Research tidbits this week looks at what goes on behind a firm’s sustainability image.
Role of environmental practices in corporate environmental reputation
Although the literature has shown the benefits of corporate environmental reputation, little is known about how this reputation develops. Based on impression management theory, we examine how a firm’s environmental practices create its environmental reputation.
We undertake a fine-grained analysis by distinguishing between high and low environmental external visibility practices and examining the effect of decoupling environmental practices (i.e., using only practices that are highly visible) on environmental reputation. We also propose that corporate environmental disclosure moderates these relationships. The hypotheses are tested on a sample of 241 U.S. firms included in Newsweek’s Green Rankings.
Our results suggest that managers should avoid decoupling because such practices heavily jeopardize environmental reputation. In contrast, developing a balanced set of both high and low environmental external visibility practices, enhanced through environmental disclosure, pays for environmental reputation.
Matilde Morales-Raya, Inmaculada Martín-Tapia and Natalia Ortiz-de-Mandojana. 2018. To Be or to Seem: The Role of Environmental Practices in Corporate Environmental Reputation.
Organization and Environment, online February 7, 2018.
The frontstage and backstage of corporate sustainability reporting
While proponents of sustainability reporting believe in its potential to help corporations be accountable and transparent about their social and environmental impacts, there has been growing criticism asserting that such reporting schemes are utilized primarily as impression management tools.
Drawing on Goffman’s (The presentation of self in everyday life, Doubleday, New York, 1959) self-presentation theory and its frontstage/backstage analogy, we contrast the frontstage sustainability discourse of a sample of large U.S. oil and gas firms to their backstage corporate political activities in the context of the passage of the American-Made Energy and Good Jobs Act, also known as the Arctic National Wildlife Refuge (ANWR) Bill.
The ANWR Bill was designed to allow oil exploration within the most sensitive environmental areas in the Refuge and this bill was vigorously debated in the United States Congress in 2005 and 2006. Our results suggest that the firms’ sustainability discourse on environmental stewardship and responsibility contrasts sharply with their less visible but proactive political strategies targeted to facilitate the passage of the ANWR Bill.
This study thus contributes to the social and environmental accounting and accountability literature by highlighting the relevance of Goffman’s frontstage/backstage analogy in uncovering and documenting further the deceptive nature of the discourse contained in stand-alone sustainability reports. In addition, it seeks to contribute to the overall understanding of the multifaceted nature of sustainability reporting by placing it in relation to corporate political activities.
Charles H. Cho, Matias Laine, Robin W. Roberts and Michelle Rodrigue. 2018. The Frontstage and Backstage of Corporate Sustainability Reporting: Evidence from the Arctic National Wildlife Refuge Bill.
Journal of Business Ethics, 152(3), 865–886.
Mandated social disclosure: an analysis of the response to the California transparency in supply chains act of 2010
In this study, we examine investor and firm response to the California Transparency in Supply Chains Act (CTSCA) of 2010. The CTSCA requires large retail and manufacturing firms to disclose efforts to eradicate slavery and human trafficking from their supply chains and is a rare example of mandated corporate social responsibility disclosure.
Based on a sample of 105 retail companies subject to the CTSCA, we find a significant negative market reaction to the passing of the CTSCA. Furthermore, we find that the reaction is significantly more negative for larger firms and companies facing greater supply chain risks (apparel and footwear retailers), suggesting that investors place a negative value on exposure to legitimacy threats in the social domain.
With respect to company disclosure response, we document relatively high compliance with the legislation, although we also find that the disclosure response appeared to be more symbolic than substantive in nature. Finally, our analysis indicates that both disclosure choice and disclosure extensiveness were significantly higher for the high-supply chain risk companies, suggesting that the response was influenced by concerns with strategic legitimation. Overall, the limited quality of disclosure suggests that, without additional rules and guidance, mandates alone may not lead to meaningful social disclosure.
Rachel N. Birkey, Ronald P. Guidry, Mohammad Azizul Islam and Dennis M. Patten. 2018. Mandated Social Disclosure: An Analysis of the Response to the California Transparency in Supply Chains Act of 2010.
Journal of Business Ethics, 152(3), 827–841.
Effects of brand reputation and industry specialisation of assurance providers
This research focuses on examining the relationship between some attributes of assurance providers and the level of sustainability assurance. By using the propensity to issue negative conclusions in the assurance statement as an indicator of the level of assurance, the authors examine whether the brand name and industry specialisation of the practitioners have an impact on the assurance opinion issued.
Using an international sample of 1233 firm-year observations over the period 2007–2014, the findings document the impact of the brand reputation and industry specialisation of assurance providers on the level of assurance. The probability of detecting material errors and omissions in a sustainability report is higher if it is verified by a Big 4 auditing firm and by an industry expert as an assurance practitioner.
The greater experience in providing audit services and the relevant skills and training provided by Big 4 firms, as well as the greater knowledge and experience of industry experts, increase the propensity to report more accurate opinions about a sustainability report. The findings are robust for alternative measures for the level of assurance and the industry specialisation.
Jennifer Martínez-Ferrero and Isabel-María García-Sánchez. 2018. The Level of Sustainability Assurance: The Effects of Brand Reputation and Industry Specialisation of Assurance Providers.
Journal of Business Ethics, 150(4), 971–990.
Do investors see value in ethically sound CEO apologies?
Since the late 1990s, the number of apologies being offered by CEOs of large companies has exploded (Lindner in Austin American-Statesman, 2007; Adams in USA Today, 2000). Communication and management scholars have analyzed whether and why some of these apologies are more effective or more ethical than others (Souder in Sci Eng Ethics 16:175–184, 2010; Benoit in Accounts, excuses, and apologies: a theory of image restoration strategies, 1995a; Benoit and Czerwinski in Bus Commun Q 60:38–57, 1997).
Most of these analyses, however, have remained at the anecdotal level. Moreover, the practical, economic consequences of apologies have not been examined. Almost no rigorous or systematic empirical work exists that examines whether stakeholders (1) reward firms whose CEOs give apologies that are more, rather than less, ethical; and (2) punish firms whose corporate apologies are not ethically sound.
This lacuna is surprising given that the whole purpose of an apology is to restore trust between the apologizer and the recipients of the apology. It is also surprising, given that stock market participants do appear, in at least some cases, to evaluate and respond to apologies by CEOs. When Johnson and Johnson was hit by the Tylenol poisonings, its stock price plummeted. One day after CEO James Burke’s apology—an apology widely praised for being ethically sound—approximately a half billion dollars of its previously lost stock value was restored (The financial effect of Burke’s 1982 apology was calculated using Eventus data for a window −1, +1 days around the date of the actual apology.).
It appears, then, that a good CEO apology may lead to an increased stock value ceteris paribus. But is the Johnson and Johnson case representative of how the market responds in general to CEO apologies?
Daryl Koehn and Maria Goranova. 2018. Do Investors See Value in Ethically Sound CEO Apologies? Investigating Stock Market Reaction to CEO Apologies.
Journal of Business Ethics, 152(2), 311–322.
Mismanagement of sustainability: What business strategy makes the difference?
This paper examines whether and to what extent the overall business strategy influences the firm’s mismanagement of sustainability. Specifically, an empirical measure for the mismanagement of sustainability is developed by exploiting the newly available materiality guidelines for US firms to define industry-specific material sustainability issues.
Using this measure, this paper shows that mismanagement of sustainability can represent unethical business behaviour when firms intentionally perform better on immaterial issues than on material issues by diverting stakeholders’ attention from the firm’s low overall sustainability performance.
This paper assumes that the right business strategy can prevent such unethical actions. Based on Miles and Snow’s (Organizational strategy, structure and process, McGraw-Hill, New York, 1978) organisational theory, this paper distinguishes between Prospector and Defender business strategies. By employing multiple firm-level panel regressions, the findings suggest that Prospector-type firms are more likely to mismanage sustainability issues compared to Defender-type firms intentionally. The results give implications for researchers, regulators and standard setters, auditors, sustainability practitioners, and scholars.
Janine Maniora. 2018. Mismanagement of Sustainability: What Business Strategy Makes the Difference? Empirical Evidence from the USA.
Journal of Business Ethics, 152(4), 931–947.