The Reputational Failure of Financial Success: The ‘Bottom Line Backlash’ Effect
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- Porritt, D. Corp Reputation Rev (2005) 8: 198. doi:10.1057/palgrave.crr.1540250
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The central finding of this paper is that a company's reputation for financial success can adversely affect its overall reputation. A ‘bottom line backlash’ can result in additional hostility to companies that are seen as making large profits at the expense of other stakeholders, especially where these other stakeholders are seen as having limited choice of supplier. Media discussion of large profit announcements, especially by companies that provide what many regard as ‘essential services’, such as banking and telecommunications, reveal a widespread disapproval of profit that is seen to emerge at the expense of customers, staff and communities. This ‘bottom line backlash’ can adversely affect overall company reputation. While research has not settled the vexed issue of the relationship between social responsibility and corporate financial performance, social responsibility continues to be a key aspect of corporate reputation in the public mind. Consequently, corporate reputation is an important corporate asset.
Quantitative research asking consumers and small business managers to rate company reputations using the Harris-Fombrun Reputation Quotient questionnaire confirms that perceptions of company reputation split into two distinct factors: Relationship Reputation (the treatment of customers, staff and the wider community) and Bottom Line Reputation (delivering on the expectations of investors and financial markets). Among Australian consumers, when these aspects of reputation conflict, bottom line success can become a reputational failure. Consumers who see a company as achieving a high Bottom Line Reputation at the expense of other stakeholders are hostile to the company, and can be even more hostile than they would be if the company's Bottom Line Reputation was mediocre. On the other hand, consumers who see a company as achieving a high bottom line reputation while delivering outcomes to other stakeholders are particularly favorable. The ‘bottom line backlash’ effect has now been confirmed in three large independent samples of Australian consumers, and a fourth large sample of Australian small business managers, and should be tested in data from other countries and cultures. Issues raised by the effect concerning corporate strategy and ethics that boards and senior management need to consider carefully are identified.