case study 08 - sbs.ox.ac.uk · the tyco scandal is routinely lumped together with the enron and...

OXFORD UNIVERSITY CENTRE FOR CORPORATE REPUTATION MIChAElMAS TERM 2015: ISSUE 14

COMMENT 02lessons from the VW scandal Stakeholders versus shareholders

RESEARCHFOCUS 03Pop-up restaurants and authenticity

THEBIGINTERVIEW 04Disgraced former Tyco CEO Dennis Kozlowski on what he did wrong

CONFERENCEREPORTSOur sixth Reputation Symposium 06

Making Sense of Scandals 10

BESTPAPER2014 11The processes behind corporate rankings

NEWSANDEVENTS 12

CASESTUDY08

The extraordinary story of the Market Basket boycott

Comment

BAD SmeLLWhat lessons can we learn from the VW emissions cheating affair - apart from “don’t do it”? how VW might respond and go forward from such a reputational nadir were set out by our Director, Rupert Younger, in a recent interview with the Financial Times (http://tinyurl.com/qaywnhc), and there has been widespread commentary elsewhere, of course. But it is still worth dwelling on related questions. For example, sitting in a conference in November, Reputation was intrigued to hear a senior figure from a top UK corporation bemoaning the scale of the criticism of VW: the sacking of the now-ex-CEO, the media witch hunt, and stigmatisation of the entire company for what could well simply be the actions of a rogue engineer. It reflected, he implied, an unwarranted blanket distrust of business and opportunistic behaviour by self-interested players, such as the business media.

Such a defence of VW was perplexing. On what basis should one consider this an isolated transgression? Is it more or less likely, particularly in a company as top down and rigorous as ex-CEO Winterkorn’s VW? In any event, what underpins the extraordinary decision to systematically rig a testing regime – what pressures have been exerted, what missteps made previously within a firm? Identifying these forces, as our research often tries to do, is key to preventing their recurrence.

Such a defence plays into the very narrative behind the distrust of business that our project with DlA Piper and Populus (p12) is trying to address: that businesses are self-interested

and “all as bad as each other”. One media commentator cited had criticised VW for trying to issue an early blanket apology. Such criticism is absolutely understandable: yes, for self-interested reasons from a professional critic, but also because the media is not the only one beginning to tire of the exposure, apology, reshuffle playbook. Norms are forever shifting, and corporate affairs directors, CEOs and boards must be alert to what the public demands when a business has stepped over the similarly shifting line.

In another piece in the FT (http://tinyurl.com/pvgr4d5), Rupert Younger identified speed and intensity of scrutiny as today’s game changers for reputation risk. Another element is scale: nowadays, a single technical tweak can affect millions of cars, several brands, stigmatise a technology (diesel engines), an industry – even a nation: billionaire inventor James Dyson invoked the VW saga in his recent failed European Court case against German vacuum cleaner manufacturers.

As our recent Scandals conference (p10) highlighted, pre-existing narratives are re-energised when there is a negative hit. As a Guardian newspaper commentary put it: “Even before the scandal erupted, some analysts thought Volkswagen’s dash for global sales had masked underlying problems.” The same commentary hit Toyota - and its previously legendary quality control – when serial braking and accelerator issues arose from 2009. The chance to reheat distrust of Germany’s industrial fiefdoms, and their lack of transparency (suggestive of a culture of wrongdoing, as our former Research Fellow liz David-Barrett’s work emphasises) has proved irresistible. Companies must be pre-primed

against these narratives, and prepared for the wide-ranging reputational repercussions of relatively small actions, even when committed by a competitor or, indeed, a neighbour. ■

FAIR SHAReSOur support for the Global Governance Colloquium (see Reputation Issue 13 at our website, below) is informed by the idea that the roots of regulation, reputation, shareholder influence and governance require concerted examination, and that it is healthy to remind ourselves that the current structures underpinning shareholder influence were not always the status quo – and may not be optimal.

The story of the 2014 boycott at the US supermarket chain Market Basket (see pp8-9), where a coalition of staff, suppliers and customers – and even local politicians – united to frustrate the machinations ofa small group of majority shareholders, similarly makes a terrific contribution to the stakeholders vs. shareholders debate.

Reputations, in the end, counted for everything in this story: in the personal relationships between store associates and customers; between the employees and a CEO prioritising value for money and staff incentives as much as the bottom line; and between long-time suppliers and a CEO who valued loyalty and longevity in addition to the profit margin. It is a unique tale, but the underlying dynamics of this fascinating saga provide many valuable insights into corporate reputation and governance. ■

Front page image courtesy of Lowell Sun/David Brow.

Reputation is a termly magazine published by the Oxford University Centre for Corporate Reputation, Saïd Business School, Oxford OX1 1HP. Tel: + 44 (0)1865 288900. Enquiries to: [email protected].

©2015 Saïd Business School. No part of this publication may be reproduced or transmitted in any form without the prior permission of the publisher.

WWW.SBS.OXFORD.EDU/REPUTATION 3

ReSeARCH FoCuS

Research Associate DaphneDemetry explains how her research into pop-up and underground restaurants sheds light on the corporate quest for authenticity.

Authentic. Genuine. Real. These buzzwords proliferate in the media as consumers increasingly clamour for unique, distinctive and eclectic goods from firms they want to consider moral and ethical. Authenticity is a slippery term: it means different things to different people. This is because authenticity is culturally and historically situated. There is no single notion of authenticity: it is a concept that is socially constructed by people and organisations. Furthermore, authenticity is relational. In order for there to be an authentic reputation, it requires that entities attribute some other firm as inauthentic. In this sense, an authentic reputation is never inherent to a firm or its products, but often a performance, staged by an organisation for its stakeholders.

Perhaps because of its elusive nature, authenticity occupies a prominent place in modern culture. We venerate authentic products and experiences because we are constantly searching for our authentic selves through consuming them. In particular, contemporary consumers are increasingly making choices based on the attribution of moral authenticity: when a firm’s public actions reflect sincere choices that are true to the firm’s mission statement, rather than socially scripted responses. Accordingly, associating oneself with morally authentic firms can be a method to overcome one’s own anxiety over “sincerity” and help discover one’s essential self.

Empirical research has begun to confirm that consumers purchase based on these “moral” characteristics rather than more tangible qualities. For instance, research on microbreweries found that consumers were drawn to the authentic identity of microbreweries despite the fact that in certain blind taste tests, craft and industrial beer were found to be indistinguishable. Similarly, another study found that diners typically consider independent and family-owned restaurants to be more genuine than chain

eateries. If authenticity is what consumers really want, how do organisations strategically manage authenticity production?

In my research I look to answer this question by studying pop-up and underground restaurants – temporary social dining establishments. Within the culinary industry, establishments are increasingly trying to achieve authentic identities by offering distinctive goods that sharply contrast with mass-produced alternatives. here, buzzwords such as natural, rustic, simple, organic and craftsman have become prized indicators of authenticity. Although an unconventional case study, pop-ups provide a rich empirical context to explore how firms stage and perform authentically for consumers, because their success hinges on their authentic reputations.

After interviewing chefs, cooks, employees, and diners, observing dinners, and combing through online reviews, I find that the key to enhancing an authentic reputation is in the experience stakeholders have with an organisation. Reputation scholars recognise that the experiences stakeholders have with a business, its products and employees, can generate impressions of the firm and sway the formation of reputation, yet we know little about how this process occurs; or, more importantly, why the experiences consumers have with a firm have such a powerful influence on the creation of reputation. I find experiences provide an interactional space for guests to become not just vehicles of consumption, but also participants in their own organisational experience.

These “authentic organisational experiences” consist of both organisational actions (for example, chefs telling a story about how they cooked a dish) and the general consumption environment (i.e., other guests active in the dining experience). By engaging directly with the firm, guests search for their own authentic selves, which in turn shapes their perceptions of an organisation as authentic. In the case of pop-up and underground restaurants, this form of engagement occurs when chefs provide open kitchens for diners to explore and actively ask questions about the production process. Many establishments go one step further and ask patrons not to bring monetary tips, but small tokens of appreciation, like a pack of beer. Additionally, shared tables encourage guests to talk and build a community with others.

As my research indicates, authentic reputations are not a one-way street. Organisations cannot simply project authenticity claims with hopes that stakeholders will take away positive impressions; firms must engage their stakeholders in a memorable and personalised manner. Most importantly, organisations must create a situation where a consumer can generate his or her own authenticity so that it elicits more positive perceptions of an organisation’s offerings as authentic.

My research has implications for all manner of firms who think there is a silver bullet for authenticity. It confirms that authenticity takes work, both on the part of the firm and its clientele. Consumers are quick to pick up on contrived “authenticity work”. For example, Starbucks’ overt attempts to stage authenticity in their coffee shops was met with a consumer backlash, and immediate accusations of inauthenticity. This example of failure reminds us that authenticity is above all a negotiation between firm strategies of impression management and the broader social context of consumerism. ■

“tHe SuCCeSS oF pop-upS HIngeS on tHeIR AutHentIC ReputAtIonS.”

4 OXFORD UNIVERSITY CENTRE FOR CORPORATE REPUTATION

Searching the internet for mentions of Dennis Kozlowski is not for the fainthearted. The former CEO of Tyco, sentenced to 8.5 years for grand larceny (stealing $100 million from the company he ran for 10 years) in 2005, has become a poster boy for boardroom excess, greed and wrongdoing in the 2000s and now excites every kind of opprobrium - the politest being listed at No.2 in a Time list of Top 10 Most Crooked CEOs.

his release from prison in 2014 unleashed a new wave of commentary freely mixing fact (convicted of taking declared but unauthorised bonuses) with fiction (stealing paintings, using company money to fund a $2 million Roman orgy-themed birthday party for his ex-wife, etc.).

The Tyco scandal is routinely lumped together with the Enron and WorldCom frauds that occurred shortly before his indictment, though Tyco continued, and continues, to prosper. he will forever be remembered as “the guy with the $6,000 shower curtain”, one of the details that had no relevance to his indictment, but which was used to illustrate his excessive tastes, and destroy his character in court. A reputation has seldom looked so unsalvageable.

So, it was fascinating to have him come to Oxford to speak to us as part of our Scandals conference (see p10), and to hear Catherine Neal, an Associate Professor of Business Ethics and Business law at Northern Kentucky University, who spent three years writing and researching her book on his case, Taking Down The Lion, back up her assertion that “I found no evidence to support the charges”. Kozlowski’s behaviour was certainly irresponsible, she concludes, but it was not criminal.

What does the man himself say? First, to make time for a proper interview, he has to find space in his diary: his public reputation may be toxic, but among former colleagues, including former members of the Tyco board, he is very much in demand, providing consultancy services and advising on M&A, particularly in the healthcare sector.

“People who don’t know me can have an opinion of me and I’m kind of indifferent to

that,” says Kozlowski. “It’s more important to me that… decision makers, policy makers have an understanding of my situation.” While his capability may not be in doubt, for his character bona fides, somewhat remarkably, companies have been coming to Neal herself for a reference. her reputation and word, it seems, supercedes – or at least complements - the verdict of the court. Reading Neal’s book is a better place to weigh guilt and innocence, to understand the two court cases (one mistrial), 28,000 pages of evidence, and the contribution made by complexity, context and politics. This interview is rather an opportunity to explore some of the forces that brought Kozlowski low, particularly the reputational ones.

The academic literature is full of the perils of ego-driven and “star” CEOs, and there is a growing literature on the phenomenon of “targeting” of high profile individuals.

Kozlowski pleads guilty to the first, and victim to the second. “Sure, it was ego all the way,” he says. “I was greedy… I made mistakes.” But, he says, he didn’t deserve what he got. he was with Tyco for 27 years, the last 10 as CEO. To begin with, he was unprepared for the role. As is clear from the recent Saïd Business School CEO Report, co-authored by our former Research Fellow Amanda Moss Cowan, the leap from CEO-in-waiting to CEO is done in ignorance of much that awaits. “I was equipped for the mission, to increase shareholder value,” says Kozlowski. “I knew the job from looking up at it, but it was a far simpler company when I took charge. We became a worldwide company with 260,000 employees, operating in 62 countries. Especially with our

rapid growth… by the late Nineties I had no command of some of the details.”

Adding value both for his shareholders and for his own hugely share-skewed incentives was his overwhelming focus. “I thought my report card would be earnings, but I should have thought very carefully about my image and my profile. I didn’t give a second thought to any of that.”

he believed, as Catherine Neal put it, in “incentive pay with no caps” for everyone. It was a feature of his turnaround strategies, a way of incentivising his workforce. To a highly unusual degree, he would then leave them to it, and get on with making deals. The reputational risk is clear. Governance structures went by the wayside as energy was devoted to growth for “Deal-a-Day Dennis”, spawning something of a free-for-all in other areas, such as company-employee loan agreements, and conflicts of interest on the board that would now be illegal (since the 2002 Sarbanes-Oxley legislation), but which weren’t then.

The lack of a paper trail for bonus payments is what ultimately put him in jail. But not seeing the reputational perils behind his behaviour, arguably, put him on the road to ruin. The desire for more profile, driven by a sense the company’s shares were not valued as highly as they should be – the benchmark was the industrial behemoth GE, and its “star CEO” Jack Welch - led to Kozlowski enhancing his own profile, including appearing on the cover of Businessweek.

he joined an elite band of executives, and came on to the radar of white collar scourge and Manhattan D.A. Robert Morgenthau - not a good place to be in the post-Enron atmosphere. “Everyone would have been far better served by keeping our heads down… it was ego,” he admits.

his first indictment was for not paying New York sales tax on millions of dollars of fine art. The charges were subsequently dropped, but the board had already fired him. he is remarkably forgiving of them: “They were worried about becoming a

tHe BIg InteRVIeW

DennisKozlowski was once one of the best paid CEOs in the world; then he was prosecuted for grand larceny and served a lengthy prison term. But how much was complacency about corporate governance and managing his personal reputation to blame?

“I tHougHt my RepoRt CARD WouLD Be eARnIngS. I SHouLD HAVe tHougHt ABout my ImAge AnD pRoFILe.”


target themselves. I’m not sure I wouldn’t have done the same thing.” According to Kozlowski, around this time an extraordinary offer came through from the D.A.’s office: “If you give us Michael Ashcroft, your life gets a lot easier.” Five years earlier Tyco had bought a company, ADT, from Ashcroft, the controversial Belize-based British billionaire tax exile. “I had nothing to give them,” says Kozlowski. Robert Morgenthau, was on a “fishing expedition”, in Kozlowski’s eyes, and he was next on the hook. he sees his conviction as a process whereby the reputation of Robert Morgenthau was invested in destroying his.

“I began to understand [this] when I saw how hard they worked to surpress evidence that could have benefited me,” says Kozlowski. To this day, evidence he considers “exculpatory” – “potentially exculpatory”, according to Catherine Neal – consisting of

statements given by the Tyco board to their lawyer, remains sealed due to procedural and disclosure rules and client/lawyer privilege.

There were numerous missteps in the trial, according to Kozlowski (and Neal), but for Kozlowski one of the biggest was not attempting to counter the “greedy crook” narrative that was being fed by the D.A. to the media: “The judge tells the jurors not to read these things about me, and you see them walking into the courtroom in the morning with newspapers under their arms.”

But there were problems much earlier that he needed to address: had he not fallen out with the board, they may well not have cast him adrift, as other companies rallied round other embattled CEOs at this time. There

was plenty of personal tension and conflict within the board that had been masked by Kozlowski’s success, but his reputation with the board took two critical hits: the first when he approved a finder’s fee of $20 million to one board member in the takeover of finance company CIT (a deal that subsequently went sour).

In 2001, his golden touch let him down again, this time in strategic communications, as times turned harder: in January 2002, Tyco had announced publically that it had plans to break the company into four or five segments, and "instead of warning the market ahead of time, we totally surprised [them] and that was a big mistake,” says Kozlowski. “We should have said we were considering all options.” he was hoping it would simply go over as the most natural thing in the world: “look at all this value we’re going to create.” Indeed, it was to some extent the strategy that his successors subsequently followed. But instead, with the expectation frame that had been built around Tyco as aspiring to be the next GE, the analysts said, “There must be something amiss: CEOs don’t just break up

their companies like this. And it was too big a surprise.”

The share price dropped, and “when the stock declined, the board decided we shouldn’t break it up. Once that happened, it was all over for me. Once I reversed that, I lost all credibility.” Kozlowski remembers Andrew Ross Sorkin, a DealBook journalist on the New York Times, telling him later: “The biggest mistake you made there was not letting that leak out to the market.”

his has been an extraordinary journey, and he has learnt some very hard lessons along the way. Those clients retaining Kozlowski for his M&A expertise now might get even more value from him if they look up from their spreadsheets for a moment to ask him about the consequences of not keeping an eye on your various reputations, of putting buffers and structures in place to protect them, of sacrificing governance for agility, and the importance of managing critical expectations, before it’s too late. ■

Taking Down The lion, by Catherine S. Neal, is published by St Martin’s Press.

“tHe JuDge teLLS tHe JuRoRS not to ReAD tHeSe tHIngS, AnD you See tHem In CouRt WItH tHe neWSpApeRS.”


The phenomenon of online influencers and the consumer revolt at US supermarket chain Market Basket (see pp8-9) – provided very stimulating sessions, and terrific exemplars for future years.

• The opening panel, “The Business of Influencers”, grew out of the work of the Centre’s eni Research Associate Gillian Brooks on the growth and impact of online influencers, along with her co-author, Professor Mikolaj Piskorski of IMD. One of the leading US “vloggers” (video bloggers), Blair Fowler, joined (via Skype and the big screen) New York-based influencer agent Karen Robinovitz and her Instagram influencer client Pari Ehsan to explore the implications of marketing relationships, the nature of authenticity, and dealing with reputation risk when influencers meet corporations.

They were joined on the panel by Paul Fox, Global Director of Corporate Communications at Procter & Gamble, who added his perspective on the origins of influencer marketing, and P&G’s Tremor programme (see Reputation Issue 13).

• For the first session of the first full day, “Social Platforms”, Mikolaj Piskorski, Andrew Stephen and Yakov Bart presented papers. Mikolaj outlined a general theory of user behaviour on social platforms, and the implications for firms looking to use social platforms for marketing.

Andrew Stephen, l’Oreal Professor of Marketing at Saïd Business School, spoke on the “engagement-boosting” attributes of brands’ social media content, but had some hard truths for firms: namely that from his detailed research, industry best practice in this area does not seem to make a difference either to engagement or reputations.

Yakov Bart presented research on the impact of seeded marketing campaigns, where firms

send product samples to selected customers to encourage them to spread word of mouth. The research identifies the spillover effects that arise, and how WOM spreads to the detriment of other related products.

• In a session entitled “Regulation, Reputation and Governance”, Cristie Ford took on the vexed question of innovation among financial institutions, and how complexity has confounded the expectations of regulators. As she writes: “Incremental innovation and its diffusion present, almost by definition, not benefit but challenge for regulation.” Christina Skinner focused on the regulators’ preoccupation with quantitative safeguards in the banking sector, in particular how the focus on capital and liquidity to combat systemic risk has been prioritised at

the expense of an appropriate focus on misconduct. To rebalance the approach, she proposed “forward-looking, prophylactic tools to regulate misconduct”, specifically an approach she calls “compliance stress testing”.

• As part of a focus on the importance of historicisation – the influence of past models, exemplars and inspirations on current operations of companies – Tor hernes kicked off “Temporality: Connecting Past and Future in Organisations” with a consideration of how local time interacts with historical time, and why it is important

to understand the live relationship between the past and present.

The importance of historical icons and the relationship between history, collective memory and identity – through the likes of corporate museums and an organisation’s artefacts - was the focus of a presentation by Davide Ravasi and Violina Rindova, which highlighted “the cognitive and emotional processes through which organisational members engage” with such artefacts for “sensemaking and self-enhancement”.

In the first session after lunch the historical strand was continued with Majken Schultz beginning a session on “Uses of Organisation history: Why and how?” and the way in which the origins of the Carlsberg brewery were invoked in the “rediscovering, recontextualising, reclaiming, remaking and re-embedding” of the brewery’s history in the pursual of new initiatives. Davis Dyer, as co-founder of The Winthrop Group, brought a consultancy perspective to bear on the growing importance of “stories” (rather than history) being deployed within companies, and invoked through digital media and with increasing customisation for different audiences. David Kirsch reflected on the missteps that companies make in trying to understand the most appropriate uses for their own history, thanks to a sometimes unhelpful preoccupation with their own reputation.

• In a session entitled “Gender and leadership”, Danny Gamache examined the effects of CEO and director gender on acquisitions and the dynamics of individual-level, firm-level and industry-level factors. he argued that the presence of females on the board reduces firms’ acquisitiveness, but that the relative reputations, status and visibility of the firms with female CEOs has a bearing on their attitude to acquisition: essentially that a high-status firm is more

This year’s Reputation Symposium, our sixth, covered the usual broad swathe of subject matter, and broke new ground: with the introduction of a professional development workshop for young researchers, and several key contributions from practitioners.

ConFeRenCe RepoRt: ReputAtIon SympoSIum 2015

“InDuStRy BeSt pRACtICe on SoCIAL meDIA DoeS not mAKe A DIFFeRenCe to engAgement.”


likely to see more acquisitions by female CEOs. Abbie Oliver’s paper focused on whether shareholder activists target female CEOs more than male, and how portrayals of leadership internally and externally influence shareholder perceptions, and the importance of impression management in that context.

Felice Klein et al’s study, “The Gender Gap Reversed: Gender and CEOs’ Original Severance Agreements”, explores the relationship between the salaries paid to female CEOs, the likelihood of termination of their contracts, and the disproportionate impact on their reputation in comparison to their male counterparts. With the additional analysis of the most impactful “hits” on personal reputations, she found interesting counter-orthodoxy ramifications for the pay packages of female CEOs.

• In a session focusing on theoretical approaches, “Building Theory on the Relationship between Reputation and Identity”, Don lang began by looking at how individuals and organisations embodying positive and negative exemplars for the identities of those placing them under consideration are themselves affected by being put in that position: how being a foil affects the foil’s own identity.

Jon Bundy’s paper with Annie Zavyalova began with a theoretical consideration of the nature of organisations’ “generalised” or “multi-dimensional” reputations. Building on that base, the pair explored how the difference in those reputational assessments impacted on stakeholder perceptions of negative events, on core and peripheral dimensions of reputations, and the implications for responses to that damage. Annie Zavyalova went on to present

further work on organisational identity, and how news media use stories to fit organisations into their own dramatic narratives, and the process of accruing celebrity among some constituents and infamy among others.

• Two very different angles of analysis shared space in “Socio-legal Analysis of Reputation”. The origins of reputation in a legal context came under scrutiny from Tim hannigan and Ken Okamura, as they formulated a means to examine, through textual analysis, the reputations of the UK judiciary as reflected by citations. Christopher Yenkey’s paper took as its subject a 2008 fraud in Kenya, where the country’s largest broker defrauded a large

proportion of clients. The ethnic component in the narrative provided a fascinating opportunity to examine the subsequent preferences of the affected group, and “the socio-relational factors that contribute to individual-level variation in negative reactions to corruption”.

• In “Experimental Research”, Patrick haack presented work that sought to differentiate between the influence of character and capability cues, and their interaction with product evaluation. The findings he presented suggest that the way in which third parties differentiate between character cues and capability cues differs, that their importance

is assessed separately. In addition, those assessments are subject to distorting effects, such as the “boomerang effect”, where a prior good character reputation suffers a disproportionate negative impact in adversity. Federico Aime’s presentation analysed the extent to which social evaluations of CEOs’ legitimacy and image affects firm valuations over time, and how those effects diminish. The experimental setting was a “novel laboratory media-based measurement technique combining third-party ratings of CEOs with psychometric scales”.

• On the last morning, Stephen Karolyi, Walid Basaba and Richard lowery tackled “Reputation in Investment Banking”. Stephen focused on personal lending relationships, and the considerable extent to which they benefit firms, from securing loans to acting as a buffer in downturns, and limiting negative impacts such as lay-offs. Walid and Richard’s paper analysed the reputation of underwriters in bringing IPOs to market, and the relative reputational sanctions and enhancements of: successfully completing more problematic offerings; avoiding them altogether; withdrawing an IPO; overpricing an IPO; and aggressively pricing and then supporting the price in the aftermath.

The Symposium concluded with a clutch of younger scholars presenting ongoing work, from authenticity in pop-up restaurants (Daphne Demetry, see p3) to how inter-organisational ties shape media coverage (Jun ho lee), and a very entertaining final debate around the assertion that aggregated ranking scores are meaningless. The motion was defeated, for the record. ■

The full programme can be found on our website under "Events".

“HoW Do ReputAtIonAL ASSeSSmentS ImpACt on StAKeHoLDeR peRCeptIonS oF negAtIVe eVentS?”

Foodforthought:SymposiumattendeesandguestsatCorpusChristi


The roots of a boycott By 9 A.M., thousands had congregated in the parking lot yards away from a Market Basket supermarket. The raucous crowd was a mix of part-time clerks, truck drivers, office workers, store directors and senior managers from the corporate office. There were teenagers for whom Market Basket was their first employer and longtime employees for whom Market Basket had been their only employer. Also in the crowd were lifelong customers as well as suppliers of produce, fish and other goods.

It was the third rally in less than a month. The DJ played a parody of Twisted Sister’s song “We’re Not Gonna Take It” (with the words changed to “ We Are Market Basket”) over the sound system as cow bells and air horns pierced the air. An airplane circled high above the parking lot, towing a banner that read in red capital letters: “Arthur T. Save Market Basket! Buy Them Out!” Borrowed school buses were arriving regularly now from all over New England, their passengers cheering and waving signs through open windows. Traffic on Boston’s Interstate 495 artery was backed up from Stadium Plaza in Tewksbury, Massachusetts, where the rally took place, to Interstate 93, five miles away. While the rally was boisterous, it was a different story inside Market Basket’s stores. Shelves for perishables at the chain’s 71 stores were barren, most checkouts were closed and 90 per cent or more of the chain’s sales (in the neighborhood of $75 million per week) had disappeared. The offices at headquarters were quiet, too. Dozens of office staff had walked out weeks earlier, their cubicles now empty. The regional supermarket powerhouse was, for all intents and purposes, shut down.

Steve Paulenka climbed a few steps to a makeshift podium built on the bed of his

pickup truck. Paulenka was perhaps the most visible among a group of former managers leading a rapidly growing movement. like so many in the crowd, Paulenka was a “lifer” at Market Basket. like nearly all supervisors, managers and executives at Market Basket, he worked his way up the ranks, starting as a teenager bagging groceries and rolling shopping carts in the parking lot. Until a few weeks before this rally, he served as the company’s facilities and operations supervisor. As was customary for employees who ranked assistant manager or above, he normally wore a tie. Today, as a former Market Basket employee, he wore a baseball cap and golf shirt. he looked out over the thousands of Market Basket workers, shoppers and other supporters and said,”We’re blowing the bugle again today,

and you have to answer it. I’m sad to have to ask you. You’ve given so much. But you have to give more… we are firm in our resolve… We stay where we are, doing what we’re doing, until they return our leader.”

That leader was Arthur T. Demoulas, the man who had overseen six years of double-digit growth as Market Basket’s CEO and who, over more than 40 years with the company, had engendered extraordinary loyalty from his management team, employees, customers and suppliers. Yet Arthur T. was now the former CEO. he had been ousted just weeks before this rally by the company’s board of directors. This created a standoff with two opposing sides. On one

side stood the majority shareholders and five of the seven members of the board of directors. This side was led by Arthur T.’s cousin and rival, Arthur S. Demoulas, who used a slim majority stake - 50.5 per cent – to take control of the board and propose some radical changes. The plan was to shift as much liquidity to the shareholders as possible. This involved leveraging the company: borrowing money and paying shareholders an immediate and continuous dividend of all excess cash, starting with $300 million in the fall of 2013. Moreover, the majority shareholders planned to sell their shares, from all appearances, to a Belgian holding company of supermarket brands called Delhaize Group, which owned local competitor hannaford. Arthur T. had been the key obstacle to their strategy. So they fired him and replaced him with two new CEOs: Felicia Thornton, who had held executive roles at Albertsons and Kroger, and James “Jim” Gooch, the former CEO of RadioShack, with additional executive experience at Sears and Kmart. After taking the reins, the co-CEOs promptly fired eight of Arthur T.’s most faithful managers.

On the other side of this conflict - Arthur T.’s side - were employees (all non-union workers who call themselves “associates”), customers, suppliers and a growing contingent of lawmakers. They were fighting for the man who they believed had always fought for them and whose management style had fostered a unique company culture: he championed profit sharing; bonus checks that often paid four figures or more each year; paid days off if a worker needed to tend to a sick loved one; scholarships to help pay for employees to attend college; low price, high quality and exceptional service for customers; and flexibility and reliability to suppliers. his supporters wanted more than to save this man’s job, however. They

The 2014boycottofUSsupermarketchainMarketBasket – by suppliers, customers and staff – illustrates the dynamic power of reputations. The story, as told in We Are Market Basket*, is a challenge to orthodox, linear ideas of relationships and networks within corporations. It will be the subject of a forthcoming Centre case study.

CASe StuDy: tHe mARKet BASKet StoRy

“tHIS WAS An ACt oF CIVIL DISoBeDIenCe - not AgAInSt A goVeRnment, But to SAVe A CompAny.”


saw this as a struggle to save a culture and business model that was important for New England. Market Basket was more than a grocery store for these people. It represented an ideal, a “way of life” that should not - could not - be tampered with.

The media narrativeThroughout the summer of 2014, the Market Basket protest was front page news nearly every day. The Boston Globe dedicated more than a dozen reporters to the story. Television news provided daily updates. Coverage reached as far as New Zealand. Google tracked 80 -100 articles per week on Market Basket during these six weeks; normally there are but a handful. Despite extensive coverage, the media struggled to find a simple way to describe what was happening at Market Basket. Was it a strike? Very few employees had actually walked off the job. The vast majority remained on the job, albeit with reduced hours and a non-existent workload. Was it a labour dispute? Associates were non-union and, moreover, the dispute involved managers and executives, people who are not traditionally considered “labour”. Was it a boycott? Yes, but normally boycotts would be meant to show displeasure. This boycott was a display of support for the company.

The events defied description. “We don’t know what to call it either,” said Jim Fantini, a vendor who had assumed a role as one of the point people for the Save Market Basket page on Facebook as well as the We Are Market Basket blog. This was an act of civil disobedience, not against a government, but in order to save a beloved company. It was a sort of “corporate disobedience”.

Whatever the term, everyone agreed that this movement was unprecedented. What had begun with a small group a year before had, by the end of August 2014, grown to touch

nearly everyone in Massachusetts and New hampshire. During this period, the protest was a topic of conversation in the workplaces, banks and main street boutiques of quaint New England towns. People across the region knew that thousands of people’s livelihoods were at risk. They feared that this could be the end of a company many considered to be an old friend. At every stage of this protest, the distinctive pillars of the Market Basket culture provided a foundation for the protest to take flight and ultimately become successful. Its culture of service to the community, its sense of family and empowerment, and its unconventional solutions to problems provided the movement with the motivation, unity and resourcefulness it needed to succeed.

lessons from Market BasketMarket Basket challenges the traditional wisdom of what the boundaries of a company are. Most textbooks portray companies as simple structures with clear boundaries. The insiders are the employees, managers and investors (who, it is argued, own the company). In this traditional view, everyone else is an outsider. Vendors provide materials; the company cuts, moulds or arranges those materials into some sort of product; and then they sell it to customers. Repeat that process as many times as possible, it goes, and you may become rich. This way of thinking makes a company the central player in a three-person chain. It is a linear approach that, even today, describes

how many managers think. The manager’s job is to manage vendor expectations on one side and customer expectations on the other. They try to keep each group happy, but don’t spend much time thinking about how the welfare of one affects the welfare of another, or how the welfare of either affects the larger community.

The Market Basket case illustrates an emerging view that is quite different and still somewhat controversial. People at Market Basket have a starkly different view of who is inside and who is outside. Based on Arthur T.’s principle of reciprocal loyalty, insiders are those who fully subscribe to the company’s purpose. One becomes an insider at Market Basket not by taking a job or getting a new title, but by earning it, preferably over time. If you were to ask a loyal employee, customer or vendor, “Who is Market Basket?”, they might draw something like this: Arthur T., associates, vendors, customers, the community, and perhaps the B directors on the board would be considered insiders, working together and each contributing to grow the business and each other’s welfare. ■

*Extracted from We Are Market Basket by Daniel Korschun and Grant Welker (AMACOM). A Centre case study is being prepared with Daniel Korschun, Associate Professor of Marketing at LeBow College of Business, Drexel University, and Jim Fantini. It will be available at www.sbs.oxford.edu/reputation under “Research”.

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The Centre has developed a penchant for short conferences prior to our annual Reputation Symposium (see pp6-7). This year, it was “Making Sense of Scandals: Purpose, Puzzles and Probabilities in Organisational Wrongdoing”, which highlighted an area of great interest to reputation scholars, and built on the positive reaction to the opening panel of last year’s Reputation Symposium on “What Do Scandals Accomplish…?”. It is also at the heart of a paper on the 2009 UK MPs’ expenses scandal, which our former Research Fellow Tim hannigan – now an Assistant Professor at the University of Alberta – has been developing with International Research Fellows Joe Porac, Scott Graffin et al.

• Tim hannigan and Research Fellow Basak Yakis-Douglas, along with Joe Porac, put together a terrifically stimulating programme. It began with dinner at the Oxford Union, and a fascinating presentation from the disgraced former CEO of Tyco, Dennis Kozlowski (see Big Interview, pp4-5), who spoke revealingly about his time caught in the media and judicial headlights. With the help of law professor Catherine Neal, of the University of North Kentucky – whose book, Taking Down the Lion, examines the facts of the case - we explained the power of mythmaking, the relationship between media, politics and the law in America, and the importance of competing reputations in the Kozlowski story.

The morning of the Scandals conference proper began with Donald Palmer setting out a framework of the relationship between “wrongdoing” by organisations and the “social control agents” who identify that wrongdoing, how the boundaries of behaviour are set, and why more analysis is needed of that process.

• The second session explored patterns behind when scandals gain traction and, importantly, when they don’t. Robert Entman’s paper “When Scandals Don’t happen: how and Why US Elites Get Away with Malfeasance” developed

ideas from his book Scandal and Silence, and presented a “cascading network activation model” that seeks to explain the non-scandals among US political elites.

By contrast, Aharon Cohen Mohliver’s fascinating overview of the trends in ethical misbehaviour sought to put scandals in a broader macro-economic context: how trangressions across a number of fields - from financial statements of firms, backdated stock options of directors, and students submitting plagiarised work - are more likely in boom times, with detection more likely as the economy falters. Nicholas DiFonzo considered a number of questions arising from rumour research: what are the contexts and functions of scandal; what are the psychological antecedents and aims of scandal discussion; the factors that lead to accurate versus distorted collective understandings of organisational wrongdoing surrounding scandals; and how might the reputational harm from scandal be most effectively mitigated?

• In a panel entitled “Scandal Dynamics and the Media”, Dennis Gioia considered the case of Joe Paterno, the iconic football coach at Penn State University under whose oversight the Jerry Sandusky child abuse scandal occurred; the process by which he went from being “a moral beacon” to a “moral disgrace”; and how previously underlying negative narratives were triggered once the opportunity arose.

Tim hannigan presented a snapshot of his work on “The Social Construction of Scandal: The Role of the Media in the 2009 British Parliamentary Expense Affair”, how the application of sanctions evolved in relation to the way the story unfolded in the media, and the means by which big data text analysis tracks these relationships. his analysis was enhanced by the contribution from the Centre’s Visiting Fellow Jeff Randall, who was editor-at-large of the Daily Telegraph during the period the paper published the story.

Violina Rindova gave a talk that considered the role of media in the dynamics of scandals, and their cultural influence, a strand Marco Clemente’s paper, “Media heterogeneity in Response to a Scandal in an Organizational Field”, took on: it focused on how bias appears in the media in relation to the reporting of a scandal, in this case the Calciopoli football match-fixing scandal in Italy in 2006. In this analysis, the increase in attention, and bias, as particular media align themselves with their audiences, has multiple impacts, including assisting in “contesting the idea of normative restoration post scandal”.

• For the final panel on “Stigmatisation and Repair”, Margarethe Wiersema presented work growing out of the precariousness of CEO positions: where once they could enjoy a long tenure, now 24 per cent of successions are due to dismissal. her paper dwelt on how managing prior expectations buffers a CEO at a time of negative events and helps them manage stakeholders’ interpretations of “violations”. Thomas Roulet examined the contrasting perspectives of corporate customers and stakeholders in relation to investment banks, and how negative judgments in the media actually bolstered banks’ reputations among the former.

Marvin Washington’s focus was institutional leadership action in reaction to scandal; namely, how far, and in what way, players within the NFl must transgress for sanctions to be applied; how normative forces, media coverage and the critical mass of incidents within a small window of time prompt institutional reaction.

With a number of speakers remarking on the satisfying breadth of disciplines, and staying on to contribute their insights to our Symposium in the following days, the pre-conference conference looks set to become an established fixture. ■

The complete programme for the Scandals conference can be found on our website under “Events”.

Our mini-conference, “MakingSenseofScandals:Purpose,PuzzlesandProbabilitiesinOrganisationalWrongdoing”, provided an opportunity to explore a fascinating theme from a variety of complementary perspectives.

ConFeRenCe RepoRt: mAKIng SenSe oF SCAnDALS


In recent years, organisational rankings have become increasingly institutionalised status symbols for major corporations: either focusing on a corporate attribute (e.g., Business Ethics’ 100 Best Corporate Citizens) or a broader assessment of corporate quality (Forbes’ Best Managed Companies in America). Studies have shown that higher rankings can improve an organisation’s ability to attract quality employees and sustain superior profitability.

Surprisingly little research has focused on the antecedent processes that generate these rankings. Our study highlights how changing beliefs about the legitimate indicators of firm performance shape rankings, and we suggest that these changing beliefs are influenced by prominent intermediaries (e.g., the business press). Research into commensuration - defined as “the transformation of different entities into a common metric” - suggests that commodity standardisation is the result of a complex social process that persuades market participants that commodities of similar value are in fact equivalent. Individuals have cognitive biases that draw them to numerical representations of complex reality, making quantitative information more persuasive than non-quantitative information.

The creation of organisational rankings follows the very definition of a commensuration process by quantifying the value of certain organisational characteristics, and by using numeric values to simplify decision-making under conditions of uncertainty. Consider: since US News began ranking law schools, a law school that drops even slightly below the “top 50 school” category faces a significant decline in the quality of future applicants.

A firm’s reputational ranking emanates partly from its financial performance, but metrics of financial performance are also continually reinterpreted by audiences and change in popularity, and audiences may also take into account other corporate actions, like social

responsibility. As the acceptability of a specific performance indicator as a proxy of firm performance wanes, evaluators will rely less on that indicator when determining a firm’s reputational ranking. For example, during the run-up to the dot.com bubble, many firms adopted a “Get Big Fast” strategy that called for running a net loss for a number of years in order to build on-line market share. Many market actors, such as stock analysts, believed that net income was no longer a vital performance measure.

In contrast, corporate social responsibility (CSR) has experienced a rise in popularity. The general belief is that by engaging in socially responsible practices, firms enhance their image, improve relationships with stakeholders, and improve their reputation. The returns from CSR are believed to be especially valued during times of crisis or reputational threat.

Commensurative products, such as rankings, tend to have a strong influence on the constructs they purport to measure. Indeed, since their inception in the mid-1980s, the Fortune rankings have influenced the evolution of the concept of corporate reputation. For example, studies have noted that a financial performance halo exists, whereby a firm’s previous financial performance will translate into higher reputation scores in unrelated attributes, such as social responsibility.

Market audiences search for new signals of firm quality to improve their investment choices. In the late 1970s and early 1980s, scholars and practitioners began to critique the claim that traditional income-based financial indicators are reflective of firm value. This trend was driven by the popular rise of financial economics and agency theory. Agency theory highlighted the problems in large firms when self-interested managers make organisational decisions based on their own, as opposed to shareholder, interests. A recent survey found that CFOs at public companies believe that about 20 per cent of the firms in their industries

“manage” earnings in efforts to misrepresent the firm’s performance. Scholars also challenge the appropriateness of traditional accounting indicators of performance. The most commonly cited shortcomings of generally accepted accounting principles (GAAP) earnings are that they are unstandardised and inappropriate for between-firm comparisons.

Management fashion-setters such as the business press shape the public agenda by generating attention for particular topics in the news. This, in turn, affects how market actors make sense of organisational phenomena. We argue that market actors use the media to help make sense of new financial performance indicators – such as pro forma earnings and free cash flow.

Our study also demonstrates that less straightforward measures of performance, such as corporate social responsibility (CSR), influence reputational ranking. In recent years, perceptions about CSR have become standardised in ratings systems – such as KlD Research and Analytics’ measure of corporate social performance. These ratings hold enough sway to cause poorly rated firms to change their behaviours in order to boost future ratings. CSR is an increasingly popular topic within the business media, particularly after precipitating events.

Our results show that firms that benefit the most from CSR are those that avoid being rated negatively. Our findings suggest that firms that avoid being targeted as poor CSR performers are more likely to benefit in reputational rankings, but that as CSR has become a more prominent management fad, there are decreasing returns. ■

Adapted from: “Under Construction: How Commensuration And Management Fashion Affect Corporate Reputation Rankings” by Y. Sekou Bermiss, Brayden G. King and Edward J. Zajac. Organization Science (2014), v. 25, No. 2, 591-608 (see http://pubsonline.informs.org/journal/orsc).

Our BestPublishedPaper2014 examines the proliferation of rankings for corporations, and how the business media influence the criteria by which firms are judged, such as CSR.

ReSeARCH FoCuS:CoRpoRAte RAnKIngS

ContACt uSWe welcome your feedback. Please send any comments to: [email protected]. The Oxford University Centre for Corporate Reputation is an independent research centre which aims to promote a better understanding of the way in which the reputations of corporations and institutions around the world are created, sustained, enhanced, destroyed and rehabilitated. For full details of our research and activities, see: www.sbs.oxford.edu/reputation.

• In August, Research Fellows BASAKYAKIS-DOUGlAS and TIMHANNIGAN presented a paper at the Academy of Management Annual Meeting in Vancouver: “Product Innovation Rumors as Forms of Organizational Openness”.

• TheCENTREhostedaconference,“MakingSenseofScandals:Purpose,PuzzlesandProbabilitiesinOrganisationalWrongdoing”.Seep10.

• In September, DAPHNEDEMETRY joined the Centre as a Research Associate. her research uses interview data to study trust, authenticity and reputation. See a summary of her work on p3.

• TheCentrehostedoursixthannualthree-dayREPUTATIONSYMPOSIUM.Seepp6-7.

• In October, eni Research Associate GIllIANBROOKS attended the Strategic Management Society Conference in Denver, Colorado, where she presented a paper entitled “Contested Practices and Boundaries: Organizational Identity in the Field of Online Journalism”. BASAKYAKIS-DOUGlAS also presented her paper, “Managing Unique Acquisitions: The Practice of Voluntary Communications Deployment to Reduce Evaluative Uncertainty”.

• BASAKYAKIS-DOUGlASpresented“CheapTalk?StrategyPresentationsasaFormofChiefExecutiveOfficerImpressionManagement”atHarvardBusinessSchool.

• Research Fellow JONMACKAY presented a paper, “Internationalization of the Firm: The Role of Social Capital in FDI Decisions”, at the Academy of International Business (AIB) Mini-conference in Milan.

• InNovember,ourformerResearchFellowSARAHOTNERjoinedHenleyBusinessSchool,UniversityofReading,asaFellowinOrganisationalBehaviour.

• RUPERTYOUNGER,Director of the Centre, was a speaker at the Bloomberg Good Business Conference 2015, on “Are government policies helping or hindering business?”. he was also interviewed by the Financial Times on how companies – like VW - can deal with damaging reputational hits, and on business and trust: http://tinyurl.com/o8ap9kp; http://tinyurl.com/obsab6v.

neWS AnD eVentS

tRuSt pRoJeCtOn10November,weheldthesecondofoureventswithlawfirmDlAPiperandresearchfirmPopulus,continuingourprojectlookingatthebreakdownintrustbetweencorporations,politicsandthemedia.OurformerResearchFellowlizDavid-Barrett–nowlecturerinPoliticsattheUniversityofSussex–preparedareportentitled“Re-buildingTrustinBusiness”.Belowisanextractfromherpresentationattheevent:

The networks in which business leaders are embedded are too closed. This creates social distance between the general public and business leaders. Business feels that society has unrealistic or ill-informed expectations, and that politicians fail to argue their case. The public feels that business is out to cheat consumers, and that they lack power to defend their own interests.

Many of the narratives about business that prevail in the media represent business as ill-intentioned or of bad character. Our research suggests that business leaders are hitting back at journalists and politicians by criticising those groups’ own capability. Businesses need to recognise their own role in this narrative [not appear to be] shirking responsibility.

The third factor is poor performance in keeping up with changing social norms. Business leaders are sometimes reluctant to engage with emerging norms, arguing that the only legitimate constraint on their behaviour is the legal framework. Such views are prevalent in debates on tax avoidance, zero-hours contracts and corporate disclosure requirements. This leaves businesses at risk of violating norms that have recently emerged, and exposing themselves to reputational risk. Our analysis suggests three directions for business to pursue to re-build trust:

• Buildmoreopennetworks. The business community would benefit from engaging more widely to construct more open networks and build bridges.

• Addressnegativenarratives. Business leaders should rebut attacks on the character of business as a whole, in the media. More monitoring and shaming by business and business associations of companies or sectors that behave unethically would help to build credibility.

• Embraceemergingnorms. Business should think in terms of a “social contract” with the public, in which it needs to comply with emerging norms as well as laws in order to maintain legitimacy. ■

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case study 08 - sbs.ox.ac.uk · the tyco scandal is routinely lumped together with the enron and...

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