Topic: Change Management, Off The Wall
Publication: The Academy of Management Journal
Article: Character, conformity, or the bottom
line? How and why downsizing affected corporate reputation.
Author: E.G. Love, M. Kraatz

Featured by: Benjamin Granger

In a recent study, Love and Kraatz (2009)
attempted to identify how corporate downsizing might affect a firm’s
reputation. 

Prior to presenting the results of their
study, Love and Kraatz outlined three broad perspectives, each offering
predictions for how and why organizations’ reputations might change.  The authors then tested each
perspective using a sample of Fortune 100 companies during the years of
1985-1994.  Specifically, Love and
Kraatz used rankings of Fortune’s
“Most Admired Companies” (annual survey of several thousand analysts and
executives) as an indication of organizational reputation. 

The three perspectives differ in their
explanations of how organizational reputation changes.  For instance, the first perspective
stresses character, such that reputation reflects how others’ view the
overall character of the firm.  The
second focuses on how well organizations adhere to widely accepted norms and
practices (organizations that comply with norms have better
reps!).  Finally, the third
perspective stresses technical competence and overall
firm performance (i.e., We give financially successful organizations their
due).

Overall, corporate downsizing had a
negative effect on organizations’ reputations.  Specifically, corporate downsizing appeared to signal low character, at least in the early
years (1980s). This trend is supportive of the first perspective suggesting
that corporate reputation is influenced by the character of the organization
(low character = low reputation). 
Interestingly, however, Love and Kraatz mention that toward the end of
study year band (1994) when downsizing became much more commonplace, that it
did not have such a negative effect on organizational reputation.  This lends support to the second
perspective which suggests that firm reputation depends on the organization’s
adherence to widely accepted norms and practices.

Another interesting finding, which is in
support of the third perspective, suggested that the damage to an
organization’s reputation was mitigated if the practice (i.e., downsizing)
helped the firm’s overall performance. 
The organizations that suffered the most were those whose performance
continued to decrease after downsizing.

Overall, there seemed to be at least some
support for each perspective.  From
a practical standpoint, however, these findings clearly suggest that downsizing
can have a negative influence on outsiders’ perceptions of the
organization.  And remember, if
reputation falls, then so may firm performance.

Love,
E.G., & Kraatz, M. (2009). Character, conformity, or the bottom line? How
and why downsizing affected corporate reputation. The Academy of Management Journal, 52(2), 314-335.