You are on page 1of 15

Corporate Reputation Review

Volume 4 Number 1

Corporate Reputation: Image and Identity


Peter Pruzan Department of Management, Politics and Philosophy, Copenhagen Business School

Corporate Reputation Review, Vol. 4, No. 1, 2001, pp. 5064 # Henry Stewart Publications, 13633589

ABSTRACT It is fruitful to consider two complementary perspectives on the concept of corporate reputation and its relationship to success and credibility. The rst of these can be said to be a managerial or pragmatic perspective. Its basis is economic rationality and it focuses on traditional notions of corporate success. It is primarily concerned with the qualities imputed to the corporation by its stakeholders and aims at protecting and improving corporate image. This pragmatic perspective on corporate reputation is having an increased eect upon the behavior of business leaders due to the growing expectations of employees, customers, investors, and the media and is promoted and marketed by eager hordes of consultants and PR experts. The second perspective can be said to be a reective perspective. It is existential or philosophical in nature and, in comparison with the pragmatic perspective, employs a broader repertoire of measures of corporate success and focuses on organizational identity rather than image. It is reective rather than communicative in nature and is more concerned with the inherent character of the organization rather than its outward appearance. This perspective does not receive nearly as much conscious leadership attention as the pragmatic perspective. Nevertheless, its focus on what is and what should be rather than on what appears to be is rapidly becoming central to the theory and practice of leadership. This is evident in the increasing interest in such concepts as corporate social responsibility, corporate citizenship, and values-based leadership.1

This paper concludes that supplementing the primarily external image orientation of the pragmatic perspective with the internal identity perspective of the reective perspective can lead to increased corporate self-awareness, to an improved capability for reecting on corporate identity, and to more realistic methods for measuring, evaluating, and reporting on the organizations impact on its stakeholders and society as a whole in other words, to an improved and more inclusive depiction of the enterprise and its performance which will be necessary for organizational viability and success.
CORPORATE REPUTATION: A PRAGMATIC PERSPECTIVE There is no doubt that corporate reputation in the sense of corporate image is given more attention than ever before in the history of organized business activity.2 Broad groups of constituencies including customers, shareholders, employees, local communities, nancial institutions, competitors, regulating bodies, and the media are increasingly interested in the way corporations behave that is, appear to behave. Their concern is with the images3 they receive of corporate behavior and results. Management is reacting to these increased stakeholder demands and is developing attitudes and tools which support an increased awareness of, and sensitivity to, how vital reputation is for stakeholder trust and competitive advantage. This has led it to take a pragmatic stance on corporate reputation; protecting and improving repu-

Page 50

Pruzan

tation is perceived as a necessary condition for maintaining the corporations license to operate, for maintaining harmonious relationships with its many stakeholders and, perhaps most importantly from this perspective, for competitive economic performance. We will now briey consider some of the developments leading to this relatively recent focus on reputation as a vital area of managerial concern.
Enter the political/ethical consumer Throughout the world the media keep a wary eye on corporate behavior and zoom in sharply on suspected corporate misdeeds; the TV news guillotine and the Internet are ever ready to defame business leaders that are accused of unethical behavior. They provide consumers with information which enables them to make purchasing choices that are based not only on traditional parameters such as price and functionality, but also on such matters as how and where the product/service is produced and what the reputation is of the rm producing it. This is evident in the increased pressure being exerted on companies to adhere to international standards on issues such as fair wages and the use of child labor in developing countries. And an increasingly powerful and inuential type of organization has developed in recent years to support these trends the nongovernmental organization (NGO), quite often campaigning to promote specic causes and to promote corporate transparency. All of these developments have led to an increased sensitivity of consumers to their moral responsibilities and their power to inuence corporate behavior. In the authors own country, Denmark, the term political consumer was created in 1994. It is widely used here and is indicative of a new and paradoxical situation where political matters are dealt with in the market-

place. It focuses attention on a new form of consumer activism in an epoch where politics is being reduced to economics and where the market is a dominating arena for political decisions. In other countries, different terms are used (eg, the conscious consumer, the critical consumer, etc.), but the trends are the same; there is a clear rise in what might simply be called ethical consumerism. Time after time surveys indicate that while shareholders are primarily concerned with corporate protability, consumers, the primary source of corporate income, are increasingly concerned with the environmental, social, and ethical responsibility of business.4 Ethical consumerism can be interpreted as an expression of the heightened awareness of the role played by the individual consumer in his or her interplay with the business community. Ethical consumers react positively or negatively in their purchasing behavior to what they consider to be the ethical or unethical behavior of business not in a na ve attempt to replace regulating bodies or political institutions, but to satisfy their conscience, to send a signal to both the corporate world and the politicians, and, indirectly, to supplement the workings of democracy. However, the ethical consumer not only makes his or her point via decisions as to what not to purchase, but also, though less provocatively, by making positive choices as to which products, production forms, and companies to support. This positive group is less vociferous, more stable and perhaps more inuential. According to recent analyses, more than half Danish consumers belong to this category of ethical consumers. For the past several years, investigations indicate that, in particular, environmental and social/human rights issues are of importance to them and that such matters always or often inuence their purchasing behavior.5

Page 51

Corporate Reputation: Image and Identity

According to Danish evidence, both those ethical consumers who make their point by deciding not to purchase a product and those who do so by making a positive choice (and of course there is a considerable overlap between these two groups) are characterized by being better educated, wealthier and more critical than the average Dane and are recognized as trend-setters. Perhaps the most publicized expression of the political/ethical consumers power in Denmark was the decision made by the top management of the major Danish (and international) brewery, Carlsberg, in 1996 not to carry out its investment plans in Burma after considerable public criticism. It is interesting to note here a very similar result in Holland, where the brewery Heineken also made a decision to pull out of Burma but not just due to pressure from the outside. According to its former CEO, a major factor was also the attitudes and expectations of Heinekens own employees, who put pressure on the company because they wanted to be proud of their place of work. Words can be important for the way that we view the world, and there is little doubt that the invention of the terms political/critical/concerned/ethical consumer has contributed to increased managerial focus on corporate reputation.
The Ethical Investor Similarly, there is abundant evidence that inuential groups of investors and nanciers are tending to focus not just on corporate track records as to productivity, protability, and share price, but also on the corporate ethical prole and the risks which might arise should corporate reputation be sullied. This is particularly the case in the United States, where there is the tradition of placing savings in the stock market via mutual funds and pension funds, as well as for litigation in connection

with corporate misdeeds.6 Analyses indicate that $2.16 trillion, corresponding to roughly 13 per cent of the $16.3 trillion currently under professional management (pension funds, mutual funds, credit unions, venture capital funds, etc.), is socially or ethically invested.7 This represents a growth of 82 per cent from 1997 levels, a growth roughly twice the rate of all assets under management in the USA. The term social/ethical investment covers screened portfolios, shareholder advocacy, and community investing.8 The large majority of the funds so invested are screened. Similar results apply to the UK where the amount invested in socially/ethically responsible funds has tripled to roughly 3bn in the ve-year period 19951999. Internationally a major development has been the launch in September, 1999, of the worlds rst global indexes that track the performance of leading sustainabilitydriven companies, the Dow Jones Sustainability Group Indexes (DJSGI). The DJSGI consists of more than 200 securities selected from nearly 3,000 stocks in the Dow Jones Global Index. Included are corporations in 68 industries in 22 countries. The selection of the companies included in the DJSGI is based on the extent to which the companies are known for achieving their business goals by integrating economic, environmental, and social growth opportunities in their business strategies. According to the providers of the index, Sustainability companies not only manage the standard economic factors aecting their businesses but the environmental and social factors as well. There is mounting evidence that their nancial performance is superior to that of companies that do not adequately, correctly and optimally manage these important factors.9 The evidence referred to is in the form of detailed backtracking analyses of the economic performance of the companies in the indexes. These analyses show

Page 52

Pruzan

that had investors invested in the indexes one year ago, three years ago, or ve years ago, they would in all cases have earned signicantly higher returns than if they had invested in the stocks of the Dow Jones Global Index. In other words, there is strong evidence that corporate reputation can play a signicant role in the investment decisions made by large numbers of individuals and nancial institutions. There are indications that ethical investing will play an increasing role in the future and that it will not only be an Anglo-Saxon phenomenon but will spread to other countries with major stock markets.10

ATTRACTING AND HOLDING GOOD EMPLOYEES Having considered the relationship between a pragmatic perspective on corporate reputation and customers and shareholders, we now turn to another key stakeholder, the employee. There is increasing evidence that the good employees demand more from their place of employment than a competitive wage, professional development, and a career path. Bright, dynamic, independent, and creative employees want to feel that the corporate values are in reasonable harmony with their personal values, that the organization provides them with an arena for meaningful work and personal development and that they can be proud of their place of work. These aspirations, directly or indirectly, are related to the corporate reputation. Although it is possible for an employee to be proud of the corporation she or he works for even if it does not receive public recognition, it is far easier to be proud of ones place of work in a company that has a ne reputation. Employee pride in the workplace is becoming an increasingly important indi-

cator of eectiveness.11 The opposite is even more true; in those companies where the employees are not proud of their employer, there is a lack of trust, condence, enthusiasm, and willingness to oer ones best. According to an article in the Financial Times, a study performed by the Fuqua School of Business at Duke University among graduating MBAs at ten of the top US business schools showed that 64 per cent of the respondents would not work in certain industries because of ethical concerns and that strong ethics at the workplace, together with a successful marriage and good physical health are the three goals most highly rated by respondents; making a lot of money is down in 12th place!12 There is also evidence that not only potential leaders emphasize pride in their place of work, but that this also applies to active leaders. According to a survey in 2000 among several hundred top leaders in Danish corporations, 82 per cent look forward to increased focus on ethical questions in the years to come and 88 per cent reply that there are companies or branches they would not work for due to ethical concerns. This is particularly the case as regards companies whose suppliers suppress human rights (62 per cent) or employ young children (81 per cent).13 It can be argued that pride in ones place of work is particularly important in socalled knowledge-based rms where knowledge generation is highly important, where production is highly automated, or where the direct costs of production are, relatively speaking, less important compared to the total economic activities of the rm. In such rms there is a movement towards more decentralized and uid organizational structures and increased autonomy for both organizational subunits and the individual employees. In such environments it is vital for companies to be able to attract and hold the good, creative,

Page 53

Corporate Reputation: Image and Identity

often highly skilled and educated, employees and such employees are extremely sensitive to corporate reputation. For all of these reasons and many more, management tends to develop a pragmatic perspective on corporate reputation as something to be protected and nurtured in order to be able to get on with the business of business. The increased challenges to corporate reputation have also led to the creation of new categories of managerial positions with responsibility for promoting corporate codes, dealing with the media, and so forth. In the USA, for example, many major corporations have an ethics ocer as a member of top management and the Ethics Ocer Association has a membership of over 400. In the UK a corresponding position is reputation manager; British Telecom for example has a Corporate Reputation and Social Policy Unit. In Denmark, one of the largest and most highly respected corporations, Novo Nordisk, has a Corporate Vice President for Stakeholder Relations. New systems are being developed and marketed to assist these new managers to manage corporate reputation. For example, PricewaterhouseCoopers, the worlds largest professional services organization with more than 150,000 employees in 150 countries, has developed the Reputation Assurance software, RA5. According to PWC, In the future, the management of reputation integrity will become a key business process like quality management, nancial management or customer service. The software provides A holistic framework which covers the entire range of reputational issues as well as key stakeholders . . . a exible framework designed to reect cultural and organizational realities. It is interesting to note, however, that in spite of this mention of holistic framework and organizational realities, an analysis of PricewaterhouseCoopers own presentation of its Reputation Assurance program leads to

the conclusion that the underlying perspective is pragmatic and reactive; the underlying idea is to defend corporate reputation so as to promote traditional shareholder value.14 In other words, corporate leaders appear to be reacting rationally to the new challenges arising from an increased focus on corporate reputation. To tackle new problems and challenges, changes are made in the organizational structure, in the generation and processing of information, and in the manner that the corporation communicates with its customers, shareholders, employees and other major stakeholders. But there are also signs that the new demands arising from the increased focus on reputation are leading to more fundamental reactions. These reactions include a more reexive and existential perspective on corporate identity and accountability.
CORPORATE REPUTATION: A REFLECTIVE PERSPECTIVE While top managements reactions to the challenges arising from the increased focus on corporate reputation have primarily been pragmatic, in many cases these reactions appear to have also been accompanied by a deeper level of inquiry, what we refer to here as a reective perspective. The term reective is employed to indicate that the inquiry deals with more fundamental, existential questions as to what is and what is not good or acceptable corporate behavior. It is also chosen to indicate that the perspective is metaphysical rather than pragmatic; it deals with the essential nature of corporate reality rather than its appearances. Perhaps the single best distinction between the rational, pragmatic perspective and the existential, reective perspective is that the rst is primarily external in its orientation and deals with corporate image, while the latter is primarily internal and deals with corporate identity and integrity.

Page 54

Pruzan

The pragmatic reaction to (potential) challenges to corporate reputation is to build up a good image, make certain that the company cannot be accused of breaking the law or of behaving unethically, and to be sensitive to the demands of customers, shareholders, the local community, the media, and so on in other words, to avoid being attacked for misdeeds, develop a protective capacity, and live up to the expectations of others. In contrast, the reective perspective on reputation primarily mirrors an organizational-existential concern. We are accustomed to the notion that individuals can ask existential questions such as: Who am I? Why am I here? What are my obligations as a human being? What is a good life? We are not accustomed to such questions at an organizational level. Nevertheless, it is exactly these kinds of questions that enlightened managers are beginning to seek answers to when faced with challenges to corporate reputation: Who are we? Why are we here? What values do we support? What are our obligations as an organization? What is a good life for us? These are questions dealing not with supercial appearances but with identity, with integrity, with accountability, with fundamental purpose. The worlds religious traditions as well as modern psychology provide arguments that it is important for human beings to pose existential questions and not just to focus on exterior matters such as wealth, position, and reputation. These arguments can be extended from the individual domain to collectivities. It is argued here that it is also important for corporate leaders to pose organizational-existential questions. Unless such questions are faced up to it will be dicult (in particular for employees) to attach deeper meaning to such everyday phrases from modern management jargon as the companys visions, values, strategies, and goals. Moreover, it

will be dicult to harness the latent collective energies that can arise from an organization where there are shared values and understandings as to what we value and what we disvalue, energies that have as their source an experience of identity, a feeling of belonging, of being a part of, of being responsible for in other words of what will be referred to as corporate we-ness. But the authors experience clearly indicates that the development of a shared perspective on values can not be achieved by managerial decree. Therefore the question naturally arises: Under which circumstances is it meaningful to ascribe to an organization the competency and capacity for developing visions, values, and so forth for having a corporate consciousness?15 The reective approach to corporate reputation deals with such questions, questions about corporate identity and integrity. It regards the explicit attempt to formulate and answer such questions as vital for both commercial success and viability as well as for the corporation being able to serve its constituencies and society in a manner which is in harmony with its basic reasons for existing. It is seldom that such organizationalexistential questions are being posed explicitly by researchers on organizational theory, by consultants, or by members of the managerial profession. But the increased emphasis on corporate visions, shared-values, accountability, and ethics provides an indication of their gradual emergence into the managerial mind-set. Before proceeding, it must be emphasized that the views to be expressed below are of a most subjective nature and that their validity is not at present amenable to more standard, quantitative, empirical investigation. These arguments, which support the proposition that there is an increasing focus on the deeper, reective perspective, can be challenged and fre-

Page 55

Corporate Reputation: Image and Identity

quently are. Many managers the author speaks to about the themes presented here argue that their interest in these themes has little to do with an ethical, reective, deeper perspective on corporate reputation. They argue that their motivation is purely pragmatic. The authors experience indicates that it is often extremely dicult for human beings to know what their real, fundamental motivations are. We are in some sense the captives of our cultural constructions. A large minority of the managers the author has discussed these matters with in fact aspire to utilize a far broader repertoire of explanations to motivate their decisions and actions than traditional economic rationality alone permits. These include what modern leadership vocabulary categorizes as a multi-stakeholder, multi-value perspective on corporate identity and success. The problem is that they have for so many years become accustomed to the narrow language of money, the short-term demands of shareholders, and the arguments provided by their education and by hard-nosed consultants that they tend to suppress these aspirations as well as consideration of the dilemmas which arise from pursuing ethical aims in a competitive business environment. They fear as well the potential taunts and criticisms of their colleagues, their directors, and the media should they deviate from a narrow focus on protability and shareholder-value.

theme, courses at business schools, and a large number of consultants marketing tools to enable management to implement values-based leadership. Many arguments can be developed to promote this perspective on leadership (see, eg, Pruzan, 1998) and both the champions of the pragmatic and the reective perspectives on corporate reputation are able to provide rational justication for espousing values-based leadership. Perhaps the two factors that most clearly distinguish the former from the latter are: 1) the extent to which the justication is primarily based on the argument it pays to do so rather than on arguments based on the values of all the stakeholders 2) the extent to which the values to be considered are generated in a top-down fashion and implemented rather than as a result of a dialogue process which involves the various stakeholders, especially the employees. In those companies where the introduction of some sort of values-based management is primarily predicated upon its instrumental eectiveness in protecting corporate image and short-term protability, the pragmatic perspective is elevated over the reective. Here the focus is on one stakeholder the owners16 and one value prots.17 This primacy of the pragmatic over the reective perspective is even more the case when the values, which form the basis of the values-based management, are developed in the top management tower and then sent down the hierarchical ladder to the foot soldiers. In these cases there is little interest in the values as such; they are primarily labels which are employed to promote shareholder value by creating images, portrayed in attractive brochures, to convey to the world all the good things that the company stands for. A rapidly

VALUES-BASED LEADERSHIP The rst theme which provides an indication of this shift in perspective from the predominant pragmatic perspective to the reective perspective is that of values-based leadership. Within a relatively short period of time this concept has become widely accepted in the language of management and there are journals centered around this

Page 56

Pruzan

increasing number of major corporations have developed or are in the process of developing their ethical codes, value statements and the like in this manner. There is a big dierence, however, between an exercise in public relations and valuesbased leadership. Fortunately, there are also an increasing number of corporations that are focusing on values not simply to protect the corporations image and its license to operate should a scandal arise (the unfortunate behavior was not in accord with our values as can clearly be seen from our code of ethics). Rather, there is a shift taking place from a one-stakeholder (owners), onevalue (monetary wealth) approach to corporate purpose, to a more inclusive multistakeholder, multi-value perspective. From this expanded perspective stakeholders and the values they espouse in their interplay with the organization are important in their own right. They are not just instruments to produce increased prots and stock prices. And the underlying rationales which over time aect the corporations culture and shared values are not exclusively instrumental, but are the result of what one might refer to as the organizations ongoing dialogue with itself. It is particularly in such a culture that it is meaningful to refer to shared values and to a feeling and awareness of corporate weness. This shift in focus and perception, even though it may be gradual, is an indication of the shift in perspective on corporate reputation from the pragmatic towards the reective.

THE NEW FORMS OF ACCOUNTING, AUDITING, AND REPORTING Closely related to the observations above about values-based leadership is the rapid evolution of new forms of corporate measurement, evaluation, and reporting. The rst major shift occurred in the mid-1980s

when the rst attempts were made to develop environmental accounting. Looking back over the past 15 years an amazing development has taken place here. While the rst reports were scoed at by cynics, most major corporations regularly produce environmental reports today and in some parts of the world (for example, in Denmark) there are legal demands as to the publication of such reports. What is interesting to note now is the similar development taking place in what is referred to as social and ethical accounting, auditing, and reporting (SEAAR).18 Since about 1990 this eld has developed at an explosive rate. An increasing number of particularly northern European enterprises are producing ethical accounting statements, social reports, value reports, stakeholder reports, holistic reports, sustainability reports, and so on. Although, as could be expected, some of those producing such reports are major international rms, a rather large number are small- to middle-sized organizations, and among these are many public and notfor-prot enterprises (including hospitals, medical clinics, schools, railroads, communities, homes for the aged, and so on). All of these reports seek to present an expanded perspective as to corporate identity and success in comparison with the traditional nancial accounts and they all provide multi-stakeholder, multi-value proles of the corporations. Perhaps the major single characteristic that these reports share is that almost all are either built around the concept of stakeholder dialogue or profess that they will be in the future. They are not just one-way communications prepared by experts; almost all the reports invite the stakeholders to participate in the development of the reports, the methodology employed, and the development of new actions to improve corporate performance. In other words, rather than being solely based on

Page 57

Corporate Reputation: Image and Identity

managements perceptions of what is important to measure and on objective measures of performance, the reports also focus on the values and aspirations of the various parties who aect and/or are aected by the corporations decisions and actions. The greatly increasing interest in the development and implementation of these reports provides important evidence of the shift from a pragmatic perspective to a more reective perspective. Further evidence of this shift in perspectives can be found in the ongoing work in developing standards for such reports. At the conference Building Stakeholder Relations, held in Copenhagen in November, 1999, by the London-based Institute of Social and Ethical AccountAbility (ISEA), the rst detailed standards for the development of social and ethical accounting, auditing, and reporting were presented. These standards, AA1000, were developed by ISEA in close cooperation with a group of international corporations, all of whom are working to develop meaningful portrayals of corporate behavior and its eects on their various stakeholders.19 Central to these standards is, once again, the notion of stakeholder dialogue. It is clear from this ongoing work that although most certainly the corporations involved are concerned with their reputations as seen from a pragmatic perspective, they are also concerned with much broader issues of how to develop the competency to be sensitive to and to support the values of their various stakeholders, ie, a reective perspective.

CORPORATE SOCIAL RESPONSIBILITY The notion of corporate social responsibility is the nal theme to be introduced in support of the proposition that there is a shift taking place away from a purely pragmatic perspective on corporate reputation and towards a reective perspective, a shift

taking place not only in observable corporate practice but also in the mind-set of corporate leaders. In particular, reference will be made to one major component of the rather nebulous concept social responsibility responsibility to marginalized groups as regards the labor market. Such marginalized groups could include older employees who may have diculty in learning to use modern technology and therefore risk being red, the unemployed, the handicapped, and political refugees and immigrants who lack basic skills and have social/cultural patterns of behavior dierent from the local citizens. The arguments presented will primarily be based on experiences in Denmark. Indicative of the present high level of concern in Denmark for the concept of corporate social responsibility are the many active partnerships which have developed in the last few years between the Danish government, corporations, local governments, and unions. In early 1994, prior to the UN Social Summit meeting in Copenhagen in 1995, the Minister of Social Aairs, Ms Karen Jespersen, started the rst of a series of domestic initiatives on corporate social responsibility. The motive was to contribute to the long term development of the Danish social welfare society and to create a more reective atmosphere for considering the responsibilities of both government and business with regard to marginalized groups in the labor market. The underlying proposition was that corporations have a large potential for contributing to the prevention, dissolution, and solution of social problems related to the labor market without negatively aecting their eectiveness and viability. A basic assumption underlying the initiatives was that it is no longer viable for either the corporate world or government to rely on the classical distinctions between private and public domains. An understanding developed that, on the one hand,

Page 58

Pruzan

if corporations do not assume greater responsibility for the needs of the marginalized groups, they will, in the long run, undermine the healthy societal atmosphere which is a precondition for a properly functioning market and properly functioning companies; and on the other hand, that it is unacceptable to continue with government assuming the sole responsibility for these groups with the resultant high levels of taxation, insensitive bureaucracies, and an increasingly marginalized and alienated proportion of the population. The threat which both sides recognized is one of developing a more polarized society characterized by the haves and the have-nots, both with respect to work, wealth, and self-respect, and of the resultant tensions, which could exert great inuence on the whole atmosphere and quality of life in Denmark. This is to be seen in light of the temptation, stimulated by competition and the demands of shareholders, to continue considering employees as instruments or resources to be used or discarded solely on the basis of their cost-eectiveness, rather than as most important stakeholders with their own rights, values, and aspirations.20 With this background, the Ministry of Social Aairs, in teamwork with a network of leading Danish companies, initiated a series of activities designed to develop tools and processes for integrating such marginalized citizens into productive work in a way that serves the interests of all parties involved: the individual, the company, and the society. This was to be achieved by creating new forms of teamwork between the public and private domains.21 It should be clear from this brief presentation of the evolving notion of corporate social responsibility with respect to marginalized groups that the perspective is not primarily a pragmatic one; the corporations involved are committing themselves to developing a far deeper perspective on

responsibility than that promoted by traditional economic rationality. Certainly the leadership of the companies involved have considered the possible goodwill that can be won, the support to be provided by the government, and the potential benets to corporate image, all of which can inuence major stakeholders including regulators, investors, customers, employees, and others. But it is clear from the developments here that this pragmatic perspective is strongly complemented by another factor, the organizations existential dialogue with itself, a self-referential dialogue which emphasizes organizational-existential questions dealing with the notions of corporate identity, purpose, success, and responsibility.

ARE THE TWO PERSPECTIVES ON CORPORATE REPUTATION ANTITHETICAL OR MUTUALLY SUPPORTIVE? It should be clear from what has been written above that this is really a leading question; the answer has more or less been hinted at throughout the exposition. Although die-hard pragmatists will argue that any concern with the corporations reputation has only one major purpose; to protect the corporations license to operate and to contribute to its income generating potential, the author maintains that focusing solely on this perspective will most likely be counter-productive. Paradoxically speaking, a management that only emphasizes the pragmatic perspective and ignores the reective perspective may nd that its focus on economic rationality alone is irrational that it could have achieved better nancial results if its narrow focus on success had been more inclusive and involved a multi-stakeholder, multi-value perspective. In other words, rephrasing a wellknown one-liner, the business of business is more than business.

Page 59

Corporate Reputation: Image and Identity

Proponents of the pragmatic perspective tend nevertheless to predicate any discussion of the relationship between the two perspectives with the question: Does the reective perspective pay? Such a question represents a narrow instrumental view. It presumes that the corporations only real goal is to maximize its earnings and that management is to be evaluated solely against the criterion of protability a position which is in opposition to the more inclusive concept provided by the reective perspective, which holds that corporations are not simply moneymaking machines, that they have obligations, just as individuals do, to those parties that are aected by their behavior. These parties or constituencies have values which are valuable in their own right and which the corporation has an obligation to promote. It is only as a supplement to that argument that those espousing the reective perspective are willing to answer the question can it pay? in the armative. Their response is that unless these stakeholders, each with his or her own values, are respected and attention is given to their values, corporate reputation and prots will suer. But they would add on that from their perspective, prots are not valuable per se, they should be regarded as a primary means to promoting these values. They could also metaphorically refer to a phrase such as: One must breathe to live but life would be meaningless if one lived to breathe. Although, as mentioned earlier, this issue is not readily amenable to traditional empirical investigation, there is a growing body of evidence about the complementary nature of the two perspectives. Although not generally accepted as scientic, support can be found in the statements of corporate leaders who have moved from the pragmatic perspective in the direction of the reective perspective. Mention can also be made of some of the evidence pre-

sented earlier in this paper regarding the success of ethical investing. But also more direct empirical evidence is beginning to appear. This article is concluded by referring to one of these studies described by Collins and Porras (1994) in their book Built to last: Successful habits of visionary companies. The authors researched a set of exceptional American companies that stood the test of time, the average founding date being 1897. They studied these companies over their entire histories and compared them to a set of companies which had similar characteristics but did not attain the same stature as the truly visionary companies. They referred to the companies as visionary rather than successful or enduring, because they distinguished themselves as a very elite brand of institutions they are characterized by being more than successful and more than enduring. According to the authors, in most cases they are known as the best in their industries and have had such reputations for decades. Many have served as role models for the practice of leadership. As regards the topic of this paper, a fundamental conclusion of the study of the visionary companies was that they articulated a core ideology dened by Collins and Porras as consisting of core values and purposes and that the visionary companies dont merely declare an ideology; they also take steps to make the ideology pervasive throughout the organization and transcend any individual leader.22 By core values Collins and Porras mean the organizations essential and enduring tenets a small set of general guiding principles; not to be confused with specic cultural or operating practices: not to be compromised for nancial gain or short term expediency. And by purpose they mean the organizations fundamental reasons for existence beyond just making money a perpetual guiding star on the

Page 60

Pruzan

horizon: not to be confused with specic goals or business strategies. Clearly the conclusions here, which characterize these most highly reputed corporations by their fundamental reasons for existence beyond just making money, underline the signicance of the reective perspective. The corporations in question have all been highly successful according to traditional economic measures of performance and this appears to be positively correlated with the deeper, values-based, reective perspective on reputation presented in this essay.23 What is equally important for the theme of this essay is that the companies they are compared to are, for the most part, characterized by the absence of such core/shared values and purposes. In conclusion, there appear to be both strong logical arguments as well as empirical evidence that the two perspectives on corporate reputation need not be in opposition to each other, and that the reective perspective can be supportive of the pragmatic perspective with its focus on traditional notions of success. It has been argued that a pure pragmatic perspective on corporate image can lead to a lack of corporate sensitivity to the needs and aspirations of many stakeholders and individuals whose support and trust is of vital importance for corporate success and survival. It has also been argued that supplementing the primarily external image orientation of the pragmatic perspective with the internal identity perspective of the reective perspective can lead to improved corporate self-awareness, to an improved capability for reecting on corporate identity, and to more realistic methods for measuring, evaluating, and reporting on the corporations impact on its stakeholders and society as a whole in other words, to an improved and more inclusive depiction of the corporation and its performance.

ENDNOTES
1 The author will throughout use the concept of leading when referring to activities dealing with inspiring and nurturing employees and other corporate stakeholders. When on occasion the term managing is used, the reference is to activities dealing with more traditional hierarchical functions such as steering, controlling, and coordinating. 2 It should be interjected here, that the word business will be used throughout not in a strictly commercial sense; when we speak of corporations we will refer to both private and public enterprise, local governments, unions, hospitals, associations, NGOs, etc. 3 It can appear as though we always deal with images. The distinction, which will be more clear in the sequel, is that the reective perspective is less concerned with appearances and more concerned with the reality underlying these appearances; its focus is on existential rather than pragmatic enquiry. 4 Top leaders boycott unethical companies. article in Danish which shows that even some of Denmarks most highly respected corporations are regarded by Danish business leaders as ethically controversial; see Larsen (2001). 5 See, eg, K. Hjulmand (1997) Det umuliges kunst: Politik og den politiske forbruger (The art of the impossible: Politics and the political consumer), Chapter 2 (Jyllands Postens Erhvervsbogklub, Copenhagen). 6 According to David C. Korten (1995) Tort liability payments accounted for about 2.5 per cent of American GNP in 1987 (When corporations rule the world, Berrett-Koehler, p. 119). 7 According to Social Investment Forum News, November 4, 1999. 8 Screening lters out rms that produce particular products or produce products in a particular way, eg, rms that produce attack weapons, landmines, cigarettes, dangerous pesticides, rm that lack an eective environmental policy, use animal testing, employ child labor, do not have women or members of minority populations in managerial positions, etc. Such screening can also be employed positively to identify rms that produce particular products and/or produce their products in a particular way which the investor wants to support through his or her investment. Shareholder advocacy means that the investors use the power of their ownership positions to sponsor proxy resolutions on social

Page 61

Corporate Reputation: Image and Identity

issues and to work with companies to encourage more responsible levels of corporate citizenship. Community investing means that capital investments are focused on local development initiatives. Community investing means that capital investments are focused on local development initiatives, aordable housing, and small business lending in needy urban and rural areas. 9 See Guide to Dow Jones Sustainability Group Indexes, Versin 1, September 1999. For further information contact: Dow Jones Sustainability Group Index, telephone: +41 1 395 28 28 fax: +41 1 395 28 50 e-mail: info@sustainabilityindex.com website: www.sustainability-index.com 10 Information on ethical investing in the United States is collected and disseminated by, among others, the Social Investment Forum (www.socialinvest.org). A sister organization in the UK is the United Kingdom Social Investment Forum (www.uksif.org). In Europe there are a number of ethical and environmental rating groups which advise investors, eg, CaringCompany in Sweden, Ethical Investment Research and Information Service (EIRIS) in the UK, IMUG in Germany, Eco-Rating International in Switzerland, Ethibel in Belgium, Avanzi in Italy and Arese in France. In May, 2000, the European Commission sponsored a conference in Lisbon to promote the development of socially responsible investment in Europe. In the USA the Council on Economic Priorities and the Interfaith Center on Corporate Responsibility research and advocate the interests of investors and consumers. As mentioned above, the new Dow Jones Sustainability Group of Indexes is intended to provide investors with information on major international corporations that are known for integrating economic, environmental and social perspectives into their business strategies. 11 See Levering, Robert and Milton Moskowitz, The 100 Best Companies to work for in America, (Doubleday, 1994) for a large empirical study of the relationship between employee satisfaction, including pride, and corporate success. They provide empirical evidence that American companies with the best scores with respect to criteria such as job security and job possibilities, openness and fairness, the social environment, wages and benets and pride with respect to ones job and the company were not only among the

most protable companies, they tended to have the lowest job turnover and the happiest employees. 12 Family values replace the dash for cash, article by Della Bradshaw in Financial Times, 25th May, 1998. 13 Reference is made here to Larsen (2001), an article which was not published by the time that the present essay was submitted in its nal version to Corporate Reputation Review in December 2000. 14 See Peters (1999). Peters has developed the concept of Reputation Assurance for PricewaterhouseCoopers. The focus in his article is mainly one of defending corporate reputation (the title speaks of surviving the corporate jungle) and the rationale is primarily one of shareholder values rather than a more inclusive stakeholder value perspective with its focus on the values and needs of all those parties aected by the corporation. He underlines that . . .companies with good sustainable reputations are those which succeed in managing their various stakeholders together. . .; stakeholders are to be managed as resources to generate shareholder value rather than to be respected in their own right. 15 For a discussion of the notion of corporate consciousness, see Pruzan (2001). 16 Traditionally, tensions have existed between owners and managers, with the owners putting pressure on the managers to act solely in their interest. These tensions may be disappearing, not primarily due to more enlightened owners but to the fact that more and more managers are becoming owners. In major US corporations, the primary source of income for many managers is not their salaries but the income they receive via stock options and the like. According to an analysis of the incomes of managers of major American corporations performed by Pearl Meyers & Partners, New York and reported on in Why is Executive Pay Going through the Roof? AFL-CIO (1997), . . .stock options make up two-thirds of a CEOs pay. 17 In many cases the pragmatic perspective is tightly tied to a shareholder perspective on corporate success, where the primary value is stock price rather than prot. These two measures of performance are of course tightly correlated via the price-earnings ratio. 18 See Zadek, Pruzan, & Evans (1997), Building

Page 62

Pruzan

corporate AccountABility: Emerging practices in social and ethical accounting, auditing and reporting. For information on the state of the art, standards, and qualication training contact the Institute of Social and Ethical AccountAbility (ISUEA), tel: +44 20 7407 7370, fax: +44 20 7407 7388, e-mail: Secretariat@AccountAbility.org.uk, website: www.AccountAbility.org.uk 19 ISEA (1999) Accountability 1000 (AA1000): Overview of standard and its applications, and AccountAbility 1000 (AA1000) framework, standard, guidelines and professional qualication, exposure draft, London. 20 The concept of corporate social responsibility employed here should be seen against the following concept which has dominated economic/pragmatic thinking over the last 40 years: Few trends could so thoroughly undermine the foundations of our free society as the acceptance by corporate ocials of a social responsibility other than to make as much money for their shareholders as possible (Milton Friedman, Nobel Prize Laureate in Capitalism and Freedom, University of Chicago Press, 1962). 21 Such teamwork is not only informal, but may also be formalized via so-called new social partnerships (NSPs). These are partnerships between corporations, local governments, NGOs and labor unions. Research is currently being carried out on these, NSPs, not only in Denmark via the Copenhagen Centre (www.copenhagencentre.org), but also via the European Business Networks for Social Cohesion based in Brussels (www.ebnsc.org). 22 Note that this attention to visionary and pervasiveness is also closely related to such less attractive concepts as indoctrination and cultlike cultures. The authors argue that The visionary companies more thoroughly indoctrinate employees into a core ideology than the comparison companies, creating cultures so strong that they are almost cult-like around the ideology. The visionary companies more carefully nurture and select senior management based on t with a core ideology than the comparison companies. The visionary companies attain more consistent alignment with a core ideology in such aspects as goals, strategy, tactics, and organization design than the comparison companies (p. 71). 23 Yet another word of caution is called for here. The book is very American and the concepts

of values employed are not always in line with a more European approach to valuesbased leadership. In particular, there appears to be little consideration given to the notion of stakeholder dialogue or to a more inclusive perspective on whose values are in focus and how these values have originated and been perpetuated. It is also interesting to note in this context that Phillip Morris, which is heavily attacked for its production of cigarettes, is included in the books list of visionary companies.

REFERENCES
Bradshaw, D. (1998) Financial Times, May 25. Brsen (1997) April 14. p. 8, Copenhagen. Collins, J. C., and Porras, J. I. (1994) Built to last: Successful habits of visionary companies, HarperCollins Publishers, New York. Dow Jones Sustainability Group Indexes GmbH. (1999, September). Guide to Dow Jones Sustainability Group Indexes, Version 1. Available: www.sustainability-index.com Friedman, M. (1962) Capitalism and Freedom, University of Chicago Press, Chicago. Hjulmand, K. (1997) Det umuliges kunst: Politik og den politiske forbruger (The art of the impossible: Politics and the political consumer), Jyllands Postens Erhvervsbogklub, Copenhagen. Institute of Social and Ethical AccountAbility (1999) AccountAbility 1000 (AA1000): A foundation standard in social and ethical accounting, auditing, and reporting, overview of standard and its applications, and AccountAbility 1000 (AA100): Framework, standard, guidelines, and professional qualication, exposure draft, London. Korten, D. C. (1995) When corporations rule the world, Berrett-Koehler, West Hartford, CT. Larsen, T. and Srensen, M. (2001) Top leaders boycott unethical companies, (in Danish) Brsens Nyhedsmagasin, 1, 1418. Levering, R., and Moskowitz, M. (1994) The 100 best companies to work for in America, Doubleday, New York. Peters, G. (1999) Reputation assurance: Surviving the corporate jungle, Earning your reputation: What makes others respect your company, PricewaterhouseCoopers, London. PricewaterhouseCoopers, Reputation Assurance, RA5. [On-line]. Available Internet: http:// pwcglobal.com

Page 63

Corporate Reputation: Image and Identity

Pruzan, P. (1998) From control to values-based management and accountability, Journal of Business Ethics, 17, 13791394. Pruzan, P. (2001) Can corporations have consciousness? Can they have values, visions, and virtues? Journal of Business Ethics, 29, 271 284.

Social Investment Forum News (1999, November 4). [On-line]. Available Internet: http://www.socialinvest.org Zadek, S., Pruzan, P., and Evans, R. (1997) Building corporate AccountAbility: Emerging practices of social and ethical accounting, auditing, and reporting, Earthscan, London

Page 64