Managing internal stakeholders’ views of corporate reputation

EMPI RICAL ARTICLE

Managing internal stakeholders’ views of corporatereputation

Isabel Olmedo-Cifuentes •

Inocencia Marıa Martınez-Leon • Gary Davies

Received: 6 March 2012 / Accepted: 28 March 2013

� Springer-Verlag Berlin Heidelberg 2013

Abstract The aims of this paper are to determine what constitutes internal rep-

utation from the perspectives of both senior managers and employees and to use this

understanding to create and assess measures of internal reputation. We also

hypothesise and test the relationships between the views of each group and per-

formance, using data from a survey of auditing firms. Manager views of reputation

are found to co-vary with performance and to have a significant influence over

employee views of reputation. We use these findings to illustrate how employee

views of reputation can be managed.

Keywords Corporate reputation � Performance � Auditing � Services � Internal

stakeholders

1 Introduction

A company’s reputation is widely recognised as a key intangible asset, one that has

been argued to influence value creation (De Quevedo 2003; Borraz and Fuentelsaz

2005; De Quevedo et al. 2005) and profit (Fombrun, Gardberg and Server 2000;

Wessels 2003; Villafane 2004). Employees contribute to the formation of corporate

reputation through their interactions with other stakeholders (Helm 2007, 2011).

I. Olmedo-Cifuentes (&) � I. M. Martınez-Leon

Departamento de Economıa de la Empresa, Facultad de Ciencias de la Empresa, Universidad

Politecnica de Cartagena, C/Real, 3, 30201 Cartagena, Murcia, Spain

e-mail: [email protected]

I. M. Martınez-Leon


G. Davies (&)

Manchester Business School, Booth Street West, Manchester M15 6PB, UK


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Serv Bus

DOI 10.1007/s11628-013-0188-8

Thus, having a good reputation among employees is an important aspect of a

strong reputation (Davies et al. 2010). This is because the greatest leverage over

reputation can often be achieved through them (Fombrun et al. 2000), particularly

when they shape other stakeholders’ perceptions of the firm (Helm 2011). While it

is widely accepted that employees play an important role in reputation management

(Helm 2011), what companies can and should do to improve their reputation in the

eyes of even existing employees is unclear. One aspect of the issue is that there is

little consensus as to the definition of corporate reputation (Brown et al. 2006). One

explanation is that the construct has several dimensions (Weigelt and Camerer 1988;

Dollinger et al. 1997; Ferguson et al. 2000; De Quevedo 2003); another that the term

is used in several disciplines to indicate different, if overlapping, ideas (Fombrun

and van Riel 1997; Arbelo and Perez 2001; Rindova et al. 2005). Drawing upon the

definitions that appear most frequently cited in the literature, corporate reputation

was defined by Olmedo-Cifuentes and Martınez-Leon (2011) as the ‘estimate of the

global perception that different stakeholders have about a company, evaluated

through a set of dimensions and attributes that create value, are linked to the

organisation and distinguish it from the rest’. This is the definition we adopt here.

Services dominate modern economies, for example, they represent 73 % of the

GDP of Britain (Tily 2006) and 68 % of the GDP of Spain (Cuadrado and Maroto

2009) and reputation management is relatively important in the services sector.

Service organisations tend to present themselves to all stakeholders under a single

name and not to brand individual product lines separately, as is the norm in many

consumer goods companies. The latter often rely upon heavy expenditure on

advertising in managing the reputation of their individual product brands. Service

organisations tend to place far less emphasis on advertising, indeed Davies et al.

(2010) could show that a major influence on customers’ views of reputation came

from their quality of interaction with employees (see also Davies et al. 2003; Helm

2007, 2011). Davies et al. (2010) advise that managing reputation, particularly for

service organisations, should focus on improving the employee view of the firm,

which in turn requires an understanding of its antecedents and of how the employee

view can be influenced by management. This is a complex matter as the reputation

of a firm in the eyes of its stakeholders is the consequence of all the firm’s prior

actions that influence those same stakeholders (Fombrun 1996).

If reputation among employees has a significant role in shaping its market

performance (Fombrun 1996; Davies et al. 2010) then an understanding of how

reputation can be influenced should provide a useful starting point for managers

seeking to improve that performance. However, while some authors argue that

having a good reputation leads to better market performance (see for example Bergh

et al. 2010), others claim a different order effect, that companies exhibiting stronger

market performance will enjoy superior reputation (see for example Lange et al.

2011). Many of the analyses exploring the links between reputation and, in

particular, financial performance can be challenged as they rely upon measures of

reputation which themselves contain assessments of the performance being

predicted. Furthermore, in many studies, reputation has been measured not among

the customers or employees who create market performance but among market

analysts and the managers of competing companies (Davies et al. 2010).

I. Olmedo-Cifuentes et al.

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This paper has three aims: first to identify what constitutes internal reputation

from the perspective of managers and employees, second to create and assess

measures of each perception of internal reputation, and third to hypothesise and test

the relationship between the views of each group and firm performance.

Our theoretical context is that of service organisations generally, recognising the

central role that employees can play in reputation terms in such businesses. Our

empirical context is that of professional services, in a business to business (B2B)

market, specifically that of auditing. Reputation management might be expected to

differ in B2B markets in practice from that in business to consumer (B2C) markets.

For example, Davies et al. (2010) needed to include a dummy variable to distinguish

B2B from B2C businesses in their regressions to predict sales performance from

reputation, arguing that in B2B companies, reputation has a different, less

immediate impact on performance than in B2C markets, where customers might

switch suppliers more readily. Our practical perspective is that of a manager

wishing to improve the reputation of a B2B service organisation and recognising

that this process starts with enhancing employee views.

Our paper is organised as follows. First, we argue three hypotheses as to the inter-

relationship between the views of two groups of internal employees (senior

managers and more junior employees) of their company reputation and between

both and market performance. Our context at this stage is that of any service

organisation. Then, we explore the literature on reputation measurement to identify

what appear to be the main dimensions of reputation relevant to internal

stakeholders and their measures. This analysis is used as an input to a Delphi

study with a panel of experts, whose judgements were used to refine the dimensions

and associated measures into two multidimensional measures of internal reputation

(one for senior managers, one for more junior employees). Finally, and to test our

hypotheses, we adapt these to measure the views of employees in one B2B service

sector that of auditing firms. The data from the survey are used to test the

hypotheses using structural equation modelling.

2 Background and hypotheses

2.1 Corporate reputation from an employee view

Employee views of reputation are formed as a consequence of their cumulative

experiences at work (Fombrun 1996) and by the culture of the organisation (Hatch

and Schultz 1997). Logically, there will be differences in the experiences of

different groups and, especially, between those managing the firm and those being

managed. Senior managers are more responsible for creating the culture of the

organisation and in defining work practices, values, rules and procedures, all of

which could influence more junior employees’ views of the firm (Hatch and Schultz

1997). Managers need to create satisfied employees because they represent the firm

in each interaction with customers and other stakeholders (Helm 2011). Moreover,

the quality of one’s managers is an aspect of reputation that appears in many

measures and commentaries (America’s Most Admired Corporation—AMAC—

Managing internal stakeholders’ views of corporate reputation

123

2011; RepTrak 2011; McGuire et al. 1990; Mınguez 2000; De Quevedo 2003;

Martın et al. 2006). So, more junior employees can be expected to be influenced by

their more senior colleagues’ views, rather than vice versa, and so we propose that

the views held by senior managers will positively influence those of their

employees:

H1 Employee views of corporate reputation will be positively influenced by those

of senior managers.

2.2 Corporate reputation and performance

As mentioned earlier, the relationship between reputation and market performance

has long been argued but the evidence to support the link has been somewhat

tenuous. Strong positive correlations between Fortune rankings and financial

performance were traditionally argued as proof of the link (e.g. Roberts and

Dowling 2002) but, as also mentioned before, the emphasis on financial

performance in the measure used to construct the ranking has been used to cast

doubt on the reliability of the claim (Fryxell and Wang 1994; Brown and Perry

1994), leading to the conclusion that the casual direction of any relationship might

be from market performance to reputation, rather than vice versa (Davies et al.

2010), at least among respondents to the AMAC study.

Inside a service organisation, managers, in particular, are likely to use the

company’s market performance as an input to or even as a proxy for its reputation.

On the other hand, the views of the company held by customer-facing employees

are known to be a cause of external reputation (Davies et al. 2010) because

employee views shape how they interact with their customers (Helm 2007). It is

their attitude and behaviour that customers use as an input to deciding how they

perceive the company and that same behaviour is shaped in turn by their

(employees’) views of the corporate reputation. Employees can also influence the

opinions of members of their private social network leading to strong enhancement

of corporate reputation (Clardy 2005), adopting certain attitudes and behaviours to

become a corporate ambassador (Fisher-Buttinger and Vallaster 2008), safeguarding

corporate reputation and spreading goodwill in support of the firm. The more

positively employees perceive their organisation, the more positive will be the

impression they will give to customers and other stakeholders, and, arguably, the

stronger will be market performance. Specifically in a B2B environment, senior

managers often have customer-facing roles and the perception they hold of their

own firm might also influence that of their customers in the same way. So, we

cannot exclude the possibility of market performance influencing reputation as seen

by both managers and employees, or that both managers and employee views can

influence performance such that performance and reputation may co-vary for both

groups. However, our next two hypotheses reflect the existing, mainstream

literature:

H2 The better the market performance of a service company, the stronger will be

its reputation as perceived by senior managers.


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H3 The stronger the reputation of a company in the perception of employees, the

better the market performance will be.

Therefore, and as a first step, an understanding is needed as to what levers exist

that might influence employee views. A good starting point to find an answer to this

question should be in how reputation has been measured in prior work.

3 Measures of reputation

If reputation as a construct has been defined in various ways, approaches to its

measurement often differ more markedly still. Some approaches vary due to

differences in the philosophy underpinning them. Barnett et al. (2006) attempted to

identify the various strands of meaning surrounding the term ‘reputation’. They

propose three different clusters of definition: Reputation as asset; Reputation as

assessment; and Reputation as awareness. They consider that corporate reputation

should be distinguished from corporate (brand) image as concepts and that

reputation is more concerned with evaluative judgement, implying that reputation is

a cognitive construct, while ‘image’ should refer to the more impressionistic

associations, essentially what comes to mind when one hears the corporate name,

suggesting a more affective construct. Chun (2005) identified three schools ofthought in the field of reputation measurement. In the evaluative school, reputation

is assessed from its financial value or from the short-term performance of the firm.

The impressional school and the relational school are similar in that they both

recognise the more affective associations that are made with an organisation. The

first focuses on a single stakeholder view while the second considers the views of

more than one stakeholder group simultaneously. That said most reputation

measures have been created and validated with just one stakeholder group in mind,

the customer. The main measure derived and validated with both customers and

employees, the corporate character scale (Davies et al. 2003), uses the device of

brand personification and asks respondents to imagine a company has ‘come to life

as a person’ and to assess his/her personality. It is a measure of affect and while the

user may understand that enhancing a firm’s image for traits such as competence or

enterprise may be beneficial, what needs to be done to change such is less clear.

One benefit of a more cognitive approach to reputation measurement is an

inherent emphasis on the more tangible associations made with a company and on

aspects that can then be addressed by managers without further interpretation. This

approach has dominated the measurement of reputation in prior work, especially in

early work, due to the wide use of data in academic research from the approach

developed by Fortune Magazine for AMAC. The criticism of the latter approach

was used to justify a number of attempts to produce measures with greater validity,

such as the Reputation Quotient (RQ) (Fombrun et al. 2000) and its successor, the

RepTrak (Ponzi et al. 2011). Further, several researchers have devised scales or

have argued for the importance of specific dimensions and attributes when assessing

reputation, such that there little apparent consensus exists on either dimensions or

attributes. More surprisingly, there is hardly any work towards an employee-specific


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measure. Our first task was then to synthesize existing work, and the purpose of the

next section is to identify the dimensions and attributes of reputation that emerge as

important in the existing literature. In particular, we were interested to identify those

that might be relevant for employees.

3.1 The dimensions of reputation

As the reputation of a firm in the eyes of its various stakeholders is the consequence

of all the firm’s prior actions that influence those same stakeholders, not surprisingly

we discovered a number (thirteen) of categories or potential dimensions of

reputation.

3.1.1 Financial performance

This dimension considers the economic situation of the company, its financial

structure and its capacity to pay the debts and liabilities incurred in ordinary

activities. How any commercial organisation performs financially will influence its

reputation; a loss-making company will be less well regarded than a profitable one,

especially by investors but also by employees. This is essentially the argument of

those who see the causal relationship between reputation and performance as being

from the latter and to the former. So, perceptual or actual assessments of financial

performance are common to a number of measures of reputation and frequently

mentioned in the wider literature as important (AMAC 2011; Reputation Institute

2011; Weigelt and Camerer 1988; Fombrun and Shanley 1990; Dollinger et al.

1997; Caruana and Chircop 2000; Mınguez 2000; Cravens et al. 2003; Wessels

2003; Iglesias et al. 2003; Martın et al. 2006; Lopez and Iglesias 2006; Helm 2007).

Views differ as to the most appropriate attributes by which to assess financial

performance, with total sales (Caruana and Chircop 2000), return on investment

(Mınguez 2000), cumulative performance in the last 3 years (Lopez and Iglesias

2006) and financial solvency (Mınguez 2000) all being used by at least one source.

3.1.2 Quality of management

This dimension refers to ‘the managers’ ability to develop, direct, and control its

resources to support the discharge of its policy and program responsibilities’

(Ingraham and Kneedler 2000, p. 248). Most cognitive measures of reputation

include an assessment of the quality of a company’s management (AMAC 2011;

RepTrak 2011; McGuire et al. 1990; Caruana 1997; Dollinger et al. 1997; Mınguez

2000; De Quevedo 2003; Martın et al. 2006). There are a number of aspects of this

dimension that can be expected to influence reputation, especially inside the firm,

under the general heading of managerial capability, defined as ‘the ability to

maintain the profitability of current operations’ (Gifford 1993). Most measures ask

respondents directly as to their perception of management quality and competence

but some sources (Boxwell 1995; Lopez and Iglesias 2006; Mınguez 2000) propose

more detailed questions such as whether objectives are agreed or whether internal

and external benchmarking are used.


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3.1.3 Business strategy

Allied to quality of management, an appraisal of business strategy is frequently

included in reputation measures (Weigelt and Camerer 1988; Cravens et al. 2003;

De Quevedo 2003; Alcala 2007). The dimension can be defined as the actions that

managers take to attain the objectives of the company (Porter 1986). A positive

relationship between this dimension and good corporate reputation has been argued

by many researchers, because strategy affects the optimisation of resources and

processes, the present and future actions of the company, and the perception of

several stakeholders. Specific measures include whether the company is seen to

have a clear vision (Reputation Institute 2011); the cooperation between the

different areas of the company (Cravens et al. 2003); a clear strategy for the short

and longer term (Peters and Waterman 1982), the development of different

strategies (differentiation, diversification and cooperation) (Peters and Waterman

1982; Fombrun and Shanley 1990), the integration of strategy across business units

(Cravens et al. 2003) and the inclusion of reputation as a strategic priority (Cravens

et al. 2003).

3.1.4 Organisation structure

Linked to strategy and quality of management are issues of structure (defined as the

perception of the design of the relationships established between members of a firm

undertaking different tasks) and whether the strategy is appropriate, for example,

organisations need to adapt to changing market circumstances (Lopez and Iglesias

2006) or risk appearing incompetent or unresponsive. Coordination across the firm

can influence its effectiveness (Cravens et al. 2003). Few measures of reputation

explicitly cite organisation structure as a dimension of reputation or as a contributor

to it, but many imply its significance. A good organisational design is seen as a

guarantor of good reputation (Rodrıguez 2004), especially when viewed from inside

of the firm (Alcala 2007). Organisational design variables considered in prior

reputation research include coordination (Cravens et al. 2003), organisational

flexibility (Peters and Waterman 1982; Lopez and Iglesias 2006) and communi-

cation (Mınguez 2000; Cravens et al. 2003).

3.1.5 Quality of leadership

Closely linked to both quality of management and strategy is the issue of corporate

leadership. This concept refers to whether the company is identified as a reference

organisation in the industry or market by stakeholders, for example if its approach is

imitated. In different measures the idea has various labels, including ‘esteem’

(RepTrak 2011). The dimension often concerns the more affective aspects of

reputation such as credibility and the views held by external stakeholders. But how

internal stakeholders think their organisation is seen outside can also influence their

own perceptions (Smidts et al. 2001). Typical items to measure this aspect of

reputation include market leadership and being the company of reference in the

sector (Mınguez 2000), the ability to recognize (Mınguez 2000) and to develop (van


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Tulder and van der Zwart 2003; Wessels 2003) market opportunities, responsive-

ness to internal and external change (Lopez and Iglesias 2006), whether the

company is admired and respected (van Tulder and van der Zwart 2003; Wessels

2003) and if it is seen as credible (Reputation Institute 2011; Mınguez 2000).

3.1.6 Human resources

Although the label of human resources is not widely used in measures of reputation,

most reflect the importance of employees in one way or another. Companies should

seek to meet the expectations of their employees, especially in labour-intensive

service firms, since they constitute in themselves an interest group and because the

manner in which they interact with other stakeholders (particularly customers) will

influence external opinions about the company.

Many reputation measures include the idea of the relative attractiveness of

reputable companies in the labour market: e.g. the ability to attract and develop

talented staff and, allied to this, the ability to retain more talented employees

(Fortune 2011; Reputation Institute 2011; De Quevedo 2003; Lopez and Iglesias

2006); the relative turnover of more/less talented employees, and the costs

associated with high labour turnover such as training (Caruana 1997; Caruana and

Chircop 2000). Common criteria also include having good working conditions, such

as the physical environment, wages, job security and appropriate resources to do the

job (Reputation Institute 2011; Weigelt and Camerer 1988; Caruana and Chircop

2000; Mınguez 2000; Villafane 2004; van Tulder and van der Zwart 2003; Wessels

2003). Linked with this theme is timely information so that the job can be done well

(Mınguez 2000; De Quevedo 2003) which provides job satisfaction and motivation.

A number of criteria reflect those that can also be found in work on the

psychological contract, the unwritten and not legally enforceable, tacit agreement

that employees perceive to be in place when working for a good’ employer

(Anderson and Schalk 1998). These include: good promotional prospects (Alcala

2007), fair evaluation and appropriate reward for good performance (Reputation

Institute 2011; Alcala 2007), effective health and safety policies and procedures

leading to a safe working environment, and equal opportunities (RepTrak 2011).

Some measures include the catchall criterion of being satisfied with the company

(RepTrak 2011; Mınguez 2000).

3.1.7 Organisational culture

Organisational culture can be defined as ‘the pattern of shared values and beliefs

that help individuals understand organisational functioning and that provide norms

for behaviour in the organisation’ (Deshpande et al. 1993). From the employee

perspective, and taking into account that reputation is the consequence of the

accumulated experience they have at work, the culture of the organisation has much

to do with their views of its reputation (Hatch and Schultz 1997). Most measures of

reputation reflect this reality and echo in turn measures of organisation culture (e.g.

Denison 1990; Denison and Neale 1996; Carmeli and Tishler 2004). For example,

whether employees believe there are shared values and beliefs and how strong these


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may be are frequently addressed as criteria (Weigelt and Camerer 1988; O’Reilly,

Chatman and Caldwell 1991; Leal 1991; Sheridan 1992; Mınguez 2000; Iglesias

et al. 2003). Specific items include having a participative culture, one that

encourages teamwork and openness to change (RepTrak 2011; Lopez and Iglesias

2006), the adaptability of the culture to business projects (Villafane 2004), an

absence of resistance to change (RepTrak 2011; Lopez and Iglesias 2006) and a

trusting atmosphere (Weigelt and Camerer 1988; Lopez and Iglesias 2006). Another

attribute, one that could equally be listed under quality of management, is whether

senior managers practice what they preach (Denison and Neale 1996; Villafane

2004).

3.1.8 Ethics

Although whether a business behaves in an ethical manner could be considered as

an aspect of culture, many see it as a dimension of reputation in its own right.

Business ethics can be defined as ‘the set of moral principles and standards that

drive behaviour in the business world’ (Dahlin 2007) or as ‘the study of business

situations, activities and decisions where issues of right and wrong are addressed’

(Crane and Matten 2004). The ethics of a business concerns its legitimacy and

credibility, which in turn builds trust among stakeholders; as a result that business

must not only follow the law but also display a moral conscience (Gonzalez 2001).

Typical criteria within this category include: transparency (RepTrak 2011;

Deephouse 2000; De Quevedo 2003; Alcala 2007), a clear commitment by senior

management to ethical practice (LeBlanc and Nguyen 1996; Dollinger et al. 1997;

Cravens et al. 2003; Villafane 2004), active prevention of corruption and fraud

(Dollinger et al. 1997), responsible use of power (LeBlanc and Nguyen 1996;

Dollinger et al. 1997) and evidence of the promotion of ethical behaviour among

employees by, for example, appropriate training (Alcala 2007).

3.1.9 Corporate social responsibility (CSR)

Closely allied to ethical behaviour is social responsibility and the avoidance of

irresponsible behaviours. CSR is defined as a concept whereby companies integrate

social and environmental concerns into their business operations and into their

interaction with their stakeholders on a voluntary basis (Commission of the

European Communities 2001) to contribute to sustainable economic development,

working with employees, their families, the local community and society at large to

improve their quality of life (World Business Council for Sustainable Development

1999). The socially responsible company obtains an increase in its corporate

reputation (Fombrun 1996; Gotsi and Wilson 2001), as CSR includes procedures or

attitudes which the company is not required to have, but is willing to adopt to

improve its relationship with all stakeholders. Among the more prominent attributes

mentioned by authors are: support for social causes and charity (RepTrak 2011;

Mınguez 2000; Cravens et al. 2003; De Quevedo 2003; Lopez and Iglesias 2006;

Helm 2007), commitment to the (local) community (RepTrak 2011; Davies and

Miles 1998; Mınguez 2000; De Quevedo 2003; Martın et al. 2006), care for the


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environment (RepTrak 2011; Mınguez 2000; Cravens et al. 2003; Alcala 2007;

Helm 2007) and not producing products that could do harm (Cravens et al. 2003).

3.1.10 Product offer

Next, a dimension that reflects issues around the products and services that a

company offers to the market. Many authors cite product and service quality as a

key issue in corporate reputation (RepTrak 2011; Weigelt and Camerer 1988; Rao

1994; Dollinger et al. 1997; Davies and Miles 1998; Caruana and Chircop 2000;

Mınguez 2000; Cravens et al. 2003; De Quevedo 2003; Iglesias et al. 2003; van

Tulder and van der Zwart 2003; Wessels 2003; Lopez and Iglesias 2006; Martın

et al. 2006; Alcala 2007; Helm 2007). Other common measures relevant to this

dimension are: having quality management systems (Lopez and Iglesias 2006),

offering value for money (RepTrak 2011; Mınguez 2000; Helm 2007), having a

strong customer orientation (LeBlanc and Nguyen 1996; Cravens et al. 2003; Lopez

and Iglesias 2006; Alcala 2007; Helm 2007), being able to deliver good customer

care (Mınguez 2000; Cravens et al. 2003; Alcala 2007), reducing the number of

complaints received (RepTrak 2011; LeBlanc and Nguyen 1996; Mınguez 2000;

Cravens et al. 2003), and increasing customer retention (Mınguez 2000; Cravens

et al. 2003).

3.1.11 Brand image

The difference between corporate reputation and corporate brand is much discussed

in the literature. Some researchers see the two terms as synonyms, others not. In this

research, the two are considered as different because brand image refers specifically

to the set of associations linked to the brand that consumers hold in memory (Keller

1993). Therefore, a strong brand can contribute to a strong reputation. Certainly,

having strong product brand associations can contribute to the imagery of the

corporate brand (Balachander and Ghose 2003). Among the specific attributes

mentioned by authors are: the perceived value of the brand (Villafane 2004), the

satisfaction of customers (Financial Times 2011), the visibility of the company in

the media (Fombrun and Shanley 1990; Deephouse 2000), that their advertising

effort is widely perceived (Caruana and Chircop 2000), and that advertising claims

are credible (Helm 2007).

3.1.12 Innovation and value creation

Arguably, growing companies, exploiting new ideas and opportunities, will

generally be regarded more favourably than declining ones stuck in the ways of

the past. Consequently, many authors see innovation as a key component of

reputation (Dollinger et al. 1997; Davies and Miles 1998; Mınguez 2000; Cravens

et al. 2003; De Quevedo 2003; van Tulder and van der Zwart 2003; Wessels 2003;

Lopez and Iglesias 2006; Martın et al. 2006), although Chun and Davies (2006)

found that innovativeness was not as valued by internal as by external stakeholders,

as constant change can demotivate employees. Specific measures of innovativeness


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include the number of improvement programmes undertaken (Cravens et al. 2003),

the investment in R&D (Villafane 2004) and the opening of new and novel

distribution channels (Villafane 2004).

3.1.13 Global reach

This dimension includes the development of business activities outside the borders

of the country of origin of the organisation, through subsidiaries and partnerships in

other countries. Larger companies can be expected to enjoy a stronger reputation

than smaller ones, after all companies grow faster if they have a more positive

reputation and larger companies should be better known. Moreover, larger

companies with a widespread, international presence can be appreciated by a

greater number of stakeholders, which is considered an important quality in

achieving a good reputation (Villafane 2004). However, only one source reviewed

by the authors included such a measure (Villafane 2004), although Cravens et al.

(2003) also suggest such a perspective as important. The attributes used by

Villafane (2004) include the number of countries traded in and the relative

importance of non-domestic revenue.

3.2 Summary

In total, 13 potential dimensions of reputation were identified from the literature and

over 50 potential attributes or potential measures, but their categorisation into these

groups had been made by the authors. To evaluate the list more objectively and, in

particular, to produce an overall measure with good face validity, a panel of experts

was formed and the Delphi technique adopted to facilitate their work in improving

the list.

4 Methodology

4.1 Delphi panel

The Delphi panel is one of a number of techniques that can be used to validate and

filter dimensions and items for a measurement instrument (Churchill 1979; Malhotra

1981). The Delphi method helps by structuring a group communication process,

thus allowing the group to deal with a complex issue (Linstone and Turoff 1975).

Here, it is used to synthesize the opinions of experts to provide a greater

understanding of the phenomenon studied (Churchill 1979). The process normally

involves a number of rounds; after each round the chairperson (here, one of the

authors) aims to identify where a consensus has been reached and where further

elaboration might be needed (Landeta 1999).

Sixteen individuals agreed to participate, 10 academics and 6 consultants.

Respondents were given the list of dimensions and the attributes that emerged from

the literature review. For each one, they were asked to give their opinions using a 7

point scale, from 1 indicating total disagreement with the attribute as a measure to 7


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indicating total agreement. They were then asked to identify which stakeholder

groups would be relevant for estimating each attribute, from a list of four groups

(managers, employees, customers and others). Finally, they were given a list of

open-ended questions including whether they thought dimensions should be merged

or divided and what other dimensions or attributes should have been included.

Their replies indicated that the list was overly long and contained duplication in

both dimensions and attributes. It became clear that a more parsimonious measure

was possible. From an analysis of the data after two rounds over a period of

10 weeks, consensus on a potential tool to measure corporate reputation emerged

consisting of (in total) 8 dimensions and 25 items or attributes to measure them

(Table 1).

Which measures were most relevant to senior managers and employees differed,

according to the Delphi panel. Senior manager views were seen to be better assessed

Table 1 Reputation measure, dimensions and attributes

Dimensions Attributes

I. Financial position and value creation 1. Accumulated return over the past 3 years

2. Financial solvency

II. Management quality and managerial

ability

3. Reputation of the company management

4. Existence of a distinctive management style

5. Smooth running of the company

III. Leadership 6. Leadership position in the market

7. Admiration and respect that the company raises

8. Degree of credibility of the company

IV. Human resources 9. Ability to attract and develop talented staff

10. Ability to retain talented staff

11. Employee satisfaction with the company

V. Ethics, culture and corporate social

responsibility

12. Ethical commitment of top management

13. Existence of values and beliefs shared by members of

the company

14. Environmental protection

15. Information transparency in the activities of the

company

VI. Products and/or services 16. Products and/or services quality

17. Compliance with quality systems in the production

process

18. Value for money of products and/or services

19. Degree of customer satisfaction

20. Index of complaints

21. Retention of customers: loyalty

VII. Brand image 22. Perceived value of the brand

23. Reputation in the media

VIII. Innovation 24. Innovativeness

25. Development of new products and services


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by financial position and value creation, management quality and managerial

ability, leadership, human resources, ethics culture and CSR, brand image, and

innovation, (along with their respective items) and the retention of customers item

from offer of products and/or services (see Table 1). Reputation as perceived by

more junior employees was seen as best represented by 5 dimensions (management

quality and managerial ability, leadership, human resources, ethics culture and CSR,

and innovation), with the addition of a specific item, retention of customers: loyalty.

To test our hypotheses we then adapted these items to our specific empirical

context. First, the measures in Table 1 were used to create two questionnaires, one

for senior managers, one for employees and each was pretested with the employees

of 5 auditing firms and 5 professors in the accounting and finance area.

To further validate the measure and test the relationship between the measure and

performance, we next undertook a survey of senior managers and employees in one

B2B sector, auditing firms. We chose to focus on one sector as the purpose of a

reputation measure is more to distinguish between companies in the same market,

rather than across markets. We chose auditing as an example of a service sector

where employees can be expected to influence reputation (Moizer 1997). Auditing is

a labour-intensive service, where the employees are important actors in the

interaction with customers and, therefore, in the configuration of the employer’s

corporate reputation. We also believed that the fees of these firms are determined by

the reputation that they have with customers and with the broader financial

community (Moizer 1997).

We chose to conduct our study within a single geographical market, that of

Spain. The accountancy profession in Spain (as in other countries) is not regulated

and anyone in theory can offer accounting services, such as book keeping for

example. By contrast auditing is (again as in other countries) a regulated profession.

Access is restricted by qualification, to the membership of one of three professional

bodies and involves a commitment to continuous professional development. The

market is typical of that for many professional services, with a few large firms, here

the ‘Big Four’, and many smaller firms. Because the largest companies represent a

separate market (Garcıa et al. 1999; Garcıa and Vico 2003), we focussed on firms

with less than 250 employees, the segment where reputation within the Spanish

market would be most relevant to performance. To be able to test our hypothesised

relationships between manager and employee views, sole traders were also

excluded.

4.2 Main survey

4.2.1 Samples and measures

A sample of 550 SME Spanish accounting audit firms was identified using the

CNAE code 2009 from the SABI database1, with less than 250 employees and a

minimum of 2. The resulting 535 firms were contacted and 254 replies were

1 SABI is an online database with financial information on more than 1,080,000 Spanish and 320,000

Portuguese companies.


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obtained in total from 106 companies during 2010. For each, we obtained one

response from a senior manager/director (n = 106) and at least one from employees

(n = 148) an effective response rate of 19.8 %. The survey was undertaken in

Spanish and all tables and labels in this paper are translated from that language. The

main part of the questionnaire consisted of a series of attributes. Respondents were

asked to indicate on a 7-point Likert scale, where 1 = strongly disagree and

7 = strongly agree, whether they saw the attribute as being true of their firm. While

most questions were common to both surveys, some differed to reflect the different

perspectives of senior managers and employees identified in the earlier work

reported above.

4.2.2 Measurement evaluation

The survey data were purified in a three stage process (see ‘‘Appendix’’ section).

First, they were factor analysed for each group of respondents to see whether the

items fell into their expected dimensions, according to the model identified from the

Delphi survey. Then, Cronbach alpha was used to check on the reliability of the

measures for each dimension (Tables 2, 3). Ten dimensions, assessed with a total of

29 items, emerged from this process for senior managers (explained variance:

85.67 %) and eight dimensions using 22 items for employees (explained variance:

84.85 %).

Next, a second order Confirmatory Factor Analysis using maximum likehood as

the method of estimation was conducted using AMOS 18 to ensure that items

measuring one dimension did not load significantly onto another dimension. The

error matrix was reviewed to find any high discrepancies between estimated and

empirical covariances. This model was re-specified using three criteria (Rial et al.

2006), the significance of the factor loadings, the information obtained from the

residual matrix and the modification indices provided by AMOS 18. Taking into

account whether the modifications were justified from a conceptual point of view a

number of items were deleted in successive steps. This process reduced the number

of dimensions further to seven for managers and six for employees for each

estimated construct. The final list of dimensions and items are given in Tables 2

and 3.

Convergent validity was assessed first by ensuring the standardized loading

estimates were 0.5 or higher and significant (p \ 0.01) (Hair et al. 2009). In the case

of senior managers, the low factor loading and poor significant of the dimensions

Financial position, quality and innovation led to their removal. For employees, there

was a similar issue with the dimensions of innovation and customer loyalty, which

were also removed. Convergent validity was assessed by calculating the construct

reliability (CR) and the average variance extracted (AVE). These were calculated

for each dimension according to their standard loadings (Hair et al. 2009). The

results were satisfactory in both cases because the CR greatly exceeded the

threshold of 0.70 and the AVE threshold of 0.5 (Bagozzi et al. 1991) (see Tables 2,

3). In general terms, the scales also present a high internal consistency with a

Cronbach alpha of 0.735 for senior managers and 0.861 for employees (Hair et al.

2009).


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Table 2 Measure for senior managers from the exploratory factor analysis of the Delphi panel findings

Dimensions Attributes Measurement items Mean (SD)

Resource management

(a = 0.869;

CR = 0.956;

AVE = 0.806)

9. Ability to attract and

develop talented staff

Staff with specific knowledge and

abilities required are attracted

5.23 (1.375)

10. Ability to retain

talented staff

Key employees for the company

are kept

5.41 (1.458)

11. Employee satisfaction

with the company

Employees are satisfied with the

company

5.46 (1.387)

5. Smooth running of the

company

Company uses available

resources properly

5.47 (0.679)

Company manages its assets

properly

5.47 (0.819)

Company develops necessary

skills to achieve success

5.53 (0.795)

Company evaluates set goals in

relation with set objectives

5.28 (1.058)

Business leadership

(a = 0.690;

CR = 0.896;

AVE = 0.771)

6. Leadership position in

the market

Company is a leader in its activity 4.46 (1.227)

7. Admiration and respect

that the company raises

Company is respected by the rest

of companies of its sector

4.46 (1.227)

8. Degree of credibility of

the company

Company has a high degree of

credibility

5.51 (1.043)

Media reputation

(a = 0.838;

CR = 0.874;

AVE = 0.703)

23. Reputation in the

media

Company has an up to date web

site

4.25 (2.079)

Company is visible in the media 3.31 (1.859)

Company develops sponsorship

activities, courses or events

permitted by Spanish Audit

Law

3.17 (1.895)

Customer loyalty (n.a.) 21. Retention of

customers: loyalty

Company maintains long-term

relationships with customers

6.16 (0.852)

Ethics (a = 0.880;

CR = 0.955;

AVE = 0.914)

12. Ethical commitment

of top management

Managers have an ethical

commitment in the

development of his/her activity

5.48 (1.474)

Codes of conduct are used to

encourage ethical behaviour of

employees

5.15 (1.511)

Culture (including CSR)

(a = 0.808;

CR = 0.831;

AVE = 0.663)

13. Existence of values

and beliefs shared by

members of the

company

Cultural values and beliefs are

shared by the members of the

company

5.03 (1.451)

14. Environmental

protection

Company develops activities to

protect environment

4.60 (1.392)

15. Information

transparency in the

activities of the

company

Company considers important

information transparency in its

activities

5.53 (1.080)


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Discriminant validity exists between two variables when the AVE is greater than

the value of the square of the correlation coefficient between those variables

(Fornell and Larcker 1981). Tables 4 and 5 show that the squared correlation

coefficients of all dimensions are greater than their AVE and that discriminant

validity is assured.

Finally, a normalized score was calculated for each dimension for which there

was more than one item and the measure checked as a structural model for each

group. The fit indices for both individual models are given in Table 6.

There is a debate among researchers in the field as to whether dimensions such as

social responsibility create reputation or are reputation; in other words whether

measures are formative or reflective. In analysing the structural model the status of

the indicators with respect to the unobserved variable of reputation was assumed to

be reflective.

The dimensionality of reputation differed slightly between the two stakeholder

groups, and although the difference is arguably a matter of emphasis, the finding

Table 2 continued

Dimensions Attributes Measurement items Mean (SD)

Reputation of

managers**

(a = 0.837;

CR = 0.762;

AVE = 0.610)

3. Reputation of the

company management

Managers are recognized for their

good work by external

stakeholders

4.84 (1.024)


good work by internal

stakeholders

4.97 (0.867)

Innovation* (a = 0.734) 24. Innovativeness Your company is a pioneer in

introducing new technologies

5.39 (0.501)

Your company is a pioneer in

introducing new processes to

deliver services

4.90 (0.491)


introducing new services

4.73 (0.479)

Your company has made an effort

to reinvent the way it does

business in the last 3 years

5.88 (0.469)

25. Development of new

products and services

Your company has increased the

number of new services

introduced in the last three

years

5.67 (0.487)

Financial position*

(a = 0.782)

2. Financial solvency

1. Accumulated return

over the past 3 years

Degree of financial solvency

Degree of profitability

2.73 (1.379)

3.87 (1.376)

Quality* (n.a.) 16. Products and/or

services quality

The service provided to

customers is excellent

5.09 (1.261)

a Cronbach0s alpha, CR composite reliability, AVE average variance extracted, n.a. not applicable

* These dimensions were dropped in the confirmatory factor analysis

** This dimension was dropped in the SEM final (joint) model


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Table 3 Measure for employees from the exploratory factor analysis of the Delphi panel findings

Dimensions Attributes Measurement Items Mean (SD)

Quality of management

(a = 0.800;

CR = 0.957;

AVE = 0.881)

5. Smooth running of the

company

Company uses available resources

properly

5.39 (1.01)

Company manages its assets properly 5.33 (1.02)

Company evaluates set goals in

relation with set objectives

5.11 (1.25)

Human resources

(a = 0.751;

CR = 0.960;

AVE = 0.889)

9. Ability to attract and

develop talented staff

Staff with the specific knowledge and

abilities required are attracted

5.33 (1.06)

10. Ability to retain talented

staff

Key employees for the company are

kept

5.37 (1.33)

11. Employee satisfaction

with the company

Employees are satisfied with their

company

5.68 (1.03)

Ethical culture

(a = 0.819;

CR = 0.955;

AVE = 0.878)

12. Ethical commitment of

top management

Managers have an ethical

commitment in the development of

his/her activity

5.56 (1.07)

Codes of conduct are used to

encourage ethical behaviour of

employees

4.98 (1.28)

13. Existence of values and

beliefs shared by members

of the company

Cultural values and beliefs are shared

by the members of the company

5.20 (1.16)

Reputation of managers

(a = 0.802;

CR = 0.938;

AVE = 0.886)

3. Reputation of the

company management


good work by external stakeholders

5.74 (0.88)


good work by internal stakeholders

5.36 (1.24)

Leadership** (a = 0.793;

CR = 0.940;

AVE = 0.844)

6. Leadership position in the

market

Company is a leader in its activity 4.38 (1.36)

7. Admiration and respect

that the company raises

Company is respected by the rest of

the companies in its sector

5.02 (1.28)

8. Degree of credibility of

the company

Company has a high degree of

credibility

5.45 (1.01)

CSR** (a = 0.730;

CR = 0.824;

AVE = 0.708)

14. Environmental

protection

Company develops activities to

protect the environment

4.30 (1.50)

15. Information transparency

in the activities of the

company

Company considers as important

information transparency in its

activities

5.10 (1.22)

Innovation* (a = 0.916) 24. Innovativeness Your company has made an effort to

reinvent the way it does business in

the last three years

4.44 (1.42)


introducing new services

4.18 (1.34)


introducing new processes to

deliver services

4.89 (1.44)


introducing new technologies

4.36 (1.67)

25. Development of new

products and services

Your company has increased the

number of new services introduced

in the last three years

4.46 (1.5)


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does raise the question of whether it is always both practical or useful to try to

derive generic scales that aim to measure reputation for all stakeholders.

4.3 Measuring performance

There are different ways of measuring a firm’s performance (Lopez and Iglesias

2006). Spriggs (1994) argues that there should be a clear rationale for selecting

specific measures for research. Here, we focus on perceived financial performance, a

subjective measure. The advantage of using such a soft measure is that hard

measures such as return on capital can be influenced by the specific context of each

business and the objectives of its managers, whereas soft measures, assessing for

example how well senior managers believe the company is doing, avoid such issues.

Table 4 Correlation matrix of variables and average variance extracted (managers)

1 2 3 4 5 6 7 8 9

1. Resource

management

0.806

2. Business

leadership

0.407**

(0.166)

0.771

3. Culture

(including

CSR)

0.438**

(0.192)

0.429**

(0.184)

0.663

4. Ethics 0.493**

(0.243)

0.322**

(0.104)

0.415**

(0.172)

0.914

5. Reputation of

managers

0.284**

(0.081)

0.039

(0.002)

0.170**

(0.029)

0.213*

(0.045)

0.610

6. Media

reputation

0.202*

(0.041)

0.239*

(0.057)

0.072

(0.005)

0.193*

(0.037)

0.070

(0.005)

0.703

7. Customer

loyalty

0.516**

(0.266)

0.276**

(0.076)

0.298**

(0.089)

0.425**

(0.181)

0.203*

(0.041)

0.295**

(0.087)

–

8. Profitability 0.071** 0.083 -0.031** 0.057 -0.241* 0.275** 0.231* –

9. Productivity 0.464** 0.315** 0.316** 0.408** 0.262* 0.294** 0.296** 0.421** –

Significance levels: ** p \ 0.01, * p \ 0.05

Squared values of correlation coefficient are given in parentheses

Average variance extracted (AVE) is on the diagonal of the matrix

Table 3 continued

Dimensions Attributes Measurement Items Mean (SD)

Customer loyalty* (n.a.) 21. Retention of customers:

loyalty

Company maintains long-term

relationships with customers

6.21 (0.80)

a Cronbach0s alpha, CR composite reliability, AVE average variance extracted, n.a. not applicable

* These dimensions were dropped in the confirmatory factor analysis

** This dimension was dropped in the SEM final (joint) model


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Hard and soft measures in an organisational context do, however, correlate

(Bommer et al. 1995). Two items were used to assess performance. Senior managers

were asked to say how well, compared with other companies in the sector over the

last 3 years, their company had performed on profitability and productivity on a

seven point Likert scale, where 1 = decreasing, 4 = stable and 7 = increasing. The

scores for the two items correlated strongly (p \ 0.001) and were averaged to create

the performance variable.

4.4 Common methods bias

The possibility of common methods bias was addressed in two ways (Podsakoff

et al. 2003). A cover letter was sent with the questionnaire to respondents explaining

that there were no right or wrong answers, and that they could respond as honestly

as possible as their data would be kept confidential. The assessment of dependent

and independent variables was kept separate in the questionnaire itself with clearly

delineated sections. Second, a post hoc analysis was undertaken using a

confirmatory factor-analytic approach to Harman’s one factor test. Using the

Table 5 Correlation matrix of variables and average variance extracted (employees)

1 2 3 4 5 6 7 8

1. Quality of

management

0.881

2. Leadership 0.567**

(0.321)

0.844

3. CSR (corporate social

responsibility)

0.483**

(0.233)

0.409**

(0.167)

0.708

4. Reputation of

managers

0.494**

(0.244)

0.432**

(0.187)

0.280**

(0.078)

0.886

5. Human resources 0.631**

(0.398)

0.585**

(0.342)

0.408**

(0.166)

0.501**

(0.251)

0.889

6. Ethical culture 0.676**

(0.457)

0.485**

(0.235)

0.433**

(0.187)

0.589**

(0.347)

0.660**

(0.436)

0.878

7. Profitability 0.105 0.136 0.076 0.141 0.118 0.205* –

8. Productivity 0.121 0.131 0.044 0.121 0.144 0.200* 0.421** –

Significance levels: ** p \ 0.01, * p \ 0.05

Squared values of correlation coefficient are given in parentheses

Average variance extracted (AVE) is on the diagonal of the matrix

Table 6 Fit indices for final models of reputation for managers and employees

v2 df v2/df GFI AGFI NFI CFI PNFI RMSEA Hoelter .01

Managers 13.97 13 1.07 0.972 0.939 0.928 0.994 0.616 0.025 266

Employees 12.98 9 1.442 0.970 0.929 0.963 0.988 0.608 0.054 224


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unrotated factor solution, we obtained 10 factors with Eigen values greater than 1.0,

and a total explained variance of 76.24 %. No one factor dominated the factorial

analysis and the strongest factor accounted for only 27.79 % suggesting that any

possible impact of common method bias is minimal (Podsakoff and Organ 1986).

4.5 Test of the hypotheses

To test H1, that employee views are influenced by those of managers, a structural

model was created and tested by linking the employee and manager models.

Significant covariances were found between the indicators of reputation across the

two sub-models leading to a poor level of fit. When the problematic variables were

dropped (reputation of managers in the managers’ model, and leadership and CSR

for employees), the resulting model linking managers’ views to those of employees

gave an acceptable fit to the data (v2/df = 1.024, GFI = 0.952, AGFI = 0.929,

NFI = 0.929, CFI = 0.988, RMSEA = 0.013, Hoelter 0.01 = 218) and the path

from managers’ views to those of employees was significant (critical ratio 4.015,

p \ 0.001). H1 is supported, employee views of reputation are influenced by those

of their managers. When the direction of the relationship was reversed, to test

whether employee views might influence those of managers, the relationship was

not significant (critical ratio 1.185, p = 0.236) suggesting that the causal direction is

from the manager view and to the employee view, rather than vice versa.

The performance measure was then added to the SEM model. The measure was

placed as an indicator of manager views of reputation and as an outcome of

employee views. The model tested is shown in Fig. 1. The results and fit indices for

Manager Viewof Reputation

Employee Viewof Reputation

Culture

1

EthicsCustomer

LoyaltyMedia

ReputationBusiness

LeadershipResource

Management

Quality ofManagement

1

HumanResources

EthicalCulture

Reputationof Managers

PerformanceH1

H2

H3

Fig. 1 Final model of manager and employee views of reputation and performance


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the model are given in Table 7. The link from performance to manager views of

reputation proved significant (critical ratio = 3.20, p = 0.001), but the link from

reputation perceived by employees to performance was not significant (critical

ratio = -0.207, p = 0.836).

Interestingly, when the causal direction of the two links was reversed the

significance levels remained the same. However, when the causal ordering between

the two views of reputation was reversed the significance level again dropped,

further evidence that manager views influence employee views rather than vice

versa. That the links between financial performance and reputation can be reversed

with no change in significance suggests that their linkage might be best thought of as

being a covariance.

Examining the relationship between performance and employee views further in

Fig. 1, there is an indirect as well as a direct route between their views and

Table 7 Results for final model of manager and employee views of reputation and performance

Std. factor

loading

Std.

error

t value p*

Manager view of

reputation

/ Performance 0.456 0.069 3.202 0.001

Performance / Manager view of

reputation

-0.030 0.187 -0.207 0.836

Employee view of

reputation

/ Manager view of

reputation

0.576 0.244 3.780 0.000

Customer loyalty / Manager view of

reputation

0.655 0.261 4.726 0.000

Media reputation / Manager view of

reputation

0.333 0.224 3.077 0.002

Resource management / Manager view of

reputation

0.784 0.322 5.044 0.000

Ethics / Manager view of

reputation

0.654 0.287 4.772 0.000

Culture ? CSR / Manager view of

reputation

0.515 0.222 4.805 0.000

Leadership / Manager view of

reputation

0.483 f.p. – –

Quality of management / Employee view of

reputation

0.776 f.p. – –

Ethical culture / Employee view of

reputation

0.879 0.112 10.074 0.000

Human resources / Employee view of

reputation

0.762 0.110 8.896 0.000

Reputation of managers / employee view of

reputation

0.664 0.112 7.642 0.000

Final model v2 df v2/df GFI AGFI NFI CFI PNFI RMSEA Hoelter 0.01

42.40 41 1.011 0.944 0.910 0.916 0.997 0.683 0.016 206

* One-tailed test/f.p.: fix parameter for estimation


123

performance via the manager views; the stronger the performance, the stronger are

manager views, and the stronger the latter, the stronger are employee views. This

indirect effect is the compound of that between performance and management views

(standardized coefficient 0.44; critical ratio 3.78; p \ 0.001) and between the latter

and employee views (standardized coefficient 0.58; critical ratio 3.81; p \ 0.001)

i.e. a standardized coefficient of 0.26. Put another way, there is a significant effect

on employee views of reputation from performance, but one via the influence of

performance on the senior managers views of reputation. However our data does not

support the hypothesis that employee views influence performance.

Nomological validity is argued from the confirmation of the expected links

between a new measure and a construct due to their being previously demonstrated

links between similar measures and the same construct. While the links argued

between reputation and performance in prior work differ in nature, a link between

reputation and performance is expected and is found here. Where our findings differ

from prior work is discussed in the next section.

5 Discussion and conclusions

Prior work has demonstrated how positive views of a company can be transferred

from one stakeholder group to another, from employee to customer (Davies et al.

2010). This research is the first attempt to explore the potential for a similar transfer

between internal stakeholders, managers and employees. The relationship between

reputation and market performance is a topic of long standing in the reputation

literature and our findings add to our understanding of such linkages. The empirical

context of auditing firms in the Spanish market makes the detail of our findings of

relevance to those interested in the management of such professional services.

However, our findings should also be interpreted with caution in that the Spanish

auditing sector is not regarded by some as a free market due to the lack of rotation of

auditors in that market (Carrera et al. 2007).

Our first hypothesis tested the idea that a transfer of reputation between employee

and customer might hold true between manager and employee in a service sector

such as Spanish auditing firms, but here by taking a cognitive approach to

measuring reputation. In our opinion, the different stakeholders’ perceptions or

views require different measures of reputation, adapted to each stakeholder. The

finding was as expected; the more positively senior managers of accounting audit

firms see their organisation’s reputation the more likely their employees will feel the

same. By reversing the causal ordering in the SEM model, we can argue that the

casual direction is clear, when managers hold a positive view of their organisation,

this spills-over onto the perceptions of their employees.

While reputation has tended to be measured traditionally among different groups

using the same dimensions and items, here and even when both stakeholder groups

are internal, there are subtle differences between how employee views and senior

manager views should be understood. Some aspects can clearly be shared, such as

behaving in a socially responsible manner, ethics, culture and capacity of

management. But others can differ, with managers in our work being more


123

focussed on leadership, media or customer loyalty, for example. Such differences do

not surprise when they emerge, but have previously been ignored. They cast further

doubt on assuming a reputation measure derived for one stakeholder group can be

used, reliably, to measure the views of other groups.

The work has shed new light onto the relationship between reputation and

performance. The causal ordering of the two variables has been assumed by some to

be from reputation to performance (e.g. Fombrun 1996; Davies et al. 2010) and by

others to be the reverse (e.g. Lange et al. 2011). It was argued in deriving the

hypotheses here, that a case could be made for causality in both directions but that

in the specific circumstances we investigated for the causal ordering to differ

between the two groups, as employee attitudes are more likely to influence the

customer and influence market performance, while senior manager views of the

reputation of their organisation are more likely, on balance, to be influenced by

market performance. In the data analysis, reversing the direction of the relationship

had no real impact on the significance of the link between senior manager views and

performance. The two variables can then be thought of as co-varying, a change in

either is likely to be matched by a similar change in the other.

The relationship between manager/employee views and performance differed

markedly from that expected. We found a significant and positive relationship

between manager views of reputation and performance, while among employees the

direct link was not significant and indeed slightly negative. The significance of the

link did not change when it was reversed. One explanation is when employees do

not benefit from corporate success their motivation (and the consequent market

performance of their employer) declines (Long 2000). A similar result was obtained

by Helm (2011), who found that corporate reputation is a significant means to attract

and retain employees, but less relevant in increasing their performance. However,

we found that performance can have an indirect influence on employee views via

that of senior managers. Here, the casual ordering appears to be more logically

explained by, senior managers’ views of the company spilling over onto those of

their employees. The links between performance and reputation appear more

complex than most prior work suggests and our conclusion is that generalized

claims that reputation causes or is caused by performance should be met with

caution.

Our work contributes to the growing literature on how reputation should be

measured. Our approach was not based upon any particular philosophical notion as

to the nature of reputation, rather seeking to benefit from and build upon the many

studies that have gone before. Inevitably, our measure contains many aspects that

have been emphasised in such earlier studies, including ethics and social

responsibility, and the use of resources, but it includes others such as media

reputation which is often ignored. Our approach has been cognitive, emphasising

items that reflect employee beliefs rather than their feelings. As such, we believe it

represents a potentially effective diagnostic tool for managers seeking to improve

the internal view in any service organisation. In modelling the interaction between

employee and manager views we needed to drop certain dimensions from those

listed in the ‘‘Appendix’’ section but those wishing to use our measure should

include all those listed in Table 1 in any further work.


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Another contribution has been our exploration of the role that employees (senior

managers and junior employees) play in shaping corporate reputation. Especially in

services industries, employees contribute to the formation of corporate reputation

through the quality of their interactions with customers (Davies et al. 2003; Helm

2007, 2011) and other stakeholders. The corporate benefits can be reflected directly

in a firm’s performance, but indirectly too. The company’s good name facilitates

long-term employment relationships, because workers see a stronger psychological

contract internally and stronger external prestige. The better reputation is, the more

better trained workers are attracted (see also Fombrun and Shanley 1990; Fombrun

1996; Wessels 2003). When hired, at a lower cost of recruitment, better employees

can reduce internal costs by working more effectively (see Roberts and Dowling

2002). Better employees improve the firm’s interactions with other stakeholders,

increasing yet again corporate reputation and potentially creating a virtuous circle of

reputation enhancement where employees are the main actors.

Our findings are capable of generalisation at two levels. First, the development of

the likely dimensionality of employee views of reputation was done without any

sector context. The dimensions and attributes in Table 1 should be valid for any

business sector. The three hypotheses we derived were drawn from the general

literature and are not influenced by the empirical context. The confirmation that

employee views are influenced by manager views (the more positive the manager

views are, the more positive the employee views become) should then hold

irrespective of context. The lack of a direct positive relationship between employee

views and performance should not however be taken as indicating that no such

linkage is possible, more that it cannot be guaranteed. That performance might act

as both an input to and an output of management views of reputation is also a

finding that can be expected to hold irrespective of context, unless that is the

auditing sector can be argued to be so different that such a covariance is due to the

nature of that sector. However, our data are cross-sectional and our measure of

performance qualitative and so further work will be needed to confirm our findings.

5.1 Managerial issues

The practical implications from our findings are mainly in the insights provided to

senior managers of auditing firms as to how they might seek to manage reputation.

From a performance perspective, the dominant issue would appear to be their own

attitudes, how they see their own company. Culture and ethics are important for both

senior managers and employees. How well managers see themselves and are seen by

employees is important, but the way they are seen by employees and the way they

see themselves differs in its effect. Senior managers in our study (within the audit

sector in Spain) were more concerned with their company’s image in the market and

in the media, while more junior employees were more concerned with how they (the

senior managers) were seen both internally and externally. Where attributes are

important to both groups (e.g. attracting and retaining key employees; being seen as

a leader in the sector and capacity of management) good news should be celebrated

and communicated. When the two groups hold different attributes as important care


123

is needed not to overemphasise in general communication what might be important

to one group but not to others.

The research confirms the role that managers have in the reputation of firms,

especially among internal stakeholders, even in situations of extreme financial

uncertainty like the present context for auditing firms in the Spanish market.

Furthermore, the context underlines the idea of reputation as a key asset irrespective

of the economic and business environment.

5.2 Further work

The Delphi panel was asked to indicate which of four stakeholder groups they felt

each dimension and attribute they were given to consider should be used to measure

reputation. The current work could then be extended to other stakeholders and the

existing measure to other sectors. The audit sector could be analysed in other

countries to explore any possible influence of specific contexts on the relative

importance of certain attributes (e.g. culture, ethics, CSR, human resources).

Consequently, any influence of different cultural, economic and legal contexts

might be detected.

The data gathered here were cross-sectional. Further work could include a

longitudinal study to explore further the links between reputation and performance.

Our findings suggest that the relationship between reputation and performance is

complex and certainly worthy of further study in different sectors and countries. A

case can be made for a causal ordering in either direction and the influence on

employees may differ dramatically depending upon the employee type. Our findings

differ from those of Davies et al. (2010), who found a clear relationship between

customer-facing employee views of reputation and future sales growth. This

suggests that the reputation performance relationship might differ depending upon

the measure taken of market performance.

Appendix

Table 8 Summary of the process of refining the measurement scales of corporate reputation

Managers Employees

Individual models

Delphi 7 dimensions, 33 items Delphi 5 dimensions, 27 items

Exploratory factor

analysis

10 dimensions, 29 items Exploratory factor

analysis

8 dimensions, 22 items

Confirmatory factor

analysis

7 dimensions

(normalized items)

Confirmatory factor

analysis

6 dimensions

(normalized items)

Joint/final model

SEM 6 dimensions SEM 4 dimensions


123

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Managing internal stakeholders’ views of corporate reputation

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