The phenomenon of reputational damage: What is it? What does it cause?

Reputation constitutes one distinctive element in the capitalistic competition among for-profit firms: Numerous concepts and empirical studies have been suggested, dealing with the construction and benefits of reputation as well as the financial consequences of negative reputation. Studies that examine the causes of reputational damage are, however, few and miss providing clear theoretical reasons why a reputation might be destructed. Studying the causes of reputation damage is the purpose of this paper, with a twofold agenda: First, building on institutional theory, we conceptualize how preceding illegitimate corporate behaviors can drive the destruction of corporate reputation. To capture the reputational impact of such a so-called norm-deviating behavior empirically, we deduce hypotheses which we test in a highly normative context, Corporate Social Responsibility (CSR). Building on a new global dataset of over 8,600 CSR-related social movements, or norm breaches, reported from more than 1,000 sources directed against 451 firms belonging to the Fortune reputation ranking over the 2006–2009 period, we find strong support for framed and new critique from influential sources as the main causes of reputational damages. If reputational destruction is mainly caused by social construction, we conclude that it is particularly environments skeptical of capitalism tipping the scales