The Reputation of Reputation Rankings. Abstract

The Reputation of Reputation Rankings Stephen Chen Australian National University National Graduate School of Management Canberra ACT0200 Australia Email: stephen.chen@anu.edu.au Petra Bouvain School of Business and Government University of Canberra Kirinari Street Bruce ACT 2600 and Australian National University National Graduate School of Management Canberra ACT0200 Australia Email: petra.bouvain@canberra.edu.au Abstract Reputation and Corporate social responsibility (CSR) have become one of the most pressing issues for corporations worldwide. This has been highlighted in the recent interest in corporate governance, triple bottom line reporting and reputation / social responsibility rankings. In this paper we have compared reputation, ethics and social responsibility rankings conducted by Fortune Magazine, Price Waterhouse Coopers and the Harris Fombrun Reputation Institute with those conducted by Business Ethics Magazine. The results showed that there is very little overlap between the rankings of the. Companies with strong brand visibility were more likely to be rated highly. The results lead us to think that corporate identity and corporate image management are key mediating variables in the relationship between corporate social responsible behavior and perceptions of corporate social responsibility. Key words: Corporate reputation, corporate social responsibility, corporate identity,

INTRODUCTION Corporate social responsibility (CSR) and corporate reputation have become one of the most pressing issues for corporations worldwide. This has been highlighted in the recent interest in corporate governance, triple bottom line reporting and reputation / social responsibility rankings., some of which might be confusing at times (Marquez, et al., 2005, Schultz, et al., 2001) Many consumers and businesses in the U.S. and Europe as well as in Australia are reluctant to purchase goods from manufacturers or retailers who are associated with "sweatshop" type or other socially irresponsible practices. A socially responsible corporate reputation is, therefore, becoming an important aspect of corporate branding that allows firms to differentiate their marketing mix and obtain a better position in both the business-tobusiness and the business-to-consumer markets. Shareholders in the wake of Enron are also concerned with the long-term future of and this can be seen by the growing interest in socially responsible funds, (Dembinski, et al., 2003). According to research conducted by Eiris, the size of pooled ethically screened investments has grown from 199 million pounds in 1989 to 4.200 million pounds in 2003 in Great Britain. The number of investors has also grown in these funds from 137.000 in 1997 to 470.000 in 2002 (EIRIS, 2005). Many private and institutional investors also use some type of social issue screening to exclude what they perceive to be environmentally or socially irresponsible investment choices, such as firms that exploit children and women laborers (Waddock, et al., 1997). One approach at the international level has been to set standards for corporate social responsibility (Miles, et al., 2004). However, standards are only one way of encouraging corporate social responsibility. Zadeck, (1998) lists five ways to encourage ethical behaviour: mandatory legislation, non-mandatory legislation, private external screening, voluntary codes and leadership benchmarking.

We concentrate in this paper on the latter. Benchmarking or rating of firms for corporate social responsibility and reputation has become commonplace and a variety of ranking systems are available to assist investors, consumers, and other interested parties in making choices between firms. However, as Fombrun noted in 1998, the field suffers from a lack of conceptual frameworks that justifies the rankings(fombrun, 1998). The same is still true today. What are the relationships between different ranking systems and what is the relationship between ranking and ethical behavior? In this paper we take a first step at answering these questions, in particular highlighting the key role of corporate identity and corporate image management in the process. CORPORATE SOCIAL RESPONSIBILITY The two dominant perspectives on corporate social responsibility are the economic and dutyaligned perspectives (Swanson, 1995). The economic perspective largely focuses on the firm s primary responsibility to make profits for its shareholders. This view was most clearly expressed by Friedman (1970). In contrast the duty-aligned perspective focuses on the duties of managers and firms. (Wartick, et al., 1985) suggested that CSR consisted of public responsibility and social responsiveness in addition to economic responsibility. Wood (1991) identifies three criteria by which to measure corporate social responsibility legitimacy, public responsibility and managerial discretion. Because it is not a mature academic area, there is no clear consensus on the definitions and distinctions between corporate reputation, corporate identity and corporate image (Riel, et al., 1997). Baker, et al., (1997) refer to a survey that was conducted in Britain in which 44 percent of managers equated corporate identity with visual presentation and logotype and only 4 per cent with an expression of culture, values and philosophy. Most of the literature on corporate identity is still largely practitioner oriented but academics in both the marketing and management disciplines have begun to complement the practitioner literature wi th discussions of corporate identity as a strategic management tool (Baker & Balmer, 1997, Balmer, et al., 1998, Balmer, 2001, Balmer, et al., 2003, Balmer, et al., 2000). Two different view points can

be identified in the discussion of corporate identity: a bottom up customer perspective and a more organizational top down perspective(bickerton, 2000). Melewar, (2003) defines corporate identity as: the set of meanings by which a company allows itself to be known and through which it allows people to describe, remember and relate to it. Riel (1995) defines the image of a company as an external projection of its identity. However, this relationship does not confine itself to a one-way interaction. Several authors stress that the way the audience perceives the organisation also influences the organisation s self presentation or identity (Dutton, et al., 1991, Elsbach, et al., 1996, Gray, et al., 1998). In the marketing literature `reputation' (often labelled `brand image') focuses on how subjects attribute cognitive and affective meaning to cues received about an object. Maathuis, et al., (2004) argue that corporate reputation will be important where consumers perceive a high degree of risk acquiring the product/service. Faced with incomplete information about firms' actions, observers must not only interpret the signals that firms routinely broadcast, but also rely on ratings by key intermediaries such as market analysts, professional investors, and reporters (Dando, et al., 2003). One of the major hurdles is that CSR related concepts such as social legitimacy and stakeholder responsiveness are intangible, uncertain and difficult to quantify. Nevertheless, a number of CSR ranking systems have been developed and are now commonly cited. Five of the best known are Business Ethics magazine s 100 Best Corporate Citizens, Fortune magazine s Most Admired Companies and Price Waterhouse Cooper s Most Respected Companies. The reputation rankings include some elements of social responsibility in their rankings; the best known rankings are the Harris Fombron reputation index, conducted by members of the Reputation Institute. In Australia Reputex conducts reputation rankings which are published in the Sydney Morning Herald and the Age newspaper. Table 1 provides an overview of the rankings systems. Table 1. Ranking Systems

What is measured? Companies covered Type of survey Ranking method Business Ethics Magazine Best Corporate Citizens Ethical behaviour across 7 stakeholder groups: shareholders, employees, community, minorities, customers environment, non US stakeholders 100 from Russel 1000 (largest publicly traded Expert assessment (1) Companies awarded points for strengths and deducted points for concerns in each of the 7 stakeholder categories (2) Firms with significant social scandals removed Harris Interactive Reputation of most visible (determined by consumer survey) 175 most visible from 8 countries 60 US, 25 Australia and 15 each for other countries Online and telephone interviews of consumers worldwide Most visible nominated by consumers who rate those on 20 attributes of reputation on a 7 point scale PWC The world s most respected Respect, social responsibility, Good governance CEO performance Shareholder value added Companies drawn from 25 countries weighted according to GDP Industry sectors Telephone Interview. Mail survey CEOs nominate 3 they most respect in the world and three they most respect in their industry sector Fortune most admired 9 categories including: Quality of management, investment value, social responsibility, quality products, Companies drawn from Fortune 500 Survey (1) CEO s name largest in their industry sector in key categories. (2) CEO s name the they most respect in any industry. Rated against 8 criteria Good Reputation Index Austalia by Reputex 6 categories: HRM, Ethics/Corp. Governance, Financial performance, Management and Marketing focus, Environmental Performance, Social impact BRW 100 Self reporting by complemented by stakeholder reports Survey of consumers, publicly available information, feedback from stake holder groups used to rank COMPARISON OF RANKINGS As the methodology of the various rankings schemes differs, we expected that rankings of would differ to some degree, but given the reliance placed on the rankings by

many individuals and organizations, we expected that there should be significant overlap at least in included in the lists. However, our analysis shows that there is very little overlap in the ethics/ CSR rankings conducted by Business Ethics, Fortune and PWC. (Reputex was not included in this comparison as it only deals with Australian.) Table 2 : Comparison of Ethics and Corporation Reputation Rankings Business Ethics ranking (1-100) Business Ethics ranking (1-100) Business Ethics ranking (1-100) Fortune most admired Ranking (1-35) Harris Interactive- FombrunReputation Ranking (1-60) PWC most respected Ranking (1-74) 6 in both lists 9 in both lists 6 in both lists CORPORATE IDENTITY AND IMAGE- THE MISSING LINK? One reason for the discrepancies between ranking systems could be differences in sampling and ranking criteria, as discussed above. One significant difference we noted in our research was the significant differences in screens used to exclude certain. For example, some rankings exclude in certain sectors such as contraceptives, pornography or tobacco or that operate in some countries. While there may be perfectly good reasons for this, such screens were not always immediately apparent without further investigation. We suspected that another reason could be the company image, or more precisely the lack of awareness of corporate social responsibility. In fact, the Harris-Fombrun rating explicitly recognizes the impact by including visibility as one of the criteria for company selection. Although they did not specifically examine this question there is evidence from other studies that suggest that the visibility or awareness of a company could be very important in its rating (Luce et al., 2001). For example, firms that are well known may be perceived as having more desirable attributes than firms that are relatively unknown (DiMaggio, et al., 1983). However, they may also be other reasons why well-known are favoured. First, with strong brands will generally have good PR and image management systems in place to counter any effects of CSR failures. Second, strong brands have higher CSR

rankings by virtue of being more likely to be included in the consideration set (Roberts and Lattin, 1997) of consumers and other who take part in surveys of CSR behaviour. As shown in many consumer marketing studies (e.g. Kardes et al 2002), consumers tend to overvalue brands that are in their consideration set versus brands that are not. The same may be true in CSR rankings of. To test if the strength of the corporate brand has an effect on CSR rankings we examined in the SP100 list of the world s largest by market capitalisation (thereby controlling for size effects) and compared the CSR rankings of with well-known brands (as measured by Interbrand rankings) with less well-known brands. We counted the number of appearances by in each of the two sub samples in four well-known rankings of for CSR Business Ethics magazine, Harris Fombrun, Price Waterhouse Coopers and Fortune magazine. If brand visibility has an effect then we should expect more appearances in the top CSR rankings of that are in the Interbrand list versus those that are not. Table 3 shows the results. Table 3 Comparison between Interbrand and Non-Interbrand in SP100 Appearances in Business Ethics magazine ranking Appearances in Harris Fombrun ranking Appearances in Price Waterhouse Coopers ranking Appearances in Fortune magazine ranking Actual Expected Actual Expected Actual Expected Actual Expected Interbrand (n= 37) Non- Interbrand (n= 63) 6 3 19 9 27 14 19 9 2 5 5 15 12 25 5 15 Total 8 8 24 24 39 39 24 24 Chi-square 4.8 49.516 18.831 49.516 d.f. 1 1 1 1 P-value 0.0285* 0.0001** 0.0001** 0.0001** The results show clearly that there is a statistically significant difference between CSR rankings of Interbrand and non-interbrand. This leads us to think that

corporate identity and corporate image management could be key mediating variables in the relationship between corporate social responsible behavior and perceptions of corporate social responsibility by stakeholders and, by extension, to corporate social performance. Figure 1 shows how the concepts might interrelate. C o r p o r a t e I m a g e P R P e r c e p t i o n b y e x t e r n a l s t a k e h o l d e r s C o r p o r a t e E t h i c s C S R P r o g r a m s C o m p a n y P e r f o r m a n c e C o r p o r a t e I d e n t i t y C o m p a n y c o m m u n i c a t i o n s P e r c e p t i o n b y i n t e r n a l s t a k e h o l d e r s Figure 1 CSR programs and company performance If so, it also suggests several implications for. First, it suggests that it is not enough for to do good, they must be seen to do good, both by external stakeholders as well as internal stakeholders. Second, it highlights the key role of PR in CSR programs and also a key role for corporate ethics officers in not just ensuring compliance with guidelines for ethical behaviour but also promoting ethical initiatives within the company and to outsiders.. Finally, it also highlights the need for investors, customers and other stakeholders to more carefully examine the CSR ratings commonly published in the media, particularly the methodology and criteria used for assessment. The differences can be significant. References Baker, M. J. and Balmer, J. M. T. (1997) 'Visual identity: trappings or substance?' European Journal of Marketing Vol 31 No 5/6 pp 366-382. Balmer, J. M. T. and Wilson, A. (1998) 'Corporate identity: there is more to it than meets the eye' International Studies of Management and Organization Vol 28 No 3 pp 12-31. Balmer, J. M. T. and Gray, E. R. (2000) 'Corporate identity and corporate communications: creating a competitive advantage' Industrial and Commercial Training Vol 32 No 7 pp 256-261.

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