Halo Effect

The halo effect occurs when an overall positive impression of a person influences our evaluations of (thoughts and feelings about) that person’s individual traits. The basic point is that past, positive evaluations can affect future evaluations of a person. The halo effect is a form of cognitive bias that has been researched in a wide array of settings. For instance, positive corporate reputations create a halo that benefits the corporation. This entry explores how the concept of the halo effect originated in the performance appraisal literature and how it has been adapted for application to corporate reputations.

Early Applications: Performance Appraisal

One of the early examinations of the halo effect was in performance appraisals. If managers hold an overall favorable impression of an employee, they will rate that employee favorably on all evaluation criteria. The halo effect can occur even when the overall impression is formed based on just a few of the employee’s characteristics. A few positive characteristics can create an overall positive impression that influences future evaluation of other characteristics. The problem is so well established in the performance appraisal literature that there have been studies devoted to training interventions designed to eliminate the halo effect in performance appraisals.

Applications to Reputation Management

The halo effect extends beyond employee appraisal and individuals. It has been documented among teams, brands, and business risk audits. The halo effect does have two pertinent applications for corporate reputation. First, there can be a similar pattern of positive evaluations influencing other evaluations for corporate reputations as for individual evaluations. Second, a positive prior reputation can insulate corporations from harm during a crisis.

The application of the halo effect to corporate reputation is the logical parallel between performance appraisals and reputations. Like performance appraisals, reputations are composed of multiple dimensions such as financial performance, environmental performance, and corporate social responsibility. It would be logical to think that the halo effect would affect corporate reputations in a fashion similar to its effect on performance appraisals. It could be that how stakeholders view a corporation on one or a few reputational dimensions creates an overall reputation that colors how stakeholders view it on all the other reputational dimensions.

Research has confirmed that financial performance (a set of dimensional measures) does have a halo effect. Financial performance does help create positive evaluations for environmental and social responsibility measures. This has been termed the “financial halo effect.” Essentially, stakeholders create a positive overall impression of a corporation based primarily on its financial performance. This positive reputation acts as a halo that leads stakeholders to rate the nonfinancial dimensions of reputation positively. The financial halo effect is comparable with the halo effect found in the performance appraisal literature.

The second application of the halo effect to corporate reputation is the belief that a positive, favorable reputation insulates an organization from the reputational damage inflicted by a crisis. A crisis is a negative event that threatens to damage organizational assets. Corporate reputation is one of the corporate assets that can be damaged by a crisis.

Ronald Alsop captures the way crises damage corporate reputations with his idea of reputational capital. When a crisis occurs, it forces an organization to spend some of its reputational capital. Alsop’s point is that crises will damage reputations. A key concern in the crisis communication literature is the ability of communication to protect or restore reputational damage during and after a crisis. Image repair theory and situational crisis communication theory, the two dominant theories in crisis communication, both focus on reputation protection and repair as the primary outcomes of crisis communication.

The halo effect in a crisis demonstrates that a favorable prior reputation protects the organization from the damaging effects of a crisis. Prior reputation can create a halo effect during a crisis in one of two ways: (1) benefit of the doubt and (2) shield. Benefit of the doubt means that a favorable prior reputation will decrease attributions of crisis responsibility. Attributions of crisis responsibility have a direct effect on postcrisis reputations. An increase in attributions of crisis responsibility causes greater damage to postcrisis corporate reputations. Stakeholders might give corporations the benefit of the doubt by assigning less crisis responsibility to the corporation with the positive prior reputation.

The halo effect as shield reflects the psychological concept of expectancy confirmation. Past research indicates that people are reluctant to revise their initial expectations even when confronted with clear disconfirming evidence. A favorable prior corporate reputation could make stakeholders inclined to discount or ignore the negative information about corporations created by the crisis. The halo as shield explanation posits that stakeholders will focus on the positive aspects of the corporation and ignore the recent negative information created by the crisis because stakeholders are biased when processing new information to support previous conclusions or beliefs. The potential reputational damage from the crisis is deflected by the corporation’s reputational shield.

The idea of a reputational halo in a crisis is more speculative than evidence based. Research examining the halo effect of a reputation during a crisis has produced limited support for the existence of a halo effect. Virtually no data support the halo effect as benefit of the doubt. Prior reputation does not seem to have a significant effect on attribution of crisis responsibility. There are some data to support that a very positive prior reputation can serve as a shield that limits the damage inflicted by a crisis—the expectancy confirmation bias. There is some halo effect from prior reputation during a crisis, but it is limited. Most studies have found that corporations with positive reputations were treated similarly to organizations with neutral reputations. However, a negative prior reputation was very damaging during a crisis.