ISSUE 23

MICHAELMAS TERM 2018 OXFORD UNIVERSITY CENTRE FOR CORPORATE REPUTATION

The Big Interview Kumi Naidoo, Secretary General of Amnesty International, on how to make corporations (including Google) do the right thing

Marketplaces on the dark web Country reputations Keeping it real How trust works in the land of the fake How perceptions of a nation’s firms From craft beer to crowdfunding, why are affected by terrorist atrocities, authenticity means such different Viewpoint – does being good pay? what influences the level of impact, things to different people Perspectives from sustainable and the buffering effect of investing and CSR research promotion strategies News and appointments COMMENT

WHAT’S THE MOTIVATION? climate change – particularly given the is not going to get any easier, but the cost recent 12-year warning from the United of being seen not to try are getting higher. Nations. That threat is already creating some interesting “bedfellows”. In this AUTHENTICALLY YOURS issue Andrew Parry of Hermes Investment The current focus on authenticity in Management (see p4), explains how business promises much: to enable Hermes is trying to put sustainability and consumers to access goods that reflect Google (“Don’t be evil”) and parent good governance on the agenda of public their values; even to embed pro- company Alphabet (“Do the right thing”) companies, with the added benefit that it social motivations into businesses and are having some difficulty convincing their can pay to do the right thing. economies. Trust academics to spoil it staff of their good intentions. Earlier this all: on p10 the winner of our latest Best year the corporation ditched Maven, an AI Both were attendees at our Activist Published Paper award, Justin Frake, project to aid the targeting of US military Congress in August, which sought to examines the inexact processes behind drones, in the face of an employee revolt. explore where practitioners and activists assumptions of authenticity. On p11 our Now comes Dragonfly, a controversial might find common ground in addressing International Research Fellow Brayden censorship-enabled and user-identifiable the questions facing humanity. A King analyses how people looking for Android search app that the company particularly striking recent example is Shell, authenticity in the context of crowdfunding has been developing with the approval of which – with some reluctance from its CEO can take it to mean entirely different things the Chinese government. Last month the – has just signed up to a pioneering series and yet act in concert. company’s employees signed up in their of commitments through engagement with hundreds to an open letter that declared: a coalition of investors under the umbrella This sometimes “We refuse to build technologies that aid of Climate Action 100+. misplaced group buy-in the powerful in oppressing the vulnerable, can nevertheless act as wherever they may be”, and pledging ‘Today I would argue a powerful reputation their support to the Amnesty International endorsement campaign against the project. that reputational and mechanism, with relational capital has a strong potential For Kumi Naidoo, Secretary General of downside. A good example is the recent Amnesty International and this issue’s Big become significantly crowdfunding efforts by the challenger bank Interview (see pp6–7), employee power more important’ Monzo, which has a Community forum is a vital brake on objectionable corporate hosting tens of thousands of committed behaviour – whether or not you agree Shell has committed to some benchmark- users. When commentators started to point that the above qualifies as such – and setting emissions targets and to a truly up a potential conflict of interest, in that something he expects to see grow, as challenging set of reporting proposals, Monzo could lend money to crowdfunders stakeholder relationships begin to make including tracing the carbon footprint of its supporting it, the pushback from its affronted an increasingly tangible contribution to an own activities, suppliers and end users along community was loud and concerted. organisation’s viability: “Once upon a time, the whole of the value chain. It is also the when we said capital, you just thought of first energy company to link remuneration But was it all from disinterested users, conventional capital. Today I would argue of the business’s leaders to its performance asked a number of commentators including that reputational and relational capital – against this set of environmental goals. the Financial Times, or were some players how you relate to the communities where exploiting the commitment of fellow you draw your labour, where you site Although the commitments are couched members for their own commercial ends? your factories and so on – has become in the form of proposals, the combination As Felipe Thomaz points out (opposite) in his significantly more important.” of reputational risk exposure, shareholder fascinating work on dark web marketplaces, and regulatory pressure – through the the construction of online identities is a Naidoo, previously head of Greenpeace, cumulative obligation to fulfil such targets hall of mirrors. That applies to authenticity, thinks this will intensify as “doing the once they are formally announced to too (see pp10–11). If you can fake it – to right thing” becomes more urgent in the investors – is likely to see Shell striving to misquote the legendary comedian George face of the existential threat of irreversible perform as promised. Doing the right thing Burns – you’ve got it made.

Reputation is a termly magazine published by the Oxford University Centre for Corporate Reputation, Saïd Business School, Oxford OX1 1HP. Tel: + 44 (0)1865 288900. Enquiries to: [email protected]. Website: www.sbs.oxford.edu/reputation ©2017 Saïd Business School. No part of this publication may be reproduced or transmitted in any form without the prior permission of the publisher.

2 OXFORD UNIVERSITY CENTRE FOR CORPORATE REPUTATION At our annual Reputation Symposium in September, Felipe Thomaz presented his groundbreaking work on illegal online marketplaces. Below are some of his findings on the key mechanisms at work, and some implications for more mainstream settings.

RESEARCH FOCUS: REPUTATIONS ON THE DARK WEB

The dark web provides refuge for behaviour of these newcomers. The better, knowledgeable extraordinary and illegal marketplaces After all, you do need some players are not exposed to where billions of dollars change hands level of trust for money that risk because they every year. If it were a country, it would be to leave somebody’s determine when the the 16th largest economy on the planet. pocket and end up in lottery collapses, and Reputation is at the heart of everything somebody else’s. If I’m their pay-outs are taken that happens on them, but it works in very a smart, full-information from the combined particular ways. player, I can rig the pool of appropriated system to generate trust “naive money”. The The basic question is: how can this between naive players in game resets with a illicit system possibly work? By virtue of a way that ensures I will new marketplace, and a how the dark web operates and privacy ultimately pocket the money. new lottery pool starts. The mechanisms, names are transient and naive buyers are certain that entities you trust today might not exist The naive players believe this time will be different, and that tomorrow. Sellers try to build a name, a themselves to be competent, but they this new black market is honest. They have brand and a reputation associated with a overvalue information and fall prey to been told as much. persona that they have created, but the common heuristics. They might see a time and opportunities to do so are limited. shop with 5,000 apparent transactions The implications of the network effects and believe this to be a true representation are important, too. We understand that The threat of authorities intervening is of its activity. They might go into a forum privacy changes behaviour. These illicit constant. The game is managing the and find people who will vouch for a seller, communities avoid connectivity and rely on perception of that persona for buyers, so without any way to validate that forum a few central organisers for coordination. that you’re manipulating the system to This results in very tight communities, support beliefs that advance your goal. ‘The naive players and on the dark web this minimises the You could, for example, suggest that threat of exposure. But beyond this darker you’re “an effective hacker”, even though believe in and behave environment, with the interconnectivity of you might know nothing about coding. The according to the social media for example, we see that the lack of stable institutions and validating average distance to any other person on information makes confirmation of claims rules created by the the network is getting much smaller, and difficult, for better and for worse. knowledgeable set’ our own “audiences” are getting larger.

The ecosystem relies on ratings, or those users’ reputations. A whole Marketing research has shown that for recommendations and discussion forums narrative is created around believability certain people, the greater an audience to establish reputations, but the entire without an ability to validate any of the you have, the more likely you are to system is built on a recursive problem: statements being made, nor their sources. actually stop talking, because the somebody will trust you because they These naive buyers accumulate enough associated reputational risk is too high trust me, but why do they trust me? It’s evidence to convince themselves of the (none of us like making public mistakes because someone else told them I was likelihood of a positive outcome: that they or looking foolish). In business, these trustworthy. If you pull that particular are likely to get what they paid for, and not growing and interconnected networks logic string enough, you find it’s built on get their money stolen or be arrested for are also governance mechanisms, one first person’s gamble. their activities. as they create consensus, increasing coordination and similarity of behaviour. In There are two tiers of players: The majority of deals actually happen, the concentrated communities of the dark knowledgeable experts with more but research shows that this ecosystem web, that serves to augment privacy with information, and newcomers who not behaves like a perverse lottery. The an abundance of lookalikes, but on the only have less information but also don’t experts need the transactions to take everyday surface, the reduction of voices know how to weigh sources of information place because it builds the lottery pool. is likely to have different consequences. and reputational cues properly. There is a Every time you transact, you expose likelihood that these naive players believe yourself to this lottery risk: you might get Felipe Thomaz is Associate Professor of in and behave according to the rules what you bought, but you might not. One Marketing at Saïd Business School. For created by the knowledgeable set, and day, you will find that the market is gone, the complete programme of our 2018 while the knowledgeable set actually trust and so is everyone you thought you Reputation Symposium, see our website no one, they do profit from the resulting knew, and so is your money. (below) under ‘Past Events’.

WWW.SBS.OXFORD.EDU/REPUTATION 3 At our Activist Congress in August, academics and practitioners explored how the aims and methods of corporations and activists might align. Below, panellist Andrew Parry of Hermes Investment Management explains the rationale behind the firm’s sustainable

VIEWPOINT: DOES IT PAY TO BE GOOD?

Hermes was originally founded or creating new markets for illustrates the cost of bad governance and as the in-house investment products, through more culture. Establishing when poor governance manager of the BT Pension impactful employment tips over into brand impairment and scheme in 1983. This models, or indirectly shareholder value destruction is not a precise heritage imbued us with through the influence science. “There is no leading source of ESG a long-term perspective they can exert down data,” as our report “ESG Investing” (2018) on investing, going the supply chain. Here makes clear. “The lack of standardised data beyond producing we work directly with on ESG matters means that ratings providers attractive risk-adjusted boards and senior often use a company’s sustainability report returns to considering executives to give them as an information source, thereby relying the wider social and the confidence and the on information that companies voluntarily environmental impact of our breathing space to be bold disclose… We use research from more behaviours and those of the and imaginative in considering than 10 different data vendors, which allows companies in which we invest. opportunities for developing more us to strengthen our conviction when mutually beneficial relationships with assessing specific ESG practices. As well as We actively exercise voting rights and stakeholders. incorporating a wide range of research from engage with company management leading providers – Sustainalytics, Trucost, and boards to challenge poor ESG We subsequently help formulate specific Bloomberg, MSCI, FactSet, ISS and CDP – (environmental, social and governance) objectives, where necessary introducing we draw on the insights of Hermes Equity performance. Impactful engagement external parties such as NGOs, social Ownership Services.” does not rely solely on the size of enterprises or other companies, to the stick that you wield, although the Studies by Hermes show that there larger and broader the voting rights you is a systematic cost in share price represent, the easier your initial access ‘Impactful engagement performance from investing in companies to a company. The strength of your does not rely solely on the in the bottom decile of governance argument is far more potent for catalysing scores: “We found that companies with corporate change. Extensive board- size of the stick you wield good or improving environmental, social level dialogue is central to delivering an – the strength of your or governance characteristics (those in the effective message, with appropriate top decile) have on average outperformed escalation where necessary, including argument is more potent’ companies with negative characteristics collaboration with other investors and (those in the lowest decile). This is being AGM appearances and, in certain help catalyse progress and support the driven by the strength of their corporate circumstances, shareholder resolutions. implementation of a strategy. This involves governance and, for the first time since our new budgets, processes and relationships investigation began in 2014, social metrics.“ Corporate engagement is shifting its – as well as the data-gathering to measure purpose to target clear outcome-orientated and report on the resultant benefits. The rise of social media and, more latterly, objectives rather than solely seeking large data sets are changing the way information or requesting establishment Some academic research suggests that investors acquire information that relies of policies and processes. It is being more engaged companies generate higher less on disclosure and takes us into an “activist” in its pursuits and acknowledging returns and that successful engagement era of discovery. Such approaches should that partnerships between multiple leads to a reduction in downside risk. worry boards that risk to reputations is stakeholders – governments, regulators, While the central objective of any growing, as sustainable investing expands NGOs, academics – are critical to success. engagement is to improve the long-term and regulatory scrutiny increases. wellbeing and success of a company, it The recent launch of the Hermes SDG is also about recognising that successful Engagement strategy is an example of engagement is about improving the overall Andrew Parry is Head of Sustainable how corporate engagement can be used quality and resilience of the system. Investing at Hermes. The centre is currently to target specific outcomes related to Such benefits are diffuse and not easy to working with Hermes, researching the role societal need. The focus is on making attribute to any specific engagement, yet of asset managers as active shareholders. small-to-mid-capitalisation companies they nonetheless are a cornerstone of the aware of how they can support the UN benefits of good stewardship. The views and opinions contained herein are those of the author and may not necessarily represent Sustainable Development Goals (SDGs). views expressed or reflected in other Hermes This may be effected through tailoring The Volkswagen emissions scandal communications, strategies or products.

4 OXFORD UNIVERSITY CENTRE FOR CORPORATE REPUTATION investment approach; below, in an excerpt from his latest book, Michael Barnett explains why a deficit in accountability to societal stakeholders has had a negative impact on the business case for socially responsible firm behaviour.

Because the corporate bottom into gold. The stakeholder is the about a firm, seeing a favourable ranking line is not firmly connected alchemical agent required had little influence on assessment. to corporate behaviour, for a firm’s good acts to the business case does transform into something People are loath to challenge their not motivate firms to valuable to the firm; established beliefs, instead discounting consistently behave likewise, when a firm or ignoring disconfirming information. in socially responsible does something bad, Reputations can thus be sticky. It seems ways. That’s a shame, it takes a stakeholder that Warren Buffett may have overstated because the business reaction to cause the the case for reputational fragility, as case offers such an firm to feel the pain. firms can rest on their laurels for a while easy, win-win path to before reputation catches up to reality. In widespread corporate Recognising the role of consonance with Buffett’s logic, though, social responsibility, one in stakeholders as the agents this also suggests that it is harder to fix a which there’s no need for heavy- that make the business case damaged reputation than it is to maintain handed formal regulation. work is an essential step forward. The it. Clearly the link between how a firm next essential step is recognising that behaves and how its stakeholders relate The argument is that if we just let the stakeholders are fallible. Most of the time to it is a loose one. But as I point out in market have at it, firms will become more most stakeholders have no idea what is another paper in Business & Society socially responsible as they doggedly going on at most firms. As Sohvi Leih and I (“The Business Case for Corporate Social pursue their own self-interest. After all, showed in a paper published in Business & Responsibility...” – https://tinyurl.com/ if they don’t make nice, they know that Society in 2018 (“Sorry to (Not) Burst Your y73aes3q ), the link between firm behaviour they will suffer in the marketplace. You and social welfare may be outright broken. may be familiar with Warren Buffett’s famous quote: “It takes 20 years to build a ‘Stakeholders are fallible – Over time, the literature has confused reputation and five minutes to ruin it. If you most of the time they have attending to stakeholders with attending think about that, you’ll do things differently.” to the needs of society. Sure, managing no idea what goes on at a firm to be responsive to the demands But how does the market actually most firms. They of its stakeholders is an important step enforce its discipline on firms? How is forward from the days of firms focusing a firm’s behaviour linked to its financial rely on intermediaries’ solely on shareholder issues. However, performance? This is where stakeholders prioritising the allocation of a firm’s limited enter the picture. The market is not some Bubble” – https://tinyurl.com/ybb6x78g), resources according to stakeholder power, soulless, shapeless monolith. It is composed cognitive constraints affect not only how as the business case prescribes, is unlikely of myriad sapient beings – stakeholders – stakeholders deal with firm misconduct to guide firms toward tackling many of who, by giving and rescinding their support, but how they deal with firm behaviour society’s pressing problems. alter the standing of these firms. in general. Lacking the ability to directly observe what is going on at all firms at all Those in society who struggle the most If a firm opens a daycare facility to ease times, stakeholders rely on intermediaries are least likely to have power adequate to the burden on working parents, it may for information about firm behaviour. garner priority from firms seeking to more be rewarded with increased loyalty from efficiently allocate their scarce resources. its current employees and improved We sought to better understand how Thus, as the business case guides firms to recruitment yield from potential new people use media to assess firms, focus on actions that maintain and improve employees. If a firm releases toxic particularly in comparison to other stakeholder relations, it seems to also be pollutants into a stream, it may be punished information they may have about these guiding firms away from involvement in by members of its community, who firms. In an experimental study, we found, many important social issues. block licenses for new facilities, and by as expected, that rankings did shape activists through protests and boycotts. what people thought about firms. But Michael Barnett is Professor of The reputation and market value of the firm there is some nuance. This influence Management & Global Business changes in accordance with changes in the was strongest when the ranking was at Rutgers Business School and an favourability of the relationships the firm congruent with other information one had International Research Fellow with the has with these and other stakeholders. I about the firm and this other information centre. Limits to Stakeholder Influence - compare it to alchemy, a process by which was negative. However, if one was Why the Business Case Won’t Save the a substance like lead magically transforms already aware of negative information World is published by Edward Elgar.

WWW.SBS.OXFORD.EDU/REPUTATION 5 Kumi Naidoo, Secretary General of Amnesty International, has honed his understanding of what makes businesses tick over many years as a prominent activist. He believes that changing the way we assess the behaviour of businesses and influencing how they relate to the world is the only way to avert an existential catastrophe for all of us.

THE BIG INTERVIEW: KUMI NAIDOO

Organising a meeting with Kumi Naidoo in the business community [who get it], out of business, we want to put fossil is no easy feat. The recently installed largely organised around the B Team and fuels out of business.’” Secretary General of Amnesty International We Mean Business. On the other end has been flying back to back around the you’ve got people who are still in denial, What business cannot do, he says, is drag world for many weeks. It’s not surprising but even the fossil fuel industry now its feet in the face of such challenges and given his packed in-tray: from state- acknowledges the science of climate say that when the regulations change, sponsored assassinations to civilian change to a large extent, [although] they then we will all change, as if they were casualties in war zones (he recently want a much slower transition from a passive players simply fulfilling global returned from Raqqa in Syria), gender fossil fuel economy to green energy.” demand. Their contribution has been discrimination, sexual rights… The Amnesty actively negative: “The fossil fuel industry website homepage is a daunting read. In the middle is the majority, “who want to falsified the science, confused the appear to be doing the right thing on climate, public debate, using billions of dollars for Reputation comes, rightly, some way down inequality, poverty and so on”. However, advertising, particularly in the US media, the pecking order, especially since it is our big business, like many consumers, has lobbying and so on.” second bite of his time: last August, shortly a systemic affliction: “Affluenza… where after he took on his new role, he joined us people have been led to believe that He cites a favourite quote from Martin in Oxford with other activists, business happiness – and even your identity – comes Luther King: “’There are certain things practitioners, academics and media for an from obscene levels of consumption.” in our world that are so immoral, unjust Activist Congress. It turned out predictably and unethical, that good decent people to be a fleeting visit, as he was only able Given this failing and others that arise should refuse to be well-adjusted.’ I would to join for our concluding Oxford Union from it, such as the global concentration argue that this is a thousand times more debate. We wanted to know more of what of capital in the hands of a few, and the valid today. The business community has he made of the proposition behind that adjusted to all sorts of abnormalities – but event, inspired by our director’s Activist ‘Campaigning against you can’t paint them in a benign way, Manifesto reworking of the communist because they lobbied for the system that original (see activistmanifesto.org): namely, 1,000 financial institutions they have right now, with minimising that businesses and activists might find rather than 50,000 regulations, environmental protections and common cause in solving the ever-more social protections.” urgent questions facing the world. How corporates, you get more would this proposition sit with a man who bang for your buck’ The rise of increasingly globalised corporate in his previous role as head of Greenpeace players to become de facto government in was renowned for headline-grabbing acts huge pay disparity between the top and many parts of the world feeds into more of confrontation with global corporations bottom of many organisations, “When sinister narratives, in his view. He cites the (most notably being arrested for scaling an businesspeople ask themselves: ‘What is infamous warning by President Eisenhower oil platform in the Arctic in 2011)? the right thing for us to do?’, that’s not an in his Farewell Address in 1961 against the easy question for them to answer.” military-industrial complex. Referencing “I think [the Congress] was a very the US bombing of Raqqa, Naidoo says: innovative, thoughtful effort,” he says. He seems nonetheless eager to engage “If Al Qaeda didn’t exist at the end of the “Some of the drivers of what led to the with those at whom his organisation Cold War, the US would almost have had to Communist Manifesto [are still with aims its brickbats (Amnesty has headline create it.” us]. The descriptions of the factories campaigns against Google, Twitter in northern England are like today’s and Shell, among others). “I am very Given his analysis of its systemic failings, factories in Bangladesh.” However, he sensitive to the leadership in the business it is clear that Naidoo wants more from is immediately at pains to emphasise community, who I’ve interacted with business than it is currently going to be what a mistake it would be to demonise and disagreed with very openly and prepared to give. Global equality is a all business in that way: “It is critically respectfully over the past 20 years.” He “red line”: “We don’t want to change important for activists that one should not recounts an apparently genial meeting dirty energy to clean energy and keep homogenise the business community. with the CEO of Shell at a recent the economic system as it is. We need One needs to understand the gradations conference: “I was saying, ‘We’ve got a green, inclusive economy.” Which and the diversity of what is happening.” nothing against energy companies. We leads us back to the central question, have a problem with [them] generating what chance is there of meaningful On climate change, for example, “I would dirty energy, which is driving us to climate engagement, let alone common ground? say you’ve got about 10 per cent of people catastrophe. We don’t want to put Shell Naidoo’s answer turns out to be a carrot

6 OXFORD UNIVERSITY CENTRE FOR CORPORATE REPUTATION and stick affair. For the stick, he gives me an example from his early days as head of Greenpeace, at the World Economic Forum at Davos. Previously, as Secretary General of Civicus World Alliance for Citizen Participation, he had been unable to get CEOs even to acknowledge his emails. Once at Greenpeace, “There were so many CEOs coming to me seeking meetings. I remember being late for one and saying, ‘Sorry, previously you guys never wanted to talk to me –’, and he said, ‘I guess we’re desperate to get you at the table, because we hope we won’t be on your menu.’”

The carrot is a somewhat bitter one: the common reality “that we are talking about of a big company with young kids was relate to the communities from where the survival of humanity on this planet, significantly greater.” He recounts the you draw your labour and where you which is fundamentally in business’s own time he asked his assistant to find (publicly site your factories”). “Once upon a time, interests. If there’s no people, there’s no available) information on a CEO’s children. when we said capital, you just thought of business.” He sees a parallel with South He turned to him in their subsequent conventional capital. Today I would argue African business towards the end of meeting after all the business strategies that reputational and relational capital have apartheid, where as a teenage campaigner become significantly more important, in a he earned his stripes. “Basically, they had ‘We are talking about changed media environment.” to adapt to survive.” the survival of humanity The trouble is that the structures The campaigning approach of Greenpeace, on this planet. If and processes of business resist the and now Amnesty, has also had to be appetite for change – like the “curse” of adapted to address new realities: in the past, there’s no people, quarterly reporting and the short-termism the classic manoeuvre was to pick two or there’s no business’ and skewed leadership incentives it three companies prominently implicated in encourages. “These structures were an issue, go after them and, if successful, had been picked over and said: “In 20 designed by humanity – they can be hope for a sector-wide spillover effect. “We years from now, your daughter ‘Sarah’ is dismantled by humanity,” says Naidoo. don’t have time today,” he says, “and there going to ask you ‘Dad, when the scientists “What’s called upon from the business are too many companies that engage in said we need to act on climate change, community, the political leadership and climate-negative activities.” Instead, “given why did you not do anything?’” The civil society is unprecedented levels of that companies have to borrow money, we interaction was a successful one. communal courage. We cannot continue follow the money. Campaigning against with an obsession to growth.” Given 1,000 financial institutions rather than Furthermore, consumers increasingly that if everyone consumed at US levels 50,000 corporates, you get more bang for want to buy from companies that do the we would need half-a-dozen-or-so your buck, as our American friends would right thing, and employees want to work Earths to sustain the consumption “the say.” For that reason, governments and for those companies. One of Amnesty’s business community must recognise that regulators are more in his sights than ever latest campaign “hits” illustrates this: incremental tinkering, baby-steps in the given the “lack of political will of those that when last month Google employees right direction, just doesn’t cut it”. control the policy-making process”. in their droves signed an open letter endorsing Amnesty’s campaign against He finishes with an appeal to the Some optimism in the quest for cross- the company’s Dragonfly censorship- disrupters in business, which might also sector alliances comes from a simpler enabled search app for the Chinese be taken as a call to join forces. “The source: our common humanity. “I do not government (see p2). business community probably has the think that a CEO of a big multinational greatest ability to secure humanity’s future loves his or her child less than the CEO of The growing importance of reputational on this planet, because they don’t have Amnesty,” he says. “At Greenpeace my and relational capital are key drivers of to play by the rules. They can make some success rate in negotiations with a CEO this change (relational being ”how you tough choices to do the right thing.”

WWW.SBS.OXFORD.EDU/REPUTATION 7 Mehmet Canayaz and Alper Darendeli examine how the overseas activities of companies suffer in the wake of terrorist attacks in their home nation.

RESEARCH FOCUS: COUNTRY REPUTATION

Recent decades have witnessed a its highest score in the image attribute in popularity”, “trendy”, “traditional” sharp increase in activity around nation “progressive”, India in “traditional”, Italy and “down-to-earth” are significantly branding. Governments now launch in “friendly”, Finland in “trustworthy”, affected by terror events. Countries country promotion agencies and invest and the United Arab Emirates in “upper such as Ireland, Greece, and Turkey have in “brand management” in the same class”. We call these attributes nation particularly high scores in these attributes way as corporations. Their objective is brands. Second, we study each of BAV’s and are therefore particularly prone to to apply corporate branding techniques image attributes separately. For example, reputational losses after terror attacks. to their countries, which will ultimately we study Italy’s scores in “progressive”, assist in the promotion of their home “traditional”, “trustworthy” and “upper To provide a channel through which terror country firms in foreign markets. class” individually. This allows us to attacks impact country image, we also identify specific image characteristics inspect how foreign media coverage of Having a bad country reputation or that are most affected by terror events. local countries changes around terror none at all is a serious handicap for a Armed with this data, we show that terror attacks. We show that terror-related country seeking to remain competitive attacks depreciate nation brand scores of media coverage of local-target countries in the global arena, and consistent with local-target countries by 9.78 per cent. in foreign-victim-country media outlets this view, the total number of country increases persistently by up to 50 per promotion offices around the globe has We conduct four supplementary cent after the terror events, and wider steadily increased from 58 in 1990 to analyses on country image. First, we find coverage of terror events in foreign media 122 in 2000, and to 236 in 2018. Amid that terror-related casualties significantly outlets is associated with incremental the rush, however, much of what we escalate the effects of terror attacks on reductions in nation brand scores. know about nation branding today, nation brand scores. In particular, if a especially its net impact on economies, foreigner dies in a local terror event, the After identifying country reputation as a is based on case studies and intuition, nation brand score of the local-target potential channel through which a firm’s not systematic empirical evidence. country drops by 14.53 per cent. overseas activities might be affected, we examine firms’ foreign segment sales. Our paper provides the first large-scale ‘Our paper provides In particular, we compare firms’ foreign empirical evidence on the causal effects of sales between foreign-victim country country reputations on firm performance the first large-scale segments and unaffected foreign country and corporate activities overseas. We empirical evidence of segments For example, if a German use a unique identification methodology. citizen gets killed in a terror attack that Specifically, we exploit the variation in how country reputations targeted the police in Turkey, we study nationalities of foreign victims in local affect firm performance’ Turkish firms’ sales in Germany against terror attacks. This variation allows us to their sales in unaffected foreign countries identify unprecedented shocks on country Second, we inspect whether distances before and after the attack. We find a image. For example, when a foreigner between local-target and foreign-victim 17.75 per cent decrease in segment sales dies tragically at a domestic terror event countries matter for our results and show and a 21.18 per cent decrease in segment (for example, a terror attack that targets that they hold across different restrictions. assets after terror attacks. Turkish citizens but also impacts a German Third, we provide a placebo test in which citizen in Turkey), it causes damage to the we examine effects of terror events on The reduction in segment sales is reputation of the local country (Turkey) the closest neighbouring country to that of particularly large after terror events with in the foreigner’s country of citizenship the foreign victim. If, for example, a Swiss casualties. Furthermore, using hand- (Germany). citizen is hit by a terror event in France, collected data on terror-related news and we study France’s reputation in Austria country promotion agencies, we show that We investigate the effects of these (i.e., the closest neighbour of Switzerland) wider coverage of terror events in foreign adverse events on country reputations rather than in Switzerland. In this placebo media outlets is associated with incremental by utilising detailed consumer surveys test, we do not find significant effects on reductions in foreign segment sales. Finally, carried out by BAV Consulting (BAV) the neighbouring countries. we compare the effect for countries that between 1993 and 2014 across 42 increase their promotion efforts by opening countries. BAV’s data allow us to Fourth, in addition to examining nation more agencies against countries that do analyse countries’ image characteristics brands, we also run tests on all BAV not, and find that country promotion efforts in multiple ways. First, we study the image attributes individually. In so doing, just before terror attacks help alleviate strongest image attribute of each country. we find the image attributes “friendly”, negative effects on foreign sales. The United States, for example, has “kind”, “fun”, “charming”, “gaining Next, we use firm names as a

8 OXFORD UNIVERSITY CENTRE FOR CORPORATE REPUTATION Back in business: police patrol the Memorial Church Christmas market in Berlin that was the site of a terrorist attack in 2016 PHOTO: REX SHUTTERSTOCK supplementary identification strategy. ‘Overall, our results overseas and its negative effect on To the extent that firm names remind corporate activities abroad? In contrast foreign consumers of product country- show that reductions in to how the issues are framed in media of-origin, they are correlated with country reputations have debates and among policymakers, we country image. Firm names therefore do not advise limiting media coverage allow us to study how “guilt by long-lasting effects on of terror events. Rather, we provide association,” i.e., the association of firms corporate activities’ evidence in support of proactive country with their countries of origin, affects promotion shielding firms against the corporate activities. As firm names are result highlights the significant impact of damaging effects of terrorism. costly to change and almost no firm in country image and firm-level associations our sample made significant alterations with it on corporate activities. to its name during our sampling period, this provides us with stable treatment Does terrorism impact the overall well- Mehmet Canayaz, formerly a doctoral and control groups. being of local-target-country firms? student supported by the centre, is To answer this question, we examine now Assistant Professor of Finance at To measure firm name and country- effects on valuation, asset growth and Smeal College of Business, Pennsylvania of-origin association, we use an open- profitability. We find that firm-level terror State University. Alper Darendelis, a source script called NamePrism. It allows exposures depreciate market-to-book former Oxford MFE (Masters in Financial us to compute “predicted nationalities” ratio by 4 per cent, asset growth by 2 per Economics) student, is now Assistant for local-target-country firms. Using cent and profit margin by 1.33 per cent. Professor of Accounting at Nanyang these, we examine whether having Technological University. “Guilty by a firm name that sounds like a name Overall, our results show that reductions Association: The Effects of Terrorism from the local-target country distorts in country reputations have long-lasting on Country Reputation and Corporate segment sales incrementally. We find effects on corporate activities. These Activity” can be viewed at https://papers. that high firm name to local-target effects are statistically significant ssrn.com/sol3/papers.cfm?abstract_ country resemblance decreases sales to and economically impactful. What id=3224538. The authors have recently foreign-victim countries by up to 25 per can governments do to prevent been awarded a Tier-1 research grant from cent relative to the sample mean. This deteriorations of their country image the Singapore Ministry of Education.

WWW.SBS.OXFORD.EDU/REPUTATION 9 While authenticity is a quality keenly sought after by both organisations and consumers, what it means to different people and how it is acquired and lost are poorly understood. Below, Justin Frake, winner of our annual award for Best Published Paper, charts how specific ratings

RESEARCH FOCUS: AUTHENTICITY

In 2011, Anheuser-Busch InBev (AB- connection between authenticity and Both allow users to create individual profiles InBev) acquired Goose Island Brewery, organisational outcomes. One difficulty and record tasting notes, ratings and one of the most respected craft brewers in identifying a relationship between reviews. They contain millions of reviews in the world. The goal of the acquisition authenticity and audience evaluations is and tens of thousands of products, but was to allow Goose Island to grow and to that inauthentic behaviour may impact while ratebeer.com displays the corporate facilitate ABInBev’s entry into the lucrative audience evaluations through a variety owner’s identity on product ratings pages, top end of the craft beer segment. of mechanisms – such as through an beeradvocate.com does not. objective impact on product quality. For some time, craft brewers seemed to I exploit this variation in the knowledge be effectively excluding corporate brewers The theoretical mechanisms that explain that a consumer has of the craft brewers’ from entering the craft beer industry. The why audiences value authenticity are also corporate ownership to identify the effect Brewers Association, a craft beer trade difficult to tease apart. One mechanism of inauthenticity on audience evaluations. group, has defined craft brewery in a way suggests that when audiences are My focus is Matilda, a beer produced by that specifically excludes craft brewers unable to perfectly assess product Goose Island after acquisition by Anheuser- who are owned by corporate brewers from quality, they will rely on other observable Busch InBev, as rated on ratebeer.com. the “craft” category. Since 2000, however, characteristics, like acts of (in)authenticity, corporate brewers have changed strategy. to make quality inferences. I put forward two hypotheses: first, that Rather than focus on creating their own craft audiences will perceive goods from products, corporate brewers have begun This study provides the first causal inauthentic producers to be lower quality to acquire craft brewers in an attempt to evidence, outside a laboratory setting, (controlling for actual product quality); and purchase their authentic identities. that organisational authenticity affects second, that audiences will perceive goods audience evaluations. It is also the first from inauthentic producers to have lower When asked why they made the purchase, symbolic value, independent of actual or one Anheuser-Busch executive explained, ‘This study provides the perceived product quality. “We bought Goose Island for what Goose Island was: authentic, very credible.” But first causal evidence, The research demonstrates that the acquisition had many detractors. Some outside a lab setting, that when authentic organisations behave believed that Goose Island ales would inauthentically, they are punished by become “watered down” like AB-InBev’s organisational authenticity audience members who are made aware other products (e.g., Bud Light). The affects audience evaluations’ of their inauthentic behaviour. Users on question I pose is how great an impact, if ratebeer.com reduced their overall ratings any, would this acquisition have on craft study to investigate the consequences significantly in the post-acquisition period beer consumers’ perceptions of Goose of inauthentic behaviour by organisations compared to those on beeradvocate.com. Island products? previously considered authentic, and the I further show that acts of inauthenticity first to empirically demonstrate that acts affect symbolic value, but do not seem to Scholars have demonstrated the of inauthenticity affect the symbolic value significantly impact audience perceptions importance of organisational authenticity in attributed to the inauthentic organisation’s of quality. My research provides the determining audience perceptions of value. products, independent of product quality or first causal evidence from the field of an These studies have identified authenticity perceptions thereof. inauthenticity discount. as an important phenomenon in a number of settings including sports, music, art and My study was made possible through “Selling Out: The Inauthenticity Discount wine. Organisational scholars are becoming an arbitrary website design difference in the Craft Beer Industry” by Justin Frake, increasingly aware that social forces affect between the two most influential and Assistant Professor at the Ross School of audience evaluations in organisational comprehensive sources of beer ratings Business, University of Michigan; https:// and market contexts. These evaluations data: ratebeer.com and beeradvocate.com. tinyurl.com/y7u4xby6. have implications for how resources are allocated between products, organisations and markets. Authenticity in particular has been recognised as an important socially constructed criterion.

Few studies, however, have demonstrated a convincing causal

10 OXFORD UNIVERSITY CENTRE FOR CORPORATE REPUTATION sites influence the reactions of craft beer fans to the purchase of a leading independent brewer; Brayden King unpacks different understandings of authenticity in the context of crowdfunding, and how these can become so influential to potential investors.

Our study begins with two simple thing when they find an organisation to be creates a form of personal connection to an questions: 1) what do people mean “authentic”. Nevertheless, regardless of organisation with which an individual has when they say that an organisation is what they mean by authentic, seeing an little or no previous experience. authentic; and 2) how does this affect organisation as such leads individuals to their evaluation of that organisation? The support the organisation, namely by making Together, our various studies suggest that context is non-equity crowdfunding, in it more likeable and thereby creating a organisational scholarship can advance the which individuals “pitch” their ideas for personal connection. Despite agreement “quest for authenticity” by paying more entrepreneurial or social projects to a that audiences seek out authentic products, attention to the underlying dimensions dispersed online community, hoping to services and experiences, scholars often within the concept and recognising that obtain support from backers in the form disagree about what authenticity actually people may, in fact, mean different things of voluntary donations. We conduct three is. Because authenticity is inherently in when referring to an organisation or object studies, using online surveys and an the eyes of the beholder, individuals may as authentic. Our results suggest, instead, experimental setting, applied to projects have different conceptions of what makes that organisations may achieve authenticity on the crowdfunding platform Indiegogo. something authentic. in multiple ways, including seeking to demonstrate commitment to intrinsic values Through analysis of the responses, we Entrepreneurs are assumed to be (i.e., moral), demonstrating uniqueness build empirically on previously proposed simultaneously driven by non-economic relative to peers (i.e., idiosyncratic), and characterisations of authenticity as a multi- rewards such as autonomy, achievement, being a highly typical representative of a dimensional construct with four types passion and commitment to a cause and by particular category (i.e., categorical). of authenticity: moral, type, idiosyncratic the potential financial and social success of and craft, finding evidence for the first their projects. External audiences must both Notably, perceptions of moral, three. Moral authenticity originates from assess the motivations of entrepreneurs to idiosyncratic, and categorical authenticity a philosophical perspective and describes are not highly correlated. However, the extent to which individuals are genuine ‘Regardless of what there is a positive correlation between in their beliefs and principles rather than the different dimensions and an overall captive to social expectations. Type or individuals mean by rating of authenticity. Thus, when people categorical authenticity captures how authentic, seeing an say that something is (in)authentic, they characteristic or representative an entity/ may actually rely on different evaluative experience is of a recognised category. organisation as such dimensions, convey entirely different Idiosyncratic authenticity is seen as an leads them to support it’ meanings, and speak past each other. expression of an actor’s moral commitment to a particular – unique/quirky – set of deliver what they promise and evaluate their The second contribution of the study is to beliefs common to moral authenticity. chances of success. The need to actively show a common underlying psychological The more unique something is, the more project authenticity may thus be particularly mechanism that links individuals’ idiosyncratically authentic it becomes. strong in nascent ventures, as one cannot assessments of an organisation’s simply rely on an organisation’s past record. authenticity with their support of it. Building on the psychology of evaluation, Regardless of why individuals find an we argue that “likeability” is a critical Psychologists have identified two features organisation to be authentic, this perception mechanism that underlies the relationship that consistently matter to evaluations makes audiences evaluate the organisation between authenticity and audiences’ of groups and individuals: warmth and as more likeable, positively influencing their support of an organisation. Likeability competence. Individuals rarely trust support. Competence, in contrast, does not indicates a personal connection to the someone if they perceive that individual have the same mediating effect. organisation, which may be especially to be unlikeable. Because warmth is important when audiences lack extensive inherently difficult to observe without “To Whom are You True? Audience experience with the organisation or product direct experience (as with crowdfunding) Perceptions of Authenticity in Nascent in question. Once individuals deem an audiences may, instead, rely on the visible Crowdfunding Ventures”, by Nevena organisation to be authentic, this perception cues of an organisation’s authenticity. Radoynovska and Brayden King is creates a psychological connection to it, forthcoming in Organization Science. ultimately leading to greater support for the We surmise that when motives or Brayden King is Professor of Management organisation net of other qualities. reputations are unobservable, individuals will & Organizations at the Kellogg School of rely on judgments of authenticity to decide Management, Northwestern University, Our study leads us to the conclusion that whether a nascent venture is likeable and and an International Research Fellow with people may not always mean the same worthy of their support. Authenticity thus the centre.

WWW.SBS.OXFORD.EDU/REPUTATION 11 NEWS

In July, our Research Fellow KEVIN CURRAN presented a paper at the EGOS Colloquium in Estonia entitled, “In or out? APPOINTMENTS exploring effects of being ranked for high reputation”. EVA SCHLINDWEIN is in another. Her aim with to join the centre as a this work is to inform both In August, the CCR hosted the Activist Research Fellow. She academia and non-profit Congress for invited academics, is working with Tom organisations about how practitioners and activists, developing Lawrence, Professor organisational reputations ideas put forward in the recently published of Strategy at Oxford can be managed when Activist Manifesto, by centre director Saïd, on the application stakeholder relationships RUPERT YOUNGER and International of institutional theory to are conflicted. Research Fellow FRANK PARTNOY. problematic yet taken-for-granted aspects of social life, such as the Eva holds a Master’s degree in KEVIN CURRAN delivered a paper at legitimacy of coercive forms of social Business Administration and a PhD the Academy of Management Annual control in US drug policy. Her research in Organisation and Management Meeting in Chicago, entitled, “Simply the interests include the application of Theory from the Friedrich Schiller best? Exploring organizational hubris”. organisation and management theories University of Jena. After obtaining her to diverse challenges for both business PhD degree in 2016, she worked as a In September, corporations, public and non-profit researcher and lecturer at the business RUPERT organisations. as well as the arts faculty, teaching YOUNGER strategic international management, presented CCR Her main focus in her work at the research methods, and various research to centre will be on the challenge for business communication courses to OMERS, the non-profit organisations to build and undergraduate and graduate students. Leading Canadian maintain favourable reputations while Private Equity scaling up in size and scope. This Since starting her PhD in 2012, Eva & Investment Firm, at their Annual includes applying an institutional work has also been working with a non- Investment Conference in Toronto. He perspective in a case study on a non- profit engaged in with children and also joined the inaugural roundtable profit organisation which experiences young adults in Germany with migrant on non-executive directors’ roles and significant growth due to the refugee backgrounds, including their education. responsibilities hosted by the Non- crisis in Germany. Its expansion taints For instance, a recent project in Executive Directors’ Association (NEDA). existing reputations with cooperation cooperation with a federal state and the See more here: www.nedaglobal.com/ partners as the organisation turns European Social Fund (ESF) focused news-and-events/reputation-in-the- into its competitor in one field of on preventing dropping out from school boardroom-a-roadmap-for-neds/. activity while remaining a cooperator through innovative teaching concepts.

We hosted our annual Reputation Symposium at Saïd Business School. The full programme is available from our by Warwick Business School, which firms; and “Communications in Proxy website (below) under “Past Events”. considers how and why unethical Contests”, https://papers.ssrn.com/ behaviour occurs in the workplace. See: sol3/papers.cfm?abstract_id=3284782, In October, the centre hosted the second https://tinyurl.com/y8tczvvq. which investigates the role that investor session of the CORPORATE AFFAIRS inattention plays in proxy contests. ACADEMY, the two-part programme for In November, ELLEN HE completed corporate affairs leaders that we run with two new working papers: “Mutual Fund In December, our Research Fellow Executive Education at Saïd Business Voting on Environmental and Social NATALIA EFREMOVA was invited to School. More information: www.sbs.ox.ac. Proposals”, https://papers.ssrn.com/ Montreal to present her work on soil uk/programmes/corporate-affairs-academy. sol3/papers.cfm?abstract_id=3284683 moisture prediction using satellite imagery, – with Bige Kahraman, Oxford Saïd, in the WiML Workshop held at the 32nd Our Research Fellows RITA MOTA and and Michelle Lowry, Drexel University – Neural Information Processing Systems ELLEN HE were contributors to a report which explores how mutual funds vote Conference. entitled, “Leading Integrity: Towards on environmental and social proposals, an organisational ethics”, published and the subsequent performance of

Contact us We welcome your feedback. Please send any comments to: [email protected]. The Oxford University Centre for Corporate Reputation is an independent research centre which aims to promote a better understanding of the way in which the reputations of corporations and institutions around the world are created, sustained, enhanced, destroyed and rehabilitated. For full details of our research and activities, and for previous issues of Reputation, see: www.sbs.oxford.edu/reputation.