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Reputation management: Sending the right signal to the right stakeholder

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  • N. A. DENTCHEV

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  • A. HEENE

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    Abstract

    Corporate reputation is the result of a signaling activity (Shapiro, 1983), based on available information about a firms’ actions (Fombrun & Shanley, 1990, p. 234). Reputation is also a yardstick of the firm’s relative standing (Shenkar & Yuchtman-Yaar, 1997), routinely used by both internal and external stakeholders (Logsdon & Wood, 2002) when making firm related decisions. However, reputation is not only formed by the information signals sent by a firm or other information intermediaries (Fombrun & Shanley, 1990). Also the stakeholders’ perceptions and interpretations of the firm’s actions (Fombrun, 2001) form corporate reputations. These perceptions and interpretations then indicate how constituents understand the information signals sent by the firm (van Riel, 1997). Violina Rindova (1997) incorporates these two aspects (signals and perceptions) to explain the formation of reputation as ‘a cumulative outcome of ongoing creation between firms, constituents, and other actors in firms’ environments.’ (p. 189) This point of view implies at least a dyadic interaction between the firm and its stakeholder if we consider the case of a firm with only one stakeholder. In the case of a firm with more than one stakeholder, reputation is the result of a complex network of interactions between the firm and its stakeholders and among the stakeholders themselves. Under such conditions of structural and dynamic complexity of interactions some stakeholder groups may not fully or correctly understand and interpret the information signals. This complexity challenges the effectiveness of reputation management. Gardberg & Fombrun (2002) have recently published a study on nominations for the ‘best overall’ and the ‘worst overall’ corporate reputations in America and in Europe. Four findings in this study catch our attention.1 Firstly, no single firm was unanimously nominated for either best or worst reputation. Secondly, four companies received an almost equal number of nominations ‘best overall’ and ‘worst overall.’ Thirdly, strong mega brands were nominated for ‘worst overall’ due to major crises, and the observation that the concerned firms showed to be incapable of adjusting public perceptions after these crises. Fourthly, Microsoft and McDonalds received nominations predominantly for best corporate reputation in the USA, but both companies were nominated predominantly for worst reputations in the EU. This all does strongly suggest that some stakeholders ‘do not see the signal.’ Yet managers have to minimize sending information signals that remain unnoticed by stakeholders, as such practices contribute to generating more costs without any positive contribution to (potential) profits. This is also an important challenge for professional organizations (e.g. consultancy agencies) when advising companies on their communication strategies, since reputation management is apparently still in its infancy (Davies & Miles, 1998; Deephouse, 2002). Hence, an analysis on the antecedents of unnoticed signals will shed more light at the fundamentals of reputation management.This paper elaborates on the problem of not perceiving an information signal by a targeted recipient. The above-mentioned problems of corporate reputation receive no attention in the reputation management literature. Our contribution to the literature is the clarification and the analysis of these problems. Beginning with a strategic management perspective on corporate reputation, the paper emphasizes the fact that unnoticed information signals squander scarce resources. It then analyzes the information problems (Stiglitz, 2000) at the different levels of information efficiency (Fama, 1970). In this analysis, the value of corporate reputation as a strategic asset is evaluated at three different levels of information efficiency to conclude that reputation can contribute at any level to solve information related problems. Consequently, a more focused signaling strategy is suggested, arguing that effective reputation management is about sending the right signal to the right stakeholder. Finally, areas for future research are proposed.

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    Bibliographic Info

    Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 03/175.

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    Length: 32 pages
    Date of creation: Apr 2003
    Date of revision:
    Handle: RePEc:rug:rugwps:03/175

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    1. Coase, R H, 1974. "The Market for Goods and the Market for Ideas," American Economic Review, American Economic Association, vol. 64(2), pages 384-91, May.
    2. Mirrlees, James A., 1996. "Information and Incentives: The Economics of Carrots and Sticks," Nobel Prize in Economics documents 1996-1, Nobel Prize Committee.
    3. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    4. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-95, December.
    5. Shapiro, Carl, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 659-79, November.
    6. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    7. Joseph E. Stiglitz, 2000. "The Contributions Of The Economics Of Information To Twentieth Century Economics," The Quarterly Journal of Economics, MIT Press, vol. 115(4), pages 1441-1478, November.
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