(Un)avoidable: When Wrongdoing Leads to Organizational Stigma

• In Event: 571 - Section on Economic Sociology Roundtables (one-hour)
  In Refereed Roundtable: Table 02. The Construction and Consequences of Identities and Labels

Abstract

Organizational stigma, a form of negative social categorization by stakeholders, is triggered by wrongdoing. Yet most wrongdoing goes unnoticed, and only in a small number of cases does it actually lead to organizational stigma. Drawing on sensemaking theory, this paper shows how stakeholders identify and extract specific cues to stigmatize misbehaving organizations. We argue that stakeholders use the severity and controllability of organizational wrongdoing as critical cues in forming organizational stigma. We also posit that reputation plays an important role in the stigmatization process such that organizations of low reputation are more likely to be stigmatized than those of high reputation in the event of severe wrongdoing. However, the buffering effect of reputation declines when organizational wrongdoing is controllable. We find support for our arguments in an analysis of interstate gas transmission pipeline incidents in the United States over a ten-year period. We observe a significant reduction in exchange by gas shippers with the pipeline operators following incidents that were both severe and controllable, and find support for a buffering effect of reputation contingent on the controllability of wrongdoing. Furthermore, for low reputation operators, stigma was effectively unavoidable – they suffered a reduction in exchange even for wrongdoing that was out of their control. Our results provide insights into the interactive social process through which organizational stigma is created, and offer a clearer, more nuanced view of the role of organizational reputation in the stigmatization process.

Authors

• Brian Park, INSEAD

• Michelle Rogan, INSEAD