Social Capital Theory

Social capital theory examines how social relationships once formed can benefit individuals and organizations beyond their original context of creation. Social capital is a metaphor from other types of capital, an investment to be made, consisting of trustworthy networks and social relations that enable collaboration and other benefits. The value of social capital lies in its ability to transfer and facilitate other forms of capital beneficial for individuals and organizations. Social capital is beneficial only once it is mobilized, and as a system, it feeds on itself: Trusting relationships help build other trusting relationships.

Social capital benefits not only those involved but also bystanders and society at large. High levels of social capital have been linked to various societal and relational benefits, including trust, absence of corruption, reciprocity, organizational efficiency, lowered transaction costs, stakeholder relations, life satisfaction, happiness, health, and democracy. There is no one central theory of social capital, but scholars have approached it via its intangible benefits including networks, trust, reciprocity, norms, reputation, and values.

Two central aspects of social capital are network position and trust: For individuals or organizations to benefit from social capital, they must be well placed in the social network and there must be enough trust to enable the interaction and exchange. Those who can mediate between individuals or organizations may gain unique access to certain resources or actors. As social capital facilitates coordinated action, the obligations and expectations that guide relationships in social environments play a role, as do the sharing of information to enable collaboration, and the norms and sanctions that set the boundaries of social settings.

Social capital sets the expectations of outcomes in relationships. It is believed to foster a sense of community, and it has been compared with civic virtue. The theory of social capital has received new attention as real-time and social media have made the amounts of organizational social capital visible online through displaying the connections between organizations and individuals as well as their endorsements, feedback, and experiences. The value of social capital theory lies in its ability to explain how a good reputation enables collaboration in practice. In fact, social capital can be understood as the “future reputation of the organization”—as the amount of social capital will either enable or hinder interaction and collaboration in the future. This entry covers the major tenets of social capital and the origins of social capital theory. It then discusses criticism of the theory and the implications of social capital for corporate reputation.

Major Tenets

The major tenet of social capital theory is that social capital enables collaboration. Two different types of social capital have been established: bonding and bridging. Bonding, or exclusive, social capital refers to the denseness and in-group cohesion of a society or an organization, providing the mutual identity that keeps the group together. Bonding social capital has been compared to the strong ties of close family members and often is understood as the glue of social relationships.

Bridging, or inclusive, social capital can be understood as the oil that smoothens relationships between different groups and individuals. Bridging social capital refers to the links between different groups and individuals. It has been compared to the weak ties and associations individuals have with others outside their immediate in-groups.

Social capital is important for organizations as a tool to maintain resources and efficiency inside the organizations as well as obtain resources from the outside. The ways in which social capital benefits organizations include sharing of information in both the bonding and the bridging sphere—that is, both inside the organization and also among its external stakeholders. Social capital also helps maintain relationships among employees as well as among stakeholders and enables solving problems and regulating behavior. The benefits of social capital inside organizations include a harmonious organizational culture that enables collaboration, higher effectiveness, employee engagement, and group identification. Bonding social capital is important for organizations as their success depends on internal cohesion and a shared vision. Bridging social capital is important for organizations as it links the organization to its stakeholders and surroundings.

Origins

The origins of social capital theory can be found in early social theories that focus on society, trust, and collaboration. A sense of community is central for social capital, and communication has been understood to be the key for creating and maintaining a sense of community. It is the lack of a sense of community that has been blamed for the decreasing levels of social capital in society, but researchers disagree about the mechanism through which this has occurred. Some have suggested that the mass media have led to individuals taking part in fewer traditional gatherings, thus isolating individuals, while others blame corrupted societies and bad governance. When the sense of community is lost, individuals no longer trust others in society and thus lack the beneficial social networks to help them in life.

The major scholars applying the concept of social capital come from the fields of sociology and political science. Social capital was identified originally by the French sociologist Pierre Bourdieu and later studied in more detail by the American sociologist James Coleman. Ideas about social capital were further popularized by the American political scientist Robert Putnam through his field studies of democracy and collaboration. There are certain differences of approach to social capital between these contributors: Coleman and Bourdieu see social capital as an individual attribute, whereas Putnam views it as an attribute of groups and communities.

Criticisms of Social Capital Theory

As with all intangible assets, there are questions about the existence and uniqueness of social capital, as well as the explanatory factor of the evidence presented. Some have questioned whether the concept itself is actually needed and whether what is now labeled as social capital could be merely described as trustworthy relationships. Moreover, some have argued that some commonality is enough for collaboration and that social capital is not needed. Critics have also addressed the value of social capital, as it rarely alone is an explaining factor for a sense of community or trust. As social capital is often understood as a merely positive construct, critics have also addressed how, for example, bonding forms of social capital may lead to the exclusion of others and the lack of new input outside the group. The process of social capital creation remains unclear at the individual and organizational levels, as also noted by critics.

Implications for Corporate Reputation

As with many other intangibles, both social capital and reputation are by-products of social relationships that result over time from experiences. The value that social capital theory brings to understanding reputation is twofold: (1) it sets the broader societal context in which reputation operates and (2) explains the mechanism of how reputation works in practice. A high amount of social capital is linked to a good reputation and the lack of social capital to a poor reputation. Perceptions and evaluations of the trustworthiness of an organization tempt others to engage and collaborate. Good experiences with an organization make for a positive reputation and foster future trust and willingness to engage, which in turn creates new social capital for the organization. Similarly, poor experiences of an organization create a negative reputation and foster distrust and unwillingness to engage, which in turn diminishes social capital for the organization.

The two types of social capital make different contributions to reputation. Bridging social capital explains how reputation spreads through larger networks and weak ties. The bonding social capital of interorganizational cohesion, on the other hand, is needed to ensure that the actions of the organization match its good reputation, to establish a strong enough organization to create a good reputation. Both types of social capital are needed for a good reputation to exist, and it is the duration of social capital that makes reputation durable. Similarly, if social capital is destroyed, reputation is destroyed along with it.

Social capital and reputation are both by-products of social relationships, and if anyone sets out to build them, it may backfire. The advantage of social capital, however, is that it feeds on itself and unlocks other types of capital as it accumulates. In fact, a certain amount of social capital is needed to unlock the capital of organizations such as human capital, intellectual capital, and financial capital. Organizations with reciprocal, trusting stakeholder networks and a good reputation can be understood as having high amounts of social capital. As sustainability increasingly becomes the aim of organizations, the value of long-lasting relationships with different stakeholders increases, increasing the organizational social capital. This could lead to social capital becoming a reported and measured indicator of reputation.

To conclude, social capital sets the expectations of the outcomes of relationships, and it can be understood as the future reputation of an organization. High amounts of social capital have been associated with a favorable reputation. Bonding social capital is needed to establish a strong organizational identity to build reputation. Bridging social capital is needed to spread the reputation among networks. Social capital, like reputation, is created as a by-product of good social relationships, and attempts to merely build it may backfire.