Business and Social Reputation: Exploring the Concept and Main Dimensions of Corporate

Reputation
Author(s): Gregorio Martín de Castro, José Emilio Navas López and Pedro López Sáez
Source: Journal of Business Ethics, Vol. 63, No. 4 (Feb., 2006), pp. 361-370
Published by: Springer
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Journal of Business Ethics (2006) 63: 361-370 ? Springer 2006
DOI 10.1007/sl0551-005-3244-z

Business and Social Reputation:

Gregorio Martin de Castro
Exploring the Concept and Main
Jose Emilio Navas Lopez
Dimensions of Corporate Reputation Pedro Lopez Sdez

ABSTRACT. Different theoretical approaches highlight its two components: "business

lighting key reputation"
the growing relevance of corporate as and "social
reputation strategic reputation".
factor. Among these the arguments of the
approaches
Resource-Based View are worthwhile (Grant, KEY WORDS: social
special corporate reputation, reputation,
1991, California Management Review 33(3), 114-135; business reputation
Barney, 1999, Sloan Management Review Spring, 137

145). Nevertheless, this topic poses several methodolog

ical problems et al., 2001), as the to
(Barney unavailability
and measure this factor, that is
identify organizational
and in its nature. In this Introduction
"sociaUy complex" intangible
work, the of our research on
using findings empirical
firms, we carry out an identifica Nowadays, a good corporate reputation is one ofthe
Spanish biotechnology
tion and measurement of corporate reputation, high main business assets responsible of sustained financial
outcomes (Roberts and Dowling, 2002). This stra
tegic potential is due to its own value-creation
Dr. Martin de Castro is Assistant at the
Gregorio Professor capability, and to its intangible character, because it
Business Administration in Universidad Com
Department makes corporate reputation quite hardly to imitate by
plutense de Madrid (Spain). He has several years of research
to maintain a
competitors, aUowing superior posi
experience at CIC Spanish Knowledge Society Research tion. In the we can state that business
present day,
Centre, he holds an Expert Diploma in Intellectual Capital
management researchers and researchers
and Knowledge Management from INSEAD (France), and speciaUy

a Post-Doctoral
from the Resource-Based (Barney, 1986,1991;View
he was Research Fellow at Harvard Uni

2004?2005. He is author and co-author Deephouse, 2000; Dierickx and Cool, 1989; Grant,
versity during of
several Resource-Based Intellectual 1991) have highlighted its strategic nature.
papers concerning View,
and Knowledge Although the intangible nature is a key charac
Capital Management.
Dr. fose Emilio Navas is Professor and Head teristic in order to grant its relevance, it also makes
Lopez of the
Business Administration Department in Universidad Com very hard to perform a conceptual delimitation,
plutense de Madrid (Spain). He is author and co-author of and measurement
characterization, (Deephouse,
several books and papers concerning Technology Manage 2000). Corporate reputation holds a complex nature
ment, and Knowledge He has held
Strategy Management.
(Barney, 1986; Dowling, 2001; Grant, 1991). Its
the first Chair in Spain at I. U.
Knowledge Management
triggers are deeply rooted in the own organization,
Euroforum Escorial.
and they are tied to its creation and evolution, in an
Dr. Pedro Sdez is Assistant at the Business
Lopez Professor
unique historicaUy dependent context (Dierickx and
Administration Department in Universidad Complutense de
Cool, Thus,
1989). corporate reputation becomes
Madrid (Spain) and he was a Research Fellow atHarvard
He has several years of re highly specific for each firm. This can be one of the
University during 2004-2005.
search experience at CIC Spanish Knowledge Society Re main reasons because there are so little effort in
search Centre and he is author and co-author of several papers studying a conceptual and empirical delimitation of
concerning Resource-Based View, Intellectual Capital and this asset (Shenkar and Yuchtman-Yaar, 1997). In
Knowledge Management. this vein, we must highlight that most of the

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 362
Gregorio Martin de Castro et al.

empirical research that tries to relate corporate rep nization, that describe its capability to obtain valu
utation and competitive advantage, the information able outcomes for different stakeholders.
sources employed are mainly secondary (Deephouse, The former is quite close to the one of
definition
2000; DeQuevedo, 2001). Among other things, this Barney's (1999), who
remarks the characteristics tied
fact is due to the problems that researchers find to to organizational ? an
capabilities unique historical
make it operative. context, path dependence, social complexity, and
Taking into account these problems, this work causal ambiguity. These characteristics make them
provides a conceptual delimitation of corporate difficult to create or accumulate, and corporate rep

reputation, as weU as an identification of its main utation is pointed out as a clear example of aU of this.
dimensions: business reputation and social reputa The present reputation of a certain firm is built or
tion, and ameasurement for it in order to determine accumulated in a historical context and in unique
its nature and to aUow its measurement. circumstances that can not be
empiricaUy, surely repeated.
In order to carry out this task, our work is built Besides, as HaU (1992) argues, his survey among
upon the foUowing main sections: (i) conceptual British managers shows that firm reputation and
delimitation; (ii) identification ofthe main underly product reputation need several years to be shaped.
ing dimensions: business reputation and social repu This makes clear that the reputation is one of the
tation; and (iii) the main conclusions ofthe study. most difficult to accumulate resources. Dierickx and
Cool (1989) argue that, in order to obtain a good

reputation, several decisions about operations,

The notion of corporate reputation quality,
etc. are needed.

From providedthe definition and the main

to -
Trying conceptualize corporate reputation, characteristics that it includes causal ambiguity,
Shenkar and Yuchtman-Yaar (1997) provide a syn social complexity, slow accumulation, and path
it has been treated from - we can
thesis and comparison of how dependence find that corporate reputation
the fields of Sociology, Marketing, Law, Accoun shows a high rate of tacitness and intangibility, and
tancy, Economics, and Business Management. this makes its identification and measurement reaUy
Within the field of Business Management, there are hard. We address this issue in the next section.
several contributions around corporate reputation.

Although a quite common

it has been topic in the
literature, there is no agreement about what does it Social reputation and business reputation as
mean and what does it include. The work of a key components of corporate reputation:
Groenland (2002) tries to give some guidelines, de empirical evidence
spite ofthe fact that the own author could found in its
?
empirical qualitative research (2002: 309), "corporate Several authors highlight the complexity and the
-
is, in its essence, a emotional of Pre
reputation mainly multicHmensionality corporate reputation.

concept that is difficult to rationalize and to explicit". cisely Barney (1999) argues that reputation is a
From the review of the different contributions "sociaUy capability. These
complex" sociaUy com
(Baden-FuUer et al., 2000;
Deephouse, 2000; De plex phenomena, as stated firstly in 1991, are out of

Quevedo, 2001; DoUinger et al., 1997; Fombrun, reach for firm ability in order to get a complete
1996; Fombrun and Shanley, 1990; Groenland, influence and management, as Standifird (2001) says.
2002; Petric et al, 1999; Rao, 1994; Shenkar and Deephouse (2000) points out that corporate repu
Yuchtman-Yaar, 1997; Roberts and Dowling, 2002; tation is developed through time, with a socially

Weigelt and Camerer, 1988), as weU as from the complex process in which the firm and its stake
- - are
characteristics provided by Fombrun and Van Reil holders internal and external involved.
(1997), we can pose that corporate reputation is the In this sense, there are not
agreements about its

result ofthe process of "social legitimization" ofthe conceptual delimitation. One of the most discordant
firm. In this sense, we can understand corporate points refers to itsmultidimensionality (Fombrun and
reputation
as the coUective representation of actions Shanley, 1990). DoUinger et al. (1997) point out the
and outcomes of the past and present of the orga multidimensionality of this construct, identifying

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 Business and Social Reputation 363

three main components for reputation: managerial social responsibility among the community; and
reputation, financial reputation, and product repu (viii) value of long term investments.
tation. These dimensions are independent and rep With the purpose to deepen into the data about
resent different aspects of corporate reputation and the elements of corporate reputation we carried out
their role with different stakeholders. a survey. It was sent to CEO of Spanish biotech
From a Stakeholders Framework, another inter nology firms. FoUowing Rouse and DaeUenbach
esting proposal is due to De Quevedo (2001). In her (1999), the use of a single industry is a necessary
research, she highlights the existence of two main condition to explore intrinsic and complex organi
dimensions of corporate reputation: internal repu zational factors responsible of business success.
tation and external reputation. The first one is During our
2003 field research reached a response
related with the "business stakeholders" perception rate of 58% of the population (n=34 cases).
-
of firm activities workers, managers, shareholders, Then, we performed a factor analysis in order to
-
customers, aUies, suppliers and the second one is
identify the configuration of those elements. The
related with the external stakeholders perception of correlation matrix (Table I) will show the appro
?
firm activities society in general. These findings are priateness of this analysis. As it can be clearly
similar to Deephouse's (2000) work. appreciated, almost every correlation is positive,
Theprevious comments lead us to the determi strong and significant, which constitutes a first sign
nation of the multidimensionality of corporate rep of factor analysis appropriateness.
utation aswe have defined it, from the analysis ofthe This appropriateness is supported by the Bartlett
composition and relations of each of the elements test, which aUows to refuse the hypothesis that the
that configure corporate reputation (Fombrun, correlation matrix would be an identity matrix, and
1996; Fombrun and Shanley, 1990). These elements the Kaiser?Meyer?Olkin index, holds a value near
are: (i)managerial quality; (ii) financial strength; (iii) to one (Table II). AU of these tests claim for the
product and service quality; (iv) innovation; (v) use appropriateness of factor analysis in this case.
of corporate assets/efficiency; (vi) capability to Now we
proceed
to
extracting the factor axis, as

gather, develop, and retain talented people; (vii) weU as to interpret the results of Table III.

TABLE I
Correlation matrix

CGMQ VILR CART PSQ FS INV UA_E CGSR

Corporate Governance and 1

managerial Quality (CGMQ)

pearson correlation
Value of investments in the long run 0.796a 1
(VILR) Pearson correlation

Capability to attract, develop, and retain 0.447b 0.538a 1

talented people (CART)
Pearson correlation
Products and service quality (PSQ) 0.713a 0.726a 0.371 1
Pearson correlation
Financial strength (FS) Pearson correlation 0.563a 0.630a 0.326 0.473b 1
Innovation level (INV) Pearson correlation 0.791a 0.740a 0.634a 0.826a 0.455b 1
Use of assets/efficiency (UA_E) 0.662a 0.613a 0.226 0.514b 0.429b 0.493b 1
Pearson correlation

Community, green, and social 0.473b 0.760a 0.760a 0.609a 0.550b 0.522b 0.609a 1
responsibility (CGSR) Pearson correlation

correlation at 0.01 level correlation at 0.05 level

Significant (bilateral). Significant (bilateral).

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 364
Gregorio Martin de Castro et al.

TABLE II This fact makes necessary to detect the possible

KMO and Bartlett test existence of a financial halo in our measurement. If
its presence is confirmed, we wiU try to eUminate it
Kaiser-Meyer-Olkin measured 807 using the methodology proposed by Brown and
Bartlett test
Perry (1994).
Aprox. Chi-squared 108,888 In the scientific literature, there are two test for
FD 28 the financial halo: (i) checking that in the
detecting
Sig. 000 factor item an that
analysis every supports only axis,

explains a wide
portion of the standard deviation
(DiUon et al.,
1984); and (ii) Brown and Perry
As we can see in the com to use the determination
previous table, every (1994) propose coefficient
ponent of corporate reputation can be summarised in of the regression that takes an independent variable
one factor that explains 69% of the standard devia as financial bias index, and measured as
reputation
tion of the original data. The results of Table III, as variable. If the explained standard devi
dependent
weU as the
high correlations among the elements of ation is high and significant, this wiU be a sign of the
reputation confirm the conclusions of Fombrun and presence of financial halo.
Shanley (1990), although they obtained a factor that The first of these tests for detecting the financial
counts for the 84% of the standard deviation from bias can be assessed using the results shown in
the elements of reputation according to Fortune data. Table III. As we have commented the
above, eight
Theprevious results confirm the suspicions of elements of corporate contribute to an
reputation
financial bias in measuring a traditional
reputation, only factor that explains almost the 69% of the
issue in this kind of research (Brown and Perry, standard deviation ofthe original data. Although this
1994; Fombrun and Shanley, 1990; McGuire et al., does not
reach the 80% obtained
figure by De
1990). This financial halo or bias represents that the we can conclude that there is a
Quevedo (2001),
assessments of the different elements of corporate clear sign of the existence of financial halo.
reputation are interpreted taking into account the The other test that we use is the one proposed by
economic and financial performance of the firm. Brown and Perry (1994). With it we try to deter
This bias comes from a homogeneous sample for mine the high and significant influence of past per
the survey. In our research, as it in Fortune, formance over the measure of
happens present corporate
participants are general managers and to the original a
industry reputation. According proposal,
experts, whom are mainly worried about financial financial halo index must be created in order to
issues. This leads them to answer to the rest of measure the variable. This index was
independent
elements of in a similar built with the foUowing and financial
corporate reputation way. operational

TABLE III
Main component analysis

Initial
Component auto-values Sum of saturation at extraction
squared

Total % of standard deviation Accumulated % Total % of standard deviation Accumulated %

1
5.500 68.756 68.756 5.5 68.756 68.756
2
0.770 9.627 78.383
0.663
3 8.285 86.668
4
0.509 6.360 93.028
0.261
5 3.266 96.294
0.135
6 1.694 97.988
0.097
7 1.211 99.199
0.064
8 0.801 100.00

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 Business and Social Reputation 365

variables: (i) average ROA of the last 3 years; (ii) significant for acceptance values (Table V). Those
market value over book value of the firm; (iii) sales values are coherent with the results obtained and

log; (iv) medium increase of sales during the last validated by Brown and Perry (1994).
3 years; and (v) risk, measured as the relation
be Once the financial halo has been detected, we must
tween debts and investment. The results of this work try to correct it. FoUowing the methodology proposed
show a portion of the standard deviation of the by Brown and Perry (1994), once the financial halo has
? set been detected, with high and significant R we , must
dependent variable the ofthe eight components
- eliminate it from the components of reputation. In
of corporate reputation explained by the financial
halo index of
55%, higher than the detected by doing so, we accept that the residues obtained from the
McGuire et al.
(1990) or Fombrun and Shanley regression, namely, the portion of component that is

(1990). Nevertheless, the methodology not explained by the financial halo index, are the
developed
by Brown (1994) propose to perform nine
and Perry measurement of the components of corporate repu

multiple regressions, one for each element of repu tation without financial halo.
tation, and one more for the global reputation of From these residues or
components without

each firm. financial halo, we run a new factor analysis

to

Because of the specific of Spanish

characteristics determine the dimensions of corporate reputation
biotechnology industry, speciaUy because its emer (see Table VI).
gent state (according to the Asebio Report 2002, Then, we proceed to extract the factorial axis, as
40% of firms are younger than 2-years-old, and none weU as to discuss the results shown in Table VII.
ofthe firms ofthe sample was a public company), we FoUowing the factor weight pattern we wiU
decide to create the index according to the foUowing interpret the obtained factors.
concepts: (i) average ROA ofthe last 2 years (2001 The first factor can be understood as the corporate
and 2000); (ii) 2001 sales log; (iii) medium increase reputation related to the main issues of the core
of sales during 2001 and 2000; and (iv) risk taken in business. This way, the component that holds a
2001, measured as debts over total liabilities. higher correlation with this factor is product and
As a preliminary step to making the appropriate service quality, followed by the innovation degree of
multiple regression analysis, in Table IV we show the the firm. Besides, this factor includes elements
correlations among the variables included in the study. related to investment value in the long run, the
Then, in Table V, the results of the nine regres efficiency in the use of corporate assets, and the
sions performed (one for each component of repu capability to attract, develop and retain talented
tation, and one for global reputation) are shown. workers.

Each regression has been run over the total of our The second factor shows important weights of the
sample, according to the foUowing general expres two variables or components that it includes:
sion for the regression equation: financial strength, and social and green firm
responsibility. Once the financial bias has been
Element = ft + ftAVROA + ftRISKOl corrected, it seems coherent that social responsibility

+ ftSALELGOl + ftSALEINCR + e will be apart from the rest of components of cor

porate reputation. The lack of separation between
Where, AVROA: average ROA during the years 2000 this element and the rest was exactly the beginnings
and 2001; RISK01: financial risk taken in 2001 (total of the debate about the presence and correction of
investment over total liabilities); SALELG01: 2001 sales financial bias in the literature
(Brown and Perry,
log; SALEINCR: the average sales increase in 2001 with et al., 1984). Thus,
1994; DiUon this result support
to 2000.
respect
previous works and shows a new proof of bias cor
Lastly, we show the residue ofthe estimation that rection.
represents the value of each component of corporate Nevertheless, there is an interesting issue about
reputation free from financial bias. the inclusion of this element in the second factor,
The results ofthe nine previous regressions show with It seems appropriate
financial strength. of
a clear presence of financial halo, due to the fact that
financial strength to hold weak ties with the repu
every regression holds high regression coefficients, tation about product and service quality, or with

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 ON Si_ _ Hi

CGMQ
VILR
CART
PSQ
FS
INV
UA_E
RISKO01
CGSR
AVROA
SALELG01
SALEINCR

Element
CONSTANT
AVROA
SALELG01
SALEINCR
RISK01
Corrected
FR2
?

Correlations
among included
the in the study^ Resultsof regression
analysis in to
correct thefinancialhalop.
IV
TABLE
w variables 5>
TABLE
V order (-3.005)
(0.064)
(-2.204)
(-1.148)
4.842**
(3.736)
-0.116**
0.542
-4.519**
0.022
level
8.416**
Innovation
-7.679
lue
ate of investments Use
Governance Financial10.460***
of 8.476** strength (5.592)
(3.371)
assets/efficiency -1.697 -1.369
7.601** 8.774***(-0.308) (-0.334)
(3.413) (4.911) 9.756* 0.381(-3.910)
(1.999) (0.097) -0.29 (-2.413)
(-0.083) -0.202
Community,
green
and
7.809**
(3.241)
-2.078
-5.573**
(-0.306)
(-2.722)
(0.607)
0.216
(-2.110)-0.104**
(-2.707)
7.460**
0.683 (-0.777) (-1.974
-0.83*0.007(0.023)
(-1.993)

to attract, Global
11.402** corporate(3.366) reputation
-14.782* 8.300***
(-1.991) (4.777) -4.939
(-2.488) (-1.008) 0.021 (-3.418) (0.044) -0
-4.258* -6.215** -7.162** -5.046**
-4.567** -3.204**

-0.594b -0.657a -0.399 -0.408 -0.712a -0.675a -0.710a

Products and service 6.092*** (4.041) -0.374 -3.108** (-2.561) 0.198
-0.450

(-0.836)
SALELG01
Pearson
correlation
0.167
0.145
0.138
0.244
0.392
0.184
-0.190
0.133
-0.183
0.231
1 ^
-0.229 -0.074 -0.105 -0.043 -0.354 -0.127 0.360
-0.624a -0.434 -0.714a -0.438 -0.626a -0.610b
-0.409
-0.006

0.473b
0.609a
0.760a
0.522b
0.550b
(CGSR)
Pearson
1correlation
-0.709a

elation 0.613a 0.226 0.514b 0.429b 0.493b 1

0.826a
0.634a
0.740a
(INV)
0.791a
0.455b
Pearson
1correlation
0.662a 0.630a 0.326 0.473b 1
0.563a

at at
Correlation
Correlation is is 0.01 0.05 levellevel (bilateral).
(bilateral). > ^
(PSQ)
0.726a
0.713a
Correlation
Pearson
1
0.371
(CART)
0.447b
Pearson
0.538a
1correlation

Pearson
(VILR)
correlation
0.796a
1 significant
significant
(CGMQ)
Pearson
correlation
1
***p<0.01; *p< 0.1.
**/K0.05;
and
quality
managerial
develop
retain
and social responsibility
inrun
long
talented
people
the
quality

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 Business and Social Reputation 367

TABLE VI The second issue in determining complexity

test exogenous takes into account
KMO and Bartlett degree, complexity,
the number of resources and capabilities that are
measured 656 included in
corporate reputation.
previous The
Kaiser?Meyer?Olkin
Bartlett test paragraph and Figure 1 can justify this issue. In
Aprox. Chi-squared 73.990
testing it empiricaUy we can again use the correlation
FD 28 among the differ
coefficients, high and significant,
000 ent elements of "business
Sig. reputation" (in the
example, we find a Pearson correlation coefficient of
0.794 between and mana
"corporate governance

gerial quality" and "product and quality", service

innovation rates. Nevertheless, to appear with firm and of 0.695 between "innovation" and "efficiency
social responsibility can be explained. A priori, in using corporate assets") and the two elements that
according with the responses of the managers from the second dimension, "social reputation"
configure
this industry, social and green responsibility was the a Pearson correlation coefficient of 0.782).
(with
last element of corporate reputation ranked by rel The nature of can be
complex corporate reputation
evance (it counted for 7% of global reputation). seen graphicaUy in Figure 1.
wiU aUocate resources to social
Thus, managers only The cornmented issues lead us to state that, from
responsibility when financial surplus will be avail an empirical point of view, corporate reputation
able. This idea supports to include both elements holds a high level of complexity. This makes of it
together in the second factor, that we named "social one of the more complex firm capabilities. Although
reputation". this characteristic has been extensively highlighted
The obtained results and its discussion confirm
by the authors of the Resource-Based View (Amit
the two dimensions of reputation obtained by De and Schoemaker, 1993; Barney, 1986, 1991; Grant,
Quevedo (2001) or just defended by Brown and
1991; Roberts and Dowling, 2002), our descriptive
Perry (1994). analysis tests this point empiricaUy.
Once the two dimensions of corporate reputation
have been presented, we will discuss the validity and
reliability tests. Calculating Cronbach's a we can Conclusions: the business and social
check the reliability degree of the scale. The dimensions of corporate reputation
obtained results show figures of 0.84 for the first
factor and of 0.87 for the second one. These results This work an exploratory
presents analysis of cor
are higher than the critical level of 0.70, required for porate reputation, focused on its key
determining
accepting the reliability of the scales. dimensions empirically. Thus, to other
according
Both empirical literature review about corporate theoretical approaches (stakeholders) and previous
reputation, and in-deep interviews conducted with works (Deephouse, 2000; DeQuevedo, 2001), we
industry experts and managers (the first stage of have found two key components:
fieldwork) provide content validity for the proposed
measures. ?
Business reputation, that includes the different
From a theoretical perspective, we can affirm the of corporate related to the
aspects reputation
degree of tacitness embedded in both dimensions of agents and stakeholders that appear closely
corporate reputation (business reputation and social tied to the business activities and processes of
reputation). This fact lies in the own complexity of the firm, as customers, managers or
suppliers,
the components that corporate reputation holds (in employees.
-
example, corporate governance and managerial Social reputation, which is the result of the in
quality, capability to attract and retain talented and perceptions of other stakeholders
sights
employees, innovation, or social and green respon that are not so close to day by day business
sibility) and in the interrelations that appear among activities, as investors and the community in a
these components (see Figure 1). wider sense.

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 00
ON

Component
<*
Component
12

Initial
Components
Sum
of
auto-values
saturation
extraction
squared
at
of
rotation

%
Total
%
Total
of
Accumulated
standard
%of
%
Accumulated
standard

deviation deviation3.397
3.973
3.830
49.666
47.879
1 2.228
27.853
2.371
77.519
29.853
29.640
2
Main analysis deviation

TABLE
VII component

4 93.127
0.535
0.314
53.929
97.056
|. 80.117
0.009
100.000
SN o|
3 6 86.437
0.713 0.18570.042
99.3630.520
99.883
| O ^
8.9176.690 2.307
Rotation Method: normalization with Kaiser.
from
(free
financial
0.535
0.560
CART
a_
risk)
varimax
ExtractionMethod:Component Analysis.
CGMQ (free risk) 0.712 Main 5t
aRotation
has
3iterations.
after
converged
VILR
(free from
risk) 0.899
CGSR*(free from
risk) 0.949
INV UA_E (free (free (free
from
0.915
PSQ
financial
risk) risk) risk) 0.882 0.755
fromfinancial
financial financial
FS (free risk) financial 0.906
financial
fromfrom
Matrix of
components*
Q
rotated from
financial

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 Business and Social Reputation 369

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Figure 1. The complexity of corporate reputation.

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