Corporate Reputation and Social Activism

Abstract

This book presents a theory of corporate campaigns in which activists use campaigns as a means of harming a firm’s reputation in hope of motivating it to increase its private regulation—corporate social responsibility (CSR) activities aimed at reducing negative externalities or other forms of social harm caused by the firm. The analysis is dynamic in nature because interactions between activists and firms unfold over time. This captures the idea that a firm’s reputation is an asset that can be built or harmed over time. As a firm’s reputation grows, the firm tends to coast on its reputation by reducing its private regulation. This explains why a pragmatic activist—one who cares about the outcome of private regulation and not about the firm’s reputation per se—would find it worthwhile to harm the firm’s reputation. Chapter 2 lays out a three-period model of corporate campaigns to build intuition about the interaction of the activist and the firm. Chapter 3 extends the model to an infinite horizon and allows the activist to use various tactics: criticism, which has a potentially mild impact on the firm’s reputation; confrontation, which can cause a reputational crisis in which the firm’s reputation can be dramatically impaired; and rewards, which increase a firm’s reputation. Chapter 4 analyzes whether the presence of the activist increases or diminishes social welfare. Chapter 5 explores how the activist would choose among potential target firms in the context of different forms of competition between firms. Chapter 6 summarizes and offers lessons for scholars and practitioners.