Is Wal-Mart a social enterprise? An exploration of the relationship between corporate reputation, corporate social responsibility & financial performance.

Author:Prieto, Leon C.
 
FREE EXCERPT

INTRODUCTION

Wal-Mart has faced its fair share of criticism, which has negatively impacted their corporate reputation. Some have argued that Wal-Mart has destroyed communities by changing established living patterns in the United States (Zhang & Largay, 2009). Some also argued that because of the retail giant, shoppers drive to buy goods and services at locations on the outskirts of town, which results in downtown mom and pop stores losing their customer base and eventually closing down (Zhang & Largay, 2009). In order to avoid these negative effects on their communities, some county leaders do not allow Wal-Mart to enter (Zhang & Largay, 2009).

In recent years Wal-Mart also faced intense scrutiny for its alleged discrimination against women and exploitation of low-wage workers (Garcia, Rovenport, & Osland, 2009). Wal-Mart also made Northwestern University business professor, Daniel Diermeier's list of 2012 worst reputational crises. The retail giant made the list due to allegations of corruption in their Mexican operations and also due to the fire at the Tazreen Fashions factory in Bangladesh, a maker of clothing items for Wal-Mart and other retailers (Diermeier, 2012). Even a recent Forbes magazine article entitled "Oops, Five CEOs Who Should Have Already Been Fired" listed Wal-Mart Ceo, Mike Duke as someone who should have been fired long ago due to the management scandals, employee discontent due to low wages, and its negative effect on the communities (Hartung, 2012).

The Reputation Institute compiles an annual list of the most reputable companies, where Wal-Mart recently placed 124th and was outranked by other retail firms, including Amazon (3rd place), Whole Foods (23rd place) and Target (37th place) (The Most Reputable Companies in the U.S., 2013). Organizations, such as Wal-Mart, should be concerned with their reputation, especially given prior research that suggests reputation can influence stakeholder perceptions (Rindova, Williamson, Petkova, & Sever, 2005), investor reactions (Pfarrer, Pollock, & Rindova, 2010), and long-term profitability (Roberts and Downing, 2002). Reputation is an important means by which companies can maintain a sustainable competitive advantage and endure a long term relationship with multiple stakeholder groups (Boyd, Bergh, & Ketchen, 2010). Therefore, companies have to play an active role in managing their reputation because it may result in superior financial performance or potential disaster. Warren Buffet, influential CEO, investor and philanthropist, stated "It takes 20 years to build a reputation and five minutes to ruin it." In order to use reputation as a source of competitive advantage, companies need to showcase their capabilities in order to change stakeholder perspectives, and this can be done by publicizing their vision, mission, and values (Dowling & Moran, 2012). This is especially important for Wal-Mart because of the constant negative press facing the retail giant.

One way to improve corporate reputation is through contributions to the community and society at large, because corporate social responsibility (CSR) may increase customer goodwill towards the firm (McGuire, Sundgren, and Schneeweis, 1988). CSR initiatives also help organizations to differentiate their products and services by creating a positive brand image, further safeguarding the firm's reputation (Hsu, 2011). This approach makes CSR an important component in a firm's differentiation strategies and is a form of strategic investment comparable to R&D and advertising (Gardberg and Fombrun, 2006).

Wal-Mart, like many other large companies, does possess a corporate conscience and goes the extra mile to take positive actions toward the environment, social causes, and their communities (Creel, 2011). In spite of all the negative criticism, which has impacted the corporate reputation of Wal-Mart, some suggest that the retail giant has impacted society in positive ways as well. For example, according to the Chronicle of Philanthropy, Wal-Mart continues to make good on its 2010 $2 billion dollar pledge to help feed low-income people (Barton, Di Mento, Flandez, & Lopez-Rivera, 2012).

This paper focuses on Wal-Mart as it explores the connection between reputation and financial performance, as well as CSR serving as a possible moderator of the reputation-financial performance relationship (see Figure 1). Furthermore, despite some negative public perceptions of the company, the authors also discuss the consideration of Wal-Mart as a social enterprise due to its CSR and commitment to community initiatives.

The resource-based view (RBV) of the firm basically states that superior organizational performance is based upon the firm's possession of superior resources (Schmidt and Keil, 2013). Those resources must be valuable, rare, imperfectly imitable, and non-substitutable (Barney, 1991), if they are to provide competitive advantages to the firm. Corporate reputation is widely considered to be an intangible resource that possesses all of the attributes that can play a role in a firm's ability to achieve superior organizational performance (Roberts & Dowling, 2002; Rumelt, 1987; Shamsie, 2003). In this context, reputation is defined as an organizational attribute and depicted as a broad, multidimensional single construct whose value is determined through the interactions and interrelationships among multiple attributes, both internal and external to the firm (Barney, 1991; Dowling, 2001).

The interplay among these underlying determinants would combine to create a synergistic effect, where value is produced from uniting the components and developing their mutually reinforcing relationships (Boyd, Bergh, and Ketchen, 2010). According to Boyd, et al. (2010) the linkages among reputation's internal and external attributes are rare and difficult to imitate and could lead to competitive advantage and superior performance (e.g., Dierickx & Cool, 1989; Hall, 1992; Roberts & Dowling, 2002).

Social impact theory lies at the heart of an enterprises'...

To continue reading

FREE SIGN UP