Seizing the Ethical High Ground: Ethical Reputation Building in Corrupt Environments

• DOI: http://doi.org/10.1111/joms.12248
• Author: S. Venkataraman,William S. Harvey,S. Ramakrishna Velamuri
• Published date: 01 July 2017
• Date: 01 July 2017

Seizing the Ethical High Ground: Ethical Reputation

Building in Corrupt Environments

S. Ramakrishna Velamuri, S. Venkataraman and

William S. Harvey

China Europe International Business School (CEIBS); University of Virginia; University of Exeter Busi-

ness School

ABSTRACT We study how ethical behaviour by firms leads to ethical reputation building.

Based on our in-depth studies of two firms in India and Zimbabwe that resisted corruption

and survived for extended time periods, we propose that in addition to behaving ethically,

firms need to elicit favourable responses from a critical mass of stakeholders from both strong

and weak tie networks in order for their ethical reputations to diffuse quickly and widely. We

find that the strength of stakeholder responses to ethical behaviour is moderated by firm level

and contextual factors: high status affiliations, industry characteristics, the nature of corruption

resisted, the presence of a plural press, the potential for collective action, and the presence of

an independent judiciary. These antecedents also influence the pattern of stakeholder resource

commitments that firms are able to enjoy as a result of having built ethical reputations.

Keywords: corruption, ethical behaviour, ethical reputation, resource mobilization,

stakeholders

INTRODUCTION

Scholars have acknowledged that reputation is a valuable organizational resource (Fom-

brun, 2001; Miles and Covin, 2000) and have studied how it is created and how it influ-

ences the organization’s ability to attract stakeholder commitments. Studies have been

conducted both in the context of established companies (Fombrun, 1996; Fombrun and

Shanley, 1990; Roberts and Dowling, 2002; Wartick, 2002) and more recently, new

ventures (Petkova et al., 2014; Pollock et al., 2004; Rindova et al., 2007; Williamson,

2000). Prior research has been consistent in highlighting the positive effects of organiza-

tional reputation; based on a comprehensive review of forty three studies, Lange et al.

(2011) report that all but one found that it leads to positive firm outcomes.

Address for reprints: S. Ramakrishna Velamuri, China Europe International Business School (CEIBS), 699

Hongfeng Road, Pudong, Shanghai 201206, China (rvelamuri@ceibs.edu).

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C2016 John Wiley & Sons Ltd and Society for the Advancement of Management Studies

Journal of Management Studies 54:5 July 2017

doi: 10.1111/joms.12248

In this paper, we study one specific form of organizational reputation, ethical reputa-

tion, in environments with widespread corruption. We believe that understanding the

feasibility of ethical reputation building in corrupt environments is of great societal

importance, and at the same time of immense practical benefit to founders of young

firms and managers of established companies. This is particularly true of firms from

emerging economies such as China, India, Brazil, South Africa, and Nigeria, where

weak institutional regimes and growing business opportunities combine to create oppor-

tunities for corruption (Svensson, 2005). Founders and managers of firms from devel-

oped economies also face corruption in their internationalization to emerging

economies (Cuervo-Cazurra, 2006; Wei, 2000). As globalization gathers steam, more

and more companies will come across the challenge of dealing effectively with corrup-

tion (Elliott, 1997). These companies can benefit from research on resistance to corrup-

tion and how it contributes to ethical reputation building.

Studies that take macro-level perspectives on corruption and that explore policy ini-

tiatives to mitigate it have a long history (Pellegrini, 2011; World Bank, 2001). However,

studies on micro-level approaches to dealing with corruption are relatively scarce (see

Doh et al., 2003; Galang, 2012; and Arvis and Berenbeim, 2003, for exceptions). A

deeper knowledge of the micro aspects of corruption is important because it is not clear

from the literature how an entrepreneur or manager should respond to a demand from

a government official for a bribe. What consequences should s/he prepare for if s/he

chooses not to give in to the demand? What are the costs and benefits of resisting cor-

ruption? Might the costs of resisting corruption in the short term translate into ethical

reputation returns over the medium to long term? Our study seeks to address such

micro-level questions.

Of course, dealing effectively with corruption needs to be understood within the

larger endeavour of survival (in the case of early stage firms) and of achieving sustained

performance (in the case of established companies). A pre-condition for an organiza-

tion’s survival and long term success is its ability to obtain critical resources from stake-

holders (Aldrich and Zimmer, 1986; Birley, 1985; Jarrillo, 1989; Starr and MacMillan,

1990), both internal (employees) and external (customers, suppliers, investors, and the

community, among others). Organizations can facilitate resource acquisition from stake-

holders through the building of reputations that signal characteristics considered valua-

ble and desirable by them (Benjamin and Podolny, 1999; Boyd et al., 2010; Rindova

et al., 2005; Saxton and Dollinger, 2004; Standifird, 2001; Turban and Cable, 2003).

In environments characterized by widespread corruption, some organizations may

see an opportunity in making an investment to develop an organizational resource (ethi-

cal reputation) that would be perceived as valuable by stakeholders because, by defini-

tion, it is scarce in such contexts (Harrison et al., 2010). They may thus consider taking

an ethical stance and signalling their ethical values, as a way of building trust with and

reducing uncertainty for stakeholders.

However, the issue of why stakeholders would commit resources to ethical firms in cor-

rupt environments is not straightforward from a theoretical perspective. On the one hand,

one could argue that unethical behaviours (such as bribery) impose financial and ethical

costs on businesses. Therefore, stakeholders might be drawn to organizations that resist

corruption to save these costs. On the other hand, resisting such behaviours in

648 S. Ramakrishna Velamuri et al.

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C2016 John Wiley & Sons Ltd and Society for the Advancement of Management Studies