Reputational Bliss

Reputational bliss is a position an organization reaches when all of its externally held reputations are positive and the organization’s choice for reputation is driven by moral directives. This entry first discusses the components necessary for reputational bliss, and then, it discusses the nature of reputational bliss.

Components of Reputational Bliss

Reputational bliss has two components: (1) the Pareto optimality and (2) the deontological ethics. The principles of both must be met.

Pareto Optimality

The principle of Pareto optimality is a normative criterion that comes from Adam Smith’s The Wealth of Nations. Under the Pareto optimality, economic actors are free to exchange with one another up to the point where further exchange would make anyone worse off. The actors start with whatever endowments that history or nature has provided them. The level of exchange is concluded when at least one of the actors cannot make himself or herself better off by any further exchange. At this point, the actors have extracted all the benefits that the exchange can provide them, whether individually or collectively, and the market has provided all the consumer satisfaction it can provide, with no consumer dissatisfaction.

Pareto optimality is pure instrumental optimization. It relies on the market actors themselves to make the claim that they are fully satisfied with no dissatisfaction and incurring no loss of benefit. Observers or third parties would not be able to make the claims for them. It uses unanimity as the basic principle of support. The moment anyone is hurt by the exchange, the Pareto principle fails.

Deontology

Deontology is a moral directive that involves a moral obligation and at least one desired end state. For example, “do no harm,” taken from Hippocrates’s Of the Epidemics, is a moral directive. In contrast, instrumentalism does not involve moral directives. What instrumentalism does have are a set of boundaries or rules of thumb, but the levels may be different for everyone. With the Pareto optimality, actors may make the claim that the instrumental conditions have been met, but third-party observers do not know what was involved or what it looks like. Observers do not know “what” makes the parties better off, only that they have chosen to get to that point.

Nature of Reputational Bliss

The key principle of reputational bliss is that in the best of all possible worlds, all of a firm’s external stakeholders hold the firm with a positive reputation. This is the outside standard. One can conceive of situations where organizations may want to demonize a competitor or an activist group with ill intentions or engage a hostile stakeholder. But if reputational bliss holds, all the reputations are positive. Then, the degree of competition, antagonism, or differentiation become unnecessary because there is no reason to create an enemy out of a friend.

Deontological and Utilitarian Reputations

When external stakeholders construct reputations for a firm, those reputations may be based on the actions or the consequences of those actions. In such a case, those reputations would be utilitarian reputations. There may be situations or consequences when the external stakeholders’ perceptions are that the firm’s conduct is guided by moral principles. This would be a deontological reputation. In other words, reputations may be constructions that are based on the firm’s performance or on the value commitments that guide its behavior. That is, good reputations can develop when observers see good effects flowing from a firm’s actions or when they see the focal firm acting on the basis of good values. Between the two, people could assume that deontological reputations are more highly valued than instrumental ones.

Thus far, the principle of reputational bliss only looks at the external stakeholders’ perspectives. What of the firm’s perspective? Firms themselves desire to create reputations for themselves. A firm’s constructed reputation could be called an instrumental reputation to the degree that the firm engages in reputation-building activities that are designed to build reputational capital or particular organizational outcomes (increased stock price, a premium price, consumer loyalty, barriers to market entry, etc.). Under such circumstances, the firm may change its reputation management strategy as the environment or market conditions change. In contrast, a firm could pursue a deontological reputation to the degree that the desired reputation is built on deontological principles and a moral directive. Under such conditions, its external observers would impute that the company’s actions are guided by principles. In addition, the firm would not change its reputation management strategy even as the environment or market conditions changed. That is, deontological reputations cannot change easily in reference to the firm’s environment because the firm’s strategy (i.e., desired reputation) is driven by stable, moral ends and not by contingent conditions or contingent benefits that change as the environment changes.

Comparing the Organization’s Desired Reputation With External Stakeholders’ Assessments

Comparing and contrasting external stakeholders’ deontological and instrumental reputational assessments of a firm with the firm’s desired deontological and instrumental reputation produces four quadrants and thus four types of reputation. When both the firm and its external stakeholders perceive that the firm is guided by deontological principles, the problem of reputation labeling is simplified because neither side needs to conduct research or explore the outcomes of the firm’s actions, given that the firm’s actions are irrelevant. Thus, the firm can be said to have a rigid reputation.

On the other hand, when both the firm and its stakeholders maintain views of the firm’s reputation as an instrumental reputation, the firm can be said to have a mutually pragmatic reputation. Here, the firm’s reputation is based on quicksand because the firm’s reputation will always be subject to assessments of the firm’s actions and outcomes, thereby always changing and subject to environmental conditions.

Within these two extremes are the environmentally adaptive reputation and the firm-adaptive reputation. The firm-adaptive reputation is one where the firm ascribes a utilitarian perspective and its external stakeholders impute a deontological motive as the basis for the firm’s reputation. Here is where classic community/public interest conflicts with organizations manifest. The reputational dialogue that unfolds makes it difficult for companies to appear to be taking the high road. Society will place a higher value on the external moral claims and so in the long run will have to adapt to environmental pressure.

In contrast, the environmentally adaptive reputation is when external stakeholders impute an instrumental motive as the basis of the firm’s motive but the firm ascribes a deontological one. An example of this scenario comes from Malden Mills, which kept its employees on the payroll rather than laying them off after a disastrous fire. Stakeholders expected a utilitarian outcome (layoffs) because that was the industry standard. Instead, what they received was a response from the company coming from a deontological orientation. One could argue that the CEO successfully convinced stakeholders to alter their expectations and adopt a deontological orientation, thereby producing a state of reputational bliss. News index databases from 2001 to 2004 revealed steady positive news coverage for the firm years after the fire, even while the CEO struggled to maintain control of his firm as it went through bankruptcy (a condition created by his insistence to follow his moral directive to keep his employees on payroll). Little mention is given to managerial miscalculations in the aftermath. In this case, the deontological observer-based reputation of Malden Mills coupled with the deontological management behavior led to a persistent positive reputation for many years.

Assumptions of Reputational Bliss

If a firm has adopted a deontological desired reputation that yields bottom-line losses, then shareholders will not be happy. Thus, the positive reputation requirement of Pareto optimality is not met and the conditions for reputational bliss fail. Reputational optimality, like Pareto optimality, sets up a condition for reputation from which no change is possible that does not raise questions about the desirability of the state attained. That is, if even one person is not happy with the firm’s reputation, the conditions for reputation optimality, and thus reputational bliss, are not present.

The framework for examining conditions for reputational bliss are based on two assumptions that must be noted to explain the framework’s importance. First, society has a bias for the truth. Second, society has a bias for actions that are acceptable to consensual moral standards. The assumptions are accompanied by an additional implicit assumption that companies cannot prosper without society’s support. That is, firms that engage in activities that fail to win the support of society do not survive in the long run.