De-Escalate Commitment? Firm Responses to the Threat of Negative Reputation Spillovers from Alliance Partners’ Environmental Misconduct

Abstract

When faced with the threat of negative reputation spillover from an alliance partner accused of environmental misconduct, the focal firm must decide whether to adopt a supportive or non-supportive response. We argue that this decision denotes a commitment escalation dilemma, but that factors previously found to increase escalation tendencies lead to de-escalation in our crisis contagion context. Specifically, we derive four hypotheses from this reverse effect proposition, and test these using a policy-capturing survey targeting Norwegian CEOs. We found that firms are more likely to select an adversary response when the alliance is of high strategic importance and has high termination costs. Conversely, firms are more likely to select an advocacy response when the alliance is of low strategic importance and has low termination costs and when the CEO was not involved in the formation of the alliance. Overall, our study answers a call for a more nuanced understanding of commitment escalation and the theory’s boundary conditions by introducing reputation spillover crisis as a contextual influencer of escalation behavior. It also extends the reputation literature and provides new evidence that reputation concerns can instigate ethical decision-making.

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Fig. 1

Notes

  1. 1.

    We incorporate insights from status research, as “status and reputation often have been used interchangeably” (Jensen and Roy 2008, p. 496) and status is “a strong correlate of reputation or a dimension that stabilizes reputation ordering” (Rhee and Valdez 2009, p. 153). To be parsimonious, we follow previous research in acknowledging but not addressing the differences between reputation and status (Rhee and Haunschild 2006; Rhee and Valdez 2009). Moreover, we incorporate insights referring to the (also closely related though different) concept of legitimacy which, as mentioned by Drees and Heugens (2013), has been operationalized as firm status in several prior studies. In a similar manner, Jonsson et al. (2009) and Sullivan et al. (2007) draw on reputation-related insights when discussing legitimacy. These decisions do not affect our hypotheses.

  2. 2.

    Emerging research (Hsueh 2017) provides evidence of asymmetrical effects (e.g., more inertia in positive spillovers than negative spillovers). Although an important issue, it is beyond the scope of this article.

  3. 3.

    In our policy-capturing study, we offer respondents the possibility to adopt a wait-and-see attitude by answering “low” to both advocacy/adversary responses.

  4. 4.

    We exclude firms with low-quality management reputation, which normally struggle to form alliances except in certain circumstances or when they possess exceptional resources (Ahuja et al. 2009; Castellucci and Ertug 2010).

  5. 5.

    Only original scenarios were used to test the hypotheses (the two duplicate scenarios were excluded from all statistical analyses).

  6. 6.

    As a supplementary check, we computed another within-respondent consistency score, ΦI, which is frequently utilized in organizational behavior and occupational psychology literature. This test–retest score was initially proposed by Hammond et al. (1975). We estimated it for each respondent using the following formula and then averaged:

     = \(\sqrt{\frac{{\sigma }_{T,i}^{2}-{\sigma }_{D,i}^{2}}{{\sigma }_{T,i}^{2}}}\),

    where \({\sigma }_{D,i}^{2}\) corresponds to the squared variance in the individual’s response to duplicate scenarios and \({\sigma }_{T,i}^{2}\) corresponds to the squared total variance in the full sample. In our sample, ΦI was equal to 0.97, which is close to the score obtained in other studies highlighting a high degree of within-respondent consistency in their samples (0.94 in Alkire and Meschi 2018, 0.94 in Kristof-Brown et al. 2002).

  7. 7.

    The average length for filling in the questionnaire by respondents is 31 min.

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Acknowledgements

The authors would like to thank Editor Jeffrey S. Harrison and two anonymous reviewers for their highly valuable remarks and suggestions. We further thank Terry Alkire, Breeda Comyns, Ante Glavas, Dovev Lavie and Frédéric Prévot for their helpful and insightful comments. Finally, we are grateful to the participating CEOs, as well as all those who provided constructive feedback on the survey instrument.

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Correspondence to Anne Norheim-Hansen.

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Appendices

Appendix 1

Vignette Presentation Order

Vignette # Strategic importance of the alliance Alliance termination costs Personal responsibility of the focal firm’s CEO Reputation for management quality
1 High High Yes High
2 Low High Yes High
3 High Low Yes High
4 Low Low Yes High
5 High High No High
6 Low High No High
7 High Low No High
8 Low Low No High
9 High High Yes Low
Duplicate 1 for vignette 3 High Low Yes High
10 Low High Yes Low
11 High Low Yes Low
12 Low Low Yes Low
13 High High No Low
14 Low High No Low
15 High Low No Low
16 Low Low No Low
Duplicate 1 for vignette 12 Low Low Yes Low

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Norheim-Hansen, A., Meschi, PX. De-Escalate Commitment? Firm Responses to the Threat of Negative Reputation Spillovers from Alliance Partners’ Environmental Misconduct. J Bus Ethics (2020). https://doi.org/10.1007/s10551-020-04543-z

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Keywords

  • Alliance partner
  • Environmental misconduct
  • Escalation theory
  • Ethical reputation
  • Policy-capturing method
  • Reputation spillover
  • Resource dependence theory