Be bad but (still) look good: Can controversial industries enhance corporate reputation through CSR initiatives?

• Author: Ignacio J. Duran,Claudio Aqueveque,Pablo Rodrigo
• DOI: http://doi.org/10.1111/beer.12183
• Published date: 01 July 2018
• Date: 01 July 2018

ORIGINAL ARTICLE

Be bad but (still) look good: Can controversial industries

enhance corporate reputation through CSR initiatives?

Claudio Aqueveque

1

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Pablo Rodrigo

2

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Ignacio J. Duran

3

1

Marketing Department, Business School,

Universidad Adolfo Ib

a~

nez, Regi

on de

Valparaíso, Chile

2

Strategy Department, Business School,

Universidad Adolfo Ib

a~

nez, Regi

on de

Valparaíso, Chile

3

Centre for Business Sustainability, Business

School, Universidad Adolfo Ib

a~

nez, Regi

on

de Valparaíso, Chile

Correspondence

Ignacio J. Duran, Centre for Business

Sustainability, Business School, Universidad

Adolfo Ib

a~

nez, Av. Padre Hurtado 750, Vi~

na

del Mar, Regi

on de Valparaíso, Chile.

Email: ignacio.duran@uai.cl

Even though thelink between perceived corporatesocial responsibility fit (PCSR-fit) and corporate

reputation hasreceived much attention from scholars, this traditionhas ignored that the underpin-

nings of this association vary depending on the particular characteristics of each industry under

study. To delveinto this matter, we investigate in theincreasingly relevant contextof controversial

industries (CIs) how PCSR-fit could enhance corporate reputation and which are the mediating

mechanisms of this association. Our academic contribution is twofold. First, we find that contro-

versial sectors indeed can increase corporate reputation through CSR activities. However, we find

that to achieve this goal, the nature of PCSR-fit should be different than what extant literature

indicates, becausecompanies in these settings should directly focus on avoiding or reducing their

inherent controversial harm or impact. Second, we evidence that “CSR initiatives’legitimacy”and

“situational skepticism”mediate the PCSR-fit and corporate reputation relationship in CIs. There-

fore, we further unravel the underpinnings of this association to advance what we know on the

matter and aid practitioners in this particularcontext.

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INTRODUCTION

It has been broadly documented that good evaluations of corporate

socialresponsibility(CSR) may enhancecorporate reputationamong sev-

eral stakeholders: for instance, consumers (Groza, Pronschinske, &

Walker, 2011; Hsu, 2012), employees (Brønn & Vidaver-Cohen, 2009;

Lai, Chiu, Yang, & Pai, 2010), and the gene ral public (Fombrun, 2005;

Sen, Bhattacharaya, & Korschun, 2006). B esides these findings, part of

this tradition has been evolving from analyzing stakeholder evaluations

of generic CSR initiatives toward testing “Perceived CSR-fit”(PCSR-fit),

which measures how groups assessthe coherence betweenCSR actions

and a firm’s core business (Becker-Olsen, Cudmore, & Hill, 2006; Kim &

Ferguson, in press; Nan & Heo, 2007; Sen & Bhattacharay a, 2001;

Varadarajan & Menon, 1988). The supporting rationale is that when

stakeholders perceive high levelsof PCSR-fit they tendto find responsi-

ble actions more self-explanatory, and it raises fewer questions as to

why companies engage in these actions (de Jong & van der Meer, 2017;

Du, Bhattacharya, & Sen, 2010). This fulfills stakeholders’expectations

on firms’contributions to society, fostering positive opinions about the

entity (Aksak, Ferguson, & Duman, 2016).

However, this tradition has generally neglected that certain indus-

tries are characterized by conspicuous and graver social and/or envi-

ronmental impacts, and thus stakeholders not only may exert stronger

pressure on these companies to commence CSR practices but also

might have more stringent prospects concerning firms’responsibilities

(Banerjee, Iyer, & Kashyap, 2003; Gonz

alez-Benito & Gonz

alez-Benito,

2006; Short, McKenny, Ketchen, Snow, & Hult, 2016).

1

Because how

well reputed a company is depends on the eye of beholders (Agarwal,

Osiyevskyy, & Feldman, 2015), this could affect the underpinnings of

the link between PCSR-fit and corporate reputation. In fact, Brammer

and Pavelin (2006) and P

erez, García de los Salmones, and L

opez

(2015) show that stakeholders in sectors withsevere negative external-

ities have unique views on CSR, and to gain reputation these specific

groups are the ones that should perceive adequate levels of socio-

environmentalperformance.

These settings with serious and prominent repercussions on

society and/or the environment have gradually begun to draw CSR

scholars’attention, to the point of recently forming a new research

strain coined “controversial industries”(CIs) (Lindgreen,Maon, Reast, &

Yani-de-Soriano, 2012; Sabri, 2017). This stream usually examines

theoretical and empirical aspects of “sinful”sectors (e.g.,tobacco, gam-

bling, alcohol) (Cai, Jo, & Pan, 2012; Oh, Bae, & Kim, 2017) or those

with emergent ethical issues (e.g., weapons, some extractive sectors)

(Eweje & Wu, 2010; Hilson,2012; Ranängen & Zobel, 2014).

Thus, our paper’spurpose is to study CIs to shed light on how par-

ticular aspects of these sectors may affect the foundations of the link

between PCSR-fit and corporate reputation. This is vital, as works

from organizational behavior (De Roeck & Delobbe, 2012), strategy

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C2018 JohnWiley & Sons Ltd wileyonlinelibrary.com/journal/beer BusinessEthics: A Eur Rev. 2018;27:2 22–237.

Received:27 April 2017

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Revised: 15 January2018

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Accepted:9 February 2018

DOI: 10.1111/beer.12183

(Moura-Leite, Padgett, & Gal

an, 2014), finance (Jo & Na, 2012), and

accounting (Grougiou, Dedoulis, & Leventis,2016) have upheld Palazzo

and Richter’s (2005) assertion that stakeholders in CIs not only have

distinct prospects concerning CSR due to their controversial bearing

but also react differently to these practices in contrast to regular set-

tings. Hence, we cannot necessarily extend to CIs received wisdom

(e.g., Aksak et al., 2016) on how PCSR-fit triggers reputation. To this

end, we conceptualize this issue and test our hypotheses through an

experimental design based on an international tobacco company. After

collecting a sample of 360 senior undergraduate students of a large

Chilean university, we analyze this data by using mediated regression

analysis (Hayes,2013).

We contribute to the field by expanding the tradition linking

PCSR-fit with reputation by considering how industry attributes—in

this case its “controversiality”—have key implications for this relation-

ship. We advance knowledge because results show that to increase

reputation in CIs stakeholders should perceive that firms’CSR activities

fit with the core business, but in a specific way: by directly avoiding

and/or reducing the inherent controversial impact. Moreover, we find

that “CSR initiatives’legitimacy”and “situational skepticism”fully medi-

ate this link. From this process, we highlight in our discussion section

the need of a “double CSR-fit,”in which socio-environmental initiatives

should not only match with internal strategic aspects but also match

with the prospectsof stakeholders present in each setting.From a soci-

etal lens, we discuss how our findings could even benefit non-market

actors in their fight against tobaccoprevalence. We posit that by using

our model civil society organizations (CSOs) candesign and implement

better strategies as “watchdogs”and that governments now have

incentives to constantly pass new laws to compel companies to keep

reducing the harmfrom smoking.

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LITERATURE REVIEW AND

HYPOTHESES DEVELOPMENT

2.1

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Framing the phenomenon

CSR has been generallydefined as organizational actions that takeinto

account stakeholders’expectations concerning economic, social, and

environmental performance (Aguinis & Glavas, 2012, 2013). Concern-

ing this variable, due to vast empirical evidence there seems to be an

agreement that stakeholder perceptions of CSR activities may create a

favorable reputation (e.g., Brown& Dacin, 1997; Gardberg & Fombrun,

2006; Groza et al.,2011; Hsu, 2012; Kiessling, Isaksson, & Yasar, 2016;

Lai et al., 2010; Mohr& Webb, 2005; Sen et al., 2006; Stanaland, Lwin,

& Murphy, 2011; Yoo & Pae, 2016). These works usually conceive

corporate reputat ion “as a generalized favorability that stakeholders

and observers hold toward a company”(Agarwal et al., 2015, p. 487).

A way in which this strand has been progressing is by shifting from

measuring stakeholder evaluationsof generic CSR to examining instead

the sensed “fit”between CSR and a company’score business. PCSR-fit

has been generally defined as the attributed alignment between socio-

environmentalcauses and the company’s operations,including its prod-

uct line, brand image, and target market (Becker-Olsen et al., 2006;

Bign

e, Curr

as-P

erez, & Ald

as-Manzano, 2012; Pracejus & Olsen, 2004;

Sen & Bhattacharaya, 2001; Varadarajan & Menon, 1988; Zdravkovic,

Magnusson,& Stanley, 2010).

Using stakeholder theory as an overarching framework (Freeman,

Harrison, Wicks,Parmar, & de Colle, 2010; Griffin, 2017),several stud-

ies have supported that higher levels of PCSR-fit cause beneficial firm

evaluations. The rationale is that PCSR-fit acts as a cue that attracts

stakeholders’attention, especially consumers (Deng & Xu, 2017). The

resulting process is that this fulfills their prospects regarding compa-

nies’contributions to society, which in turnimproves reputation (Aksak

et al., 2016; Tetrault-Sirsly & Lvina, in press). According to de Jong and

van der Meer (2017), Du et al. (2010), and Elving (2013), stakeholders

are more appreciative and cognizant when CSR practices stem from

the organization’s core business and value this logical connection.

Moreover, lower levelsof PCSR-fit lead stakeholders to ascribe ulterior

motives (e.g., profit or “greenwashing”) due to incongruities between

CSR and firms’operations, leading to negative responses toward the

company (Kim& Ferguson, in press; Lii & Lee,2012).

Still, most of this tradition has been homogenizinggiven that it has

ignored how the underpinnings of the link between PCSR-fit and cor-

porate reputation may vary due to particular aspects of the industries

in which firms operate (Brønn & Vidaver-Cohen, 2009; Tetrault-Sirsly

& Lvina, in press). Concerning this, certain sectors are known for their

exacerbated or debated effects on society and the environment (Bane-

rjee et al., 2003; Short et al.,2016), for example oil, tobacco, gambling,

and weapons (Gonz

alez-Benito & Gonz

alez-Benito, 2006; Grougiou

et al., 2016). Literature studying these “type”of industries has evi-

denced that how stakeholders pressure companies into initiating CSR

activities—and what these groups expect out of CSR efforts—is differ-

ent in contrast to regular sectors. Because corporate reputation

depends on stakeholder evaluations in each setting (Agarwal et al.,

2015), this issue couldaffect how they assess well-reputed enterprises.

Actually, recently Dorobantu, Henisz, and Nartey (2017) show that in

contested markets, stakeholders’beliefs regarding these industries’

negative attributes could trigger critical events (e.g., protests or boy-

cotts) that hurt firms’reputation.

Specifically in the tradition linking PCSR-fit to corporate reputa-

tion, Brammer and Pavelin (2006) support the idea that some sectors

possess graver socio-environmental impacts. These authors posit that

industries can be classified according to the severity of their external-

ities, and in each “type”employees evaluate differently the effective-

ness of CSR initiatives. Reputation will rise only if key stakeholders

perceive that responsible actions are appropriate, given the milieu (i.e.,

severe or normal externalities) in which firms operate. More recently,

P

erez et al. (2015) second this insight by arguing that stakeholders in

high-profile industries—or those with serious effects on society and/or

the environment —tend to be more demanding than those in low-

profile sectors. Because stakeholders are heterogeneous across these

industry “types,”they not always hold the same views on how enter-

prises should benefitsociety through CSR.

Arguments in the preceding paragraphs lead us to propose that

apparently a congruence is necessary not only internally (i.e., between

CSR and the firm’s core business) but also with the company’s context.

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