed in

good times and bad times

In this inaugural issue of the CorporateReputation Review, we capture the essenceof the conceptual, empirical, and case-based contributions made by conferenceparticipants during their stay in NewYork. In particular, we asked contributorsto abridge and revise their comments forthis issue, in the belief that the inauguralissue would have greater impact if it pre-sented a complete picture of the `reputa-tional landscape'. In so doing, of course,we risk over-simpli®cation: authors' ideasare necessarily less fully articulated thanthey would otherwise be in more extensiveexpositions. By encompassing the breadthof sessions in the conference, doubtless wehave distorted the individual `trees' of thereputational forest. We defend doing sohere, however, because we believe the ben-e®ts of breadth outweigh the costs of depthin this fragmented domain. The inauguralissue therefore clearly emphasizes ourcommon agenda rather than our many dif-ferences.If all goes according to plan, researchers

and practitioners will have ample opportu-nity to articulate more fully their evolvingviews in subsequent issues of the Corporate

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Fombrun and Van Riel

Reputation Review. As editors, we look for-ward to helping authors develop their ideasinto valuable contributions to knowledgeand understanding about corporate reputa-tions. We embark on this challenging jour-ney full of hope and not a little trepidationat the considerable responsibility it willentail. We hope you will join us in thisexciting endeavor.

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