Reputation, Image, Prestige, and Goodwill: An Interdisciplinary Approach to Organizational Standing

Reputation , Image, Prestige, and Goodwill: An

Interdisciplinary Approach to Organ izational

Standing

Oded Shenkar1,2,4 and Ephraim Yuchtman-Yaar3

Reputation, image, prestige, a n d go odwill are conce pts use d by diffe re nt

disciplines, e.g., economics, marketing, sociology, and accounting, to denote the

ge neral standing of organizations among their counterparts. In this paper, the

va r iou s con ce pts are r e vie we d an d co mpare d in te rms of se mantics,

organ izat ional cost, de te rminants, an d implicat ions, am ong others . An

interdisciplinary, multiconstituency framework of organizational standing i s

deve loped, and research propositions are delineated.

KEY WORDS: reputation; image ; prestige; goodwill; standing; interdisciplinary.

INTRODUCTION

Various terms are used to describe the relative standing of organiza-

tions. In sociology, prestige is the preferred term, in economics, it is repu-

tation , in marketing, image, and in accountancy and law, goodwill . In this

pape r, standing will be used as the generic term substituting for the others.

Due to the intangibility of organizational standing, it has been difficult to

assess conceptually and empirically, which is one reason why the construct

has been little dealt with systematically across disciplinary line s. It is pre-

cise ly such difficulty, however, that creates a need for an interdisciplinary

effort of theory deve lopme nt (Birnbaum, 1981) .

This pape r presents an analysis of organizational standing in a number

of major discipline s, e.g., sociology, economics, marketing, and accounting.

Hum an Relations, Vol. 50, No. 11, 1997

1361

0018-7267/97/1100-1361 $12.50/1 Ó 1997 The Tavistock Institute

1Faculty of Manage ment, Tel-Aviv Unive rsity, Ramat Aviv, Tel-Aviv 69978, Israe l.2College of Business Administration, University of Hawaii-Manoa, Honolulu, Hawaii 96822.3Department of Sociology, Tel-Aviv University, Ramat Aviv, Tel-Aviv 69978, Israel.4Request for reprints should be addressed to Oded Shenkar, Departmen t of Manage ment

and Industrial Relations, College of Business Administration, University of Hawaii at Ma-

noa, 2404 Maile Way, Honolulu, Hawaii 96822.

The analysis covers semantic, conceptual, and applie d issues, as well as the

inherent obstacle s and prospe cts for interdisciplinary cooperation. An in-

terdisciplinary, multiconstitue ncy framework of organizational standing is

deve lope d, and research propositions are offered.

ORGANIZATIONAL STANDING: A DISCIPLINARY REVIEW

The terms used to depict organizational standin g in diffe rent discipline s

have important implications. For instance , in recognition of the position of

accountants as official judge s of the construct, the Webster dictionary

(1989) defines goodwill as a property of “business and its relations with its

customers, distinct from the value of its stock and other tangible .” Image,

typically used in marketing, is not defined in commercial terms but rather

as “a physical like ness or representation . . . made visible .” Prestige, the

term used by sociologists, is defined as “a reputation . . . arising from suc-

cess,” and “a favorable and publicly recognize d name or standing for merit

achievement.” Sociologists make a distinction between prestige and reputa-

tion , attaching a positive connotation to the former and a neutral one to

the latte r. Sociologists use the term esteem to denote the appreciation en-

joye d by individuals (see also Sharp, Shin, & Smith, 1982, for a discussion

of prestige in social psychology) .

In this pape r, standin g is propose d as the generic term. Standing is not

as closely linke d to one discipline and its dictionary definition in terms of

rank, status, good position, and reputation better articulate s the main,

though not all the meanings embedded in the te rms it supe rsedes. The

following working definition is propose d:

Stan ding is the organization’s ranking on re levant criteria, which, as a whole (beyond

their aggregate sum) form the relative position of that organization in the eye s ofgive n constituencies.

Other key diffe rences distinguishing the disciplinary approache s to or-

ganizational standin g in addition to terminology, include the unit of analy-

sis, the type of units studie d, the point in time at which it is measured, the

mode of assessment, the relevant constitue ncie s, cost, the variable s assumed

to determine standing, and the presumed implications of the construct.

Focal Unit

Not all discipline s view the organization as the focal unit for which

standin g is assessed. Sociologists are much more interested in occupational

than in organizational prestige, and the latte r rare ly appears in post 1970s

publications. Individuals are considered in sociological studie s of reputation

and esteem , which, as earlier mentione d, represent distinct constructs. The

1362 Shen kar and Yuch tman -Yaar

marketing literature is typically concerned with the image of a particular

brand, which is unde rstandable give n the discipline ’s focus on the customer.

However, the image of manufacture rs and retailers is also studie d. In ac-

counting, goodwill is associated with a firm, since it is the firm which owns,

buys, and sells this asse t.

Organ ization s Studied

With the partial exception of sociology, higher education, and public

administration, most discipline s focus on the standing of business firms.

While this focus is reasonable give n traditional disciplinary domains, it pre-

cludes a comparison of the construct across diffe rent types of organizations.

Sociologists, whose study population is the most dive rse, rarely focus on

business firms but are intrigue d by the generalizability of their findings ob-

tained for othe r organizations. Mack (1954) , while presenting his findings

on air force squadrons, aske d whether they were also relevant for industrial,

religious, educational, and political organizations (see also Mason & Gross,

1955) . Abbott (1974) sugge sted that an emphasis on instrume ntal goals

would enhance the prestige of business firms more than that of universities.

Unfortunate ly, no empirical answer was forthcoming. Finally, with a large

proportion of studies focused on educational institutions, generalizability

of findings is especially proble matic given the special concerns of these or-

ganizations (Meeth, 1974) .

Timing of Assessment

The economic and marke ting literature s are concerned with standing at

the time a purchase decision is pondered by a potential customer. Accounting

and law measure goodwill when a business is sold or taxed. Sociology again

takes the broade st approach, with prestige measure d during various points in

time, producing the insights that are embedded in a longitudinal perspective.

Thus, Wright (1978) reports that the prestige of relief organizations corre-

sponds to the changing saliency of tasks following disaste rs, e.g., the police

and the National Guard gain in prestige during the emergency period, while

churche s gain more prestige during the recovery period.

The point at which standing is measured is key to theory deve lopme nt

and provide s for a potential point of interdisciplinary integration. Thus,

while the fields of economics and accounting recognize that organizations

invest conside rable resources in building up their standing in the hope of

reaping up the benefits at a late r point, it take s a marketing perspective

to realize the process through which such inve stment is be ing made, and

Interdisciplinary Approach to Organ izational Stand ing 1363

a sociological, and probably also a strategic, perspective to indicate at what

point in time the return on the inve stment may be the highest.

Basis for Assessment

In accounting, there are two basic views of goodwill. According to the

first view, goodwill represents “intangible resources and conditions attribut-

able to an enterprise above average strength in areas such as technical skills

and knowle dge, management, and marketing research and promotion, that

cannot be separate ly identified and valued” (Kieso & Weygandt, 1983, p.

572) . G oodwill, in that case , is a residual category, name ly “the excess of the

cost over the fair value of the identifiable net assets.” The othe r view is that

goodwill represents “expected earnings in excess of anticipate d normal earn-

ings” (Kieso & Weygandt, 1983, p. 572; see also FASB, 1976, p. 48).

Both of the accounting views indicate ambivale nce . On the one hand,

the construct is artificially simplifie d for ease of measurement, while , on the

othe r hand, it is engulfed with an air of mystique and comple xity underlying

the profession’s claim to its interpretation. Accountants acknowle dge that

goodwill is affected by a multitude of variable s (e.g., a supe rior manageme nt

team or high standing in the community, as in Catlett and Olson, 1968), yet

include none in the actual formula used to calculate it. To justify the gap,

accountants attach to goodwill virtually magic qualitie s, describing it as “the

most intangible of the intangible s” (Kieso & Weygandt, 1983), “a term lack-

ing any pre cise signification” (Scamell & I’anson, 1979) and even a phenome -

non with a touch of “mystery” (Kieso & Weygandt, 1983).

In contrast to the use of an “objective formula” in accounting, sub-

jective evaluations are used to calculate standing in sociology, marketing,

and business periodicals. Such evaluations are necessary because organiza-

tions are particular rathe r than universal categories, something the account-

ing lite rature acknowle dges when noting that “the goodwill of a busine ss is

frequently of no value at all, except in connection with the place of busi-

ness” (Scame ll & I’anson, 1979) . Subje ctive evaluation often leads to self-

aggrandize ment, name ly the tende ncy of evaluators to judge the ir own

organization more favorably, as Mack (1954) found for squadron members,

Cartter (1966) for university professors, and Cole and Lipton (1977) for

medical school faculty.

Sign ifican t Constituencies

It is no coincide nce that familiarity and recognition are inte rchange -

able words, and that the latte r is associate d with high standing (a “publicly

recognize d name” is one definition of reputation ). Becoming a familiar,


household name is an indication that the organization has moved from par-

ticular to universal existence. The highe st degree of familiarity is achieved

when a brand is used to substitute for a universal product or service. Ex-

amples are Frigidaire , a brand name substituting for “refrigerator” in some

countrie s, IBM, whose punch cards became synonymous with the generic

product, as well as Xerox and Federal Expre ss, whose names have become

verbs used widely by constituencie s and nonconstitue ncie s alike .

Constituencie s serve as judge s, stakeholde rs, or, in Perrow’s (1961, pp.

335, 337) words, “salie nt publics” or “validating groups” of organizational

standin g. Different constituencies are like ly to use diffe rent criteria in mak-

ing the ir evaluations. For example , Leister and MacLachlan (1975) show

that different constituencie s deve lop different images of a unive rsity. Perrow

(1961) demonstrates how hospital patie nts, who know little about medical

care , judge the prestige of a hospital using extrinsic criteria such as food

and entertainme nt.

The significant constituencies for marketing scholars are customers and

potential customers. In particular, marke ting students are interested in im-

age differences between the two, so as to turn prospective customers into

actual ones (e.g., Neide ll & Teach, 1974) . Accountants and some members

of the legal profe ssion are also inte rested in customer perceptions, but only

insofar as those affect the goodwill perceived by pote ntial purchase rs of the

organization itse lf. Economists focus on the potential buye r of a given prod-

uct or a firm. This buye r is assumed to be willing to pay a premium for

reputation as an imperfect substitute for direct knowledge, particularly in

uncertain situations where it is difficult to ascertain quality, e.g., in indus-

tries with short product life cycle s. In these cases, the client extrapolate s

from past experience or from the firm’s reputation (Weizsaker, 1980; Allen,

1984) . Economists and stude nts of finance also show interest in reputation

as perceived by others who may provide an expert assessment to a third

party (Weizsaker, 1980). A constituency all but neglected except by soci-

ologists and stude nts of highe r education are organizatio nal members.

While more familiar with the organization than most nonmembers (Ack-

erman, 1983), members appare ntly are of little or no interest to most dis-

cipline s be cause they are rarely full-paying customers for organizational

products or service s.

The Cost of Organizational Standing

Probably the most concerned with the cost incurred in establishing and

maintaining standing are law and accounting, as the determination of such

costs has obvious tax and profit implications. The accounting literature rec-

ognize s that it is difficult to assess the cost of acquiring goodwill (Catle tt


& Olson, 1983), among othe r factors, because to calculate the cost, it is

necessary to estimate the life of the asset being acquire d. Accountants de-

bate, for example , whether goodwill has an indefinite life or rather is an

asset whose value gradually declines and therefore should be amortize d

(Kieso & Weygandt, 1983) .

While goodwill is defined in terms of “benevolence” and “favor” (Web-

ster, 1989), it is the cost of displaying it that is recognized, and then only for

constitue ncies deemed relevant. For instance, investment in public relations

is considered a legitimate expenditure to maintain goodwill (e.g., Lindquist,

1975). The legal literature reports a court case in which payments to supplie rs

by a firm’s new owners were recognized as a tax deductible expense to pre-

serve goodwill, even though the firm was not legally obligate d to do so (Cooke

vs. Quick Shoe Repair Service ). Perrow (1961) shows how a hospital inve sts

in extrinsic aspects such as food style in order to enhance its prestige in the

eyes of its patients. Organizations make direct investments in enhancing their

standing by using what economists call “signaling activitie s” (Weizsacker,

1980). Advertising, promotion, and public relations expenditure s be long to

this category, since all represent investments made primarily to increase the

standing of the organization as a whole or of one of its brands.

Determinan ts of Organizational Standing

When responde nts in Katona’s (1957) banking study were asked what

determined a bank’s reputation , they answered in terms of service efficiency,

for instance , the abse nce of clerical errors in performing routine service s.

With the exception of sociology, most discipline s typically offer a single

explanatory variable as a determinant of organizational standin g. Fortune

Magazine ’s survey of The Most Admired Companie s uses seven determi-

nants, but reputation is calculate d as a simple ave rage of these determinants.

This implicitly assumes that all criteria are equally relevant and that repu-

tation has no independent value except as a sum of the afore mentioned

attribute s. The se assumptions are questionable . For example , a study of

banks in Israe l (She nkar & Yuchtman-Yaar, 1986) shows that the bank

ranke d at the ape x of the prestige ladder is not the one with the highe st

ave rage rankings across all attribute s.

The broade st treatment of determinants of organizational standin g ap-

pears in the sociological literature. This follows an approach first formu-

late d by Weber (1978) , suggesting that social stratification also has a status

dimension. Most of the early organizational prestige studies in sociology ex-

amine some variation of the functional structural model. For example,

Mack (1954) shows that the prestige of squadrons in a U.S. Strate gic Air

Command base is a function of the perceived distance from the primary


mission, that is the actual dropping of bombs. Similarly, Babchuk, Marsey,

and Gordon (1960) provide evide nce that the age ncie s with the highe st

prestige are those serving a large segment of the community, controlling

conside rable funds, and dealing with crucial proble ms. Young and Larson

(1965) find that the most prestigious voluntary organizations are those per-

ceived to embody the main institutions of the community. Edwards (1969)

reports that while the prestige of voluntary associations is determined by

functional imperatives, the ability to control various resources is also an

important factor. Elsewhere, sociologists argue that esteem is a curviline ar

function of performance , while disesteem is associate d with substandard per-

formance (Goode, 1978; Erickson & Nasanchuck, 1984) .

Yet anothe r way of acquiring organizational prestige in sociology as well

as in marke ting is via association. By selling to the rich, famous, and at-

tractive , the organization acquire s standing and resells it on to others. As

Weizsacker (1980) notes, however, organizations may limit the sale of the ir

products to certain individuals and groups, fearing that misuse will damage

reputation . Organizations can also enhance the ir standin g through affiliation

with other organizations (Young & Larson, 1965) . For instance , having a

primary¯deale r relationship with the Federal Reserve is considered “a mark

of prestige” for deale rs of government securities (The New York Times,

July 9, 1986) . The association may be cemented in different ways, for in-

stance, via organizational leade rship. When Stephe n D’Agostino, head of

the supe rmarket chain, was elected chairman of the Food Marke ting In-

stitute , the press calle d it “evide nce of an industry stature that exceeded

the relative ly small size of the company he heade d” (New York Times, Sep-

tember 13, 1982, p. D1).

Other determinants of standing in the sociological literature include

ownership (Abbott, 1974) , seniority (Young & Larson, 1965) , accreditation

(Barton, 1962; Heydebrand, 1973) , technological deve lopme nt (Gardne r &

Moore , 1955) , and “playing fair,” as in the merger battle between Bendix

and Martin Marie tta corporations, in which the firms “had the ir reputation

scarred” not only because they “faile d to foresee their oppone nts’ strategy”and “miscalculate d the impact on their own moves,” but because they “car-

ried on the takeover battle without worrying about casualtie s” (Interna-

tional Herald Tribune , Oct. 6, 1982, p. 9). From a multiconstitue ncy view,

however, an attribute having a negative connotation for one constitue ncy

may have a positive or neutral connotation for anothe r. Milgrom and

Roberts (1982) show that it may be in the interest of firms to acquire repu-

tation as predators as a way of deterring future entrants to their marke ts

(As earlie r note d, such a range of connotations is more like ly to persist

for reputation than for alte rnative terms of organizational standing).


One determinant that cuts across the sociological and economic litera-

tures is size. Economists assert that reputation is an information good, and

hence requires economies of scale (Weizsacker, 1980) . Larger firms are also

in a position to inve st more in direct cost factors which contribute to standin g,

which is in line with resource dependence theory (Yuchtman-Yaar & Sea-

shore, 1967; Pfeffer & Salancik, 1978). However, in organizations such as

private clubs and honorary socie ties, size may be inve rsely correlated with

standing (Caplow, 1964). Finally, a small but growing organization may enjoy

a higher standing than a larger one which is declining. After all, a growing

organization shows promise of ultimate ly becoming larger.

Implication s of Organ izational Standing

Higher education studie s (e.g., Cartter, 1966; Breneman & Youn, 1988;

Burke, 1988) emphasize the allocation of quality faculty and students and the

solicitation of grants as major implications of prestige. Perrow (1961) propose s

that prestige influe nces effectiveness, efficiency, and internal conflicts. Addi-

tional implications noted in the sociological literature are morale (Roethlis-

berger & Dickson, 1939; Stouffe r et al., 1949; Mack, 1954; Paterson, 1955),

motivation (Mason & Gross, 1955), interpersonal communications (Pate rson,

1955), and the ability to attract higher caliber candidate s (Young & Larson,

1965; Baty, Evan, & Rothermel, 1978). That one ’s status may be co-deter-

mined by the organizations he/she is affiliate d with is a point all but neglected

in the sociological literature (Warner & Lunt, 1941; Merton, 1957; Baron,

1984). An exception is Caplow’s (1964) obse rvation of a tende ncy for status

consistency in the prestige bestowed on individuals by their organizations. In

marketing, on the other hand, image congruence across brand and retaile r

has been a popular topic though results have been inconclusive (e.g., Jacoby

& Mazursky, 1984; Pettijohn, Mellott, & Pettijohn, 1992) .

In marke ting and economics, image and reputation , respectively, allow

firms to charge more for the ir products or services, a premium customers

are willing to pay as a substitute for quality they cannot discern (in eco-

nomics) and for conspicuous consumption (in marketing) . In accounting,

goodwill is a financial asset of limited liquidity, which can represent a sub-

stantial value to a company’s buyer and seller. Manage ment theorists see

other important implications. For instance , Burns and Stalker (1961) re-

ported that one company in their study of post-World War II British firms

saw its standing as material insurance against a severe turndown in business,

a point which will be further considered later in this pape r. Similarly, Stag-

ner (1969) found that 65% of the manage rs in his study reporte d that image

conside rations often outweighed profit obje ctives. Finally, while most of the

sociological studie s focus on the positive impacts of prestige, Perrow (1961)


pinpoints some of its dysfunctions, e .g., the priority assigne d to achie ving

extrinsic salience at the expense of quality, the diversion of resources from

those supporting official goals to the marketing of extrinsic characteristics,

and the conflict which is like ly to emerge regarding those prioritie s.

In the more recent organizational strategy lite rature, reputation ap-

pears as an important reasoning behind the formation of joint venture s as

well as in identifying pote ntial mergers and acquisition targe ts. In the case

of an acquisition, a firm may have identifie d a target whose marke t price

doe s not reflect the value of its standing (e .g., Chate rjee, 1986) . In the case

of a joint venture , a firm may seek to acquire standing via association, that

is, to benefit from the position of its partner in relevant marke ts in the

eyes of relevant constituencie s (e.g., Tallman & She nkar, 1994) .

Summary of Disciplinary Views

Table I presents a summary of where the various discipline s stand on

each of the parame ters considered so far. The table sugge sts that learning

across disciplinary line s is large ly absent, forfeiting a valuable opportunity

to challe nge “the conceptual framework, methodological approache s, and

analytical tools of a specific discipline ” (Russe l, 1982, in Chakrabarti &

Schne ider, 1990, p.73) . In the next section, an interdisciplinary framework

for the study of organizational standing is developed.

ORGANIZATIONAL STANDING: AN INTERDISCIPLINARY

PERSPECTIVE

Among the often-noted reasons for lack of interdisciplinary coopera-

tion are a lack of history of cooperation, differences in vocabulary (Camp-

be ll, 1969) , dive rsity of theorie s and me thods (Fulle r, 1991) , scholarly

socialization (Dogan & Pabre , 1989) , turf prote ction, disciplinary ethnoce n-

trism (Campbe ll, 1969) , and historical inertia (Wilshire , 1990) . An addi-

tional obstacle emerges, however, when knowle dge is seen as “a source of

worldly power” (Fuller, 1991, p. 301) . Thus, the economic benefit entailed

in be ing the official judge s of standing, may have reduced the incentive of

accountants to challe nge their conceptual framework by introducing inputs

from other fields. Other discipline s, on their part, have shown little interest

in reaching beyond their narrow confines, leaving a void that only an in-

tegrative theory deve lopme nt effort could fill.

A Model of Organ izational Standing

Theory developme nt in this pape r will follow the mode l presented in

Fig. 1. The mode l begins with a list of key determinants, which, based on


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past re se arch, are like ly to corre late with organizational standing. The

mode l then builds on Thompson (1967) , Perrow (1961) , Abbott (1977), and

Galbraith (1977) , who view standing as a mechanism used by organizations

to manage the ir dependencie s upon their environme nts. To do that, organi-

zations inve st in signaling activitie s, conveying their posse ssion of desirable

attribute s (e.g., Kay, 1993) in the hope that those will be translate d into

higher standing in the eyes of relevant constitue ncie s. The extent to which

signaling will be effective is, however, a function of the uncertainty sur-

rounding the organization and its products from the perspective of those

constitue ncies.

Construct Properties. Organizational standing is a particularistic prop-

erty, whose value varie s from one situation to anothe r and can hence be

seen as the opposite of a generalized means of exchange . It is a relational,

emergent prope rty, with little meaning except in conjunction with othe r

variable s. This puts standing in a group with such resources as influence ,

affection, and sympathy, which are also relational in nature . Standing is,

however, alone among relational variable s in its simultane ous value as an

organizational asset, an attribute it shares with such resources as capital

and machine ry. The simultane ous membership of standin g in these two di-

verse groups of variable s is what gives the construct its distinctive position.

Fig. 1. A multiple constituency model of organizational standing.


From this perspective, the que stion whether standing and performance

are corre lated is a moot one . Organizational standing is important precisely

because it is not synonymous with quality and performance , and because

diffe rent facets of performance are like ly to matter to different constitu-

encies. This establishe s organizational standin g as a synergetic construct,

which has significance beyond and above the sum of individual attribute s

on which an organization is evaluate d—no finite set of attribute s is like ly

to capture the full meaning of the construct.

Functions of Organizational Standing. Generally speaking, organiza-

tional standin g can be regarde d as a social mechanism designed to resolve

the uncertainty faced by multiple constitue ncies who lack the ability to dis-

cern quality, performance, value , or other relevant attribute s due to the

nature of the observable phenomenon, lack of knowle dge, or lack of access

to information. By cre ating social reality to serve as a substitute to the

objective reality othe rs cannot access, standin g allows organizations to com-

municate what they perceive to be desirable attribute s to those constitu-

encies. In so doing, organizations do not reduce the dependence upon the ir

environme nts per se, but acquire the ability to manage their environme nts

in support of the ir best interest (see Galbraith, 1977) and to set in motion

an enactment process among their constitue ncie s which will be supportive

of their cause ; in other words, to build social legitimacy (see Rao, 1994) .

A key role of organizational standing is anchoring, that is to allow indi-

viduals to make sense of their world by establishing a hierarchical order of

things relevant. Unlike other constructs with a similar role, however, organ-

izational standin g is a function not of the very membership in a give n category

but of its particular attribute s and behaviors vis-à-vis othe r members of the

same category. Thus, while occupational prestige has shown remarkable sta-

bility across groups of evaluators (e.g., Treiman, 1977) , we expect organiza-

tional standin g to vary across significant constituencie s, e .g., members,

customers, owners, competitors, and regulators, since membership in those

groups translate s into different interests activated at diffe rent points in time.

Exchanging Organizational Standing

Unless pursue d for its own sake , organizationa l standing, once ac-

quire d, can be converted into other resources base d on certain rules of

exchange . The present literature rare ly specifies what these rules are, with

the exception of standin g’s power value . Thus, Thompson (1967, p. 33) sug-

gests that “acquiring prestige is the cheape st way of acquiring power,” while

Merton (1957) notes that colle ctivitie s and organizations who enjoy high

prestige do not have to maximize the use of their power. Standing’s rules

of exchange are best obse rved, however, from a longitudinal perspective .


Organizations typically inve st in standing at an early stage, expecting to reap

the benefits later on (Kay, 1993). In the inve stment phase , standing cannot

be exchange d into other resource s and can be regarded as a sunk cost, a

cost which may be unavoidable when the lack of standing may be a barrier

to market entry (Weizsacke r, 1980) . At a later stage, standin g becomes both

a cost and an asset—this is the stage economics and marke ting are more

concerned with, when discussing the trade-off between quality improve ment

and adve rtising on the one hand, and the ability to charge customers a

premium on the other (see also Cameron & Whetten, 1981) . During pe-

riods of decline , standin g is like ly to pay off in the form of favorable ex-

change terms. It is then used as a slack resource, buffering the organization

from some of the adve rse consequences associated with eroding quality

and/or highe r costs. In the last stage , organizatio nal standin g becomes

mostly an asse t—this is the stage accounting and law are concerned

with—when a firm is be ing sold, merged, or being allie d with, and its good-

will is exchange d back into financial resources or assessed in kind.

Constituencies as Exchange Counterparts. That the counte rparts to the

exchange of organizational standing are significant constituencie s imposes

some of the main parameters within which the exchange is conducted. For

instance , signaling to potential customers is like ly to highlight such attrib-

utes as quality and reliability while signaling to prospective employees will

probably emphasize the organizationa l record in developing human re-

source s. Different constituencies are also like ly faced with different levels

of uncertainty in terms of quality and performance. For e xample , many

organizational members are probably knowle dgeable about its products and

service s to the point that standing will have little influe nce over the ir de-

cision to use those products and service s. This intimate knowledge , or at

least the presumption thereof, is the reason why a Ford Motors employe e

who drives a Toyota is more of a threat to his company’s standing than a

customer who is not associated with Ford.

Variations across constitue ncie s are especially meaningful in terms of

the implications of organizational standing. Organizational members and

prospective members, the most neglected constituencies in the literature ,

are probably more affected by the construct than customers. While the two

groups exchange standin g at the boundary, the customer’s inte rface with

the organization is, in most instance s, sporadic and limited, while for mem-

bers and potential members, the interface is substantial. Employe es may

decide to join, remain, or leave an organization based on its standin g in

the ir own eyes or those of significant others, e.g., professional peers. Higher

standin g organizations will possibly pay the ir employees less than competi-

tors on the presumption that standing is part of the compensation. If this

is the case , organizations may use proximity to core activitie s in making


compensation decisions, base d on the assumption that greater proximity

entitles one to a greater share of the standing to be derived from mem-

bership. Employees, on their part, may wish to exchange standing for the

appreciation of others or regard it as an inve stment which can be profitably

exchange d back into earnings when they move to anothe r organization.

Constituencies as a Network. Following Granove tter (1985) , enterprises

should be considered within the context of the institutional networks in

which they are embedded. From this perspective, the various constituencies

of organizational standin g can be viewed as members of a network, situated

at diffe rent social distance s from each othe r and excluding one or more

members at a time (see Burt, 1976) . For example , employees, unless owners

or part owners themselves, are often exclude d from the direct exchange of

organizational standing in the market for goods and services, in which own-

ers and custome rs, including potential ones, participate ; as well as from

the marke t for corporate mergers and acquisitions, in which owners, com-

petitors, and regulators take part. Customers and would-be customers and

owners are excluded from the labor marke t for organizational standing, in

which employe es, current owners, and competitors participate . Regulators

are probably the only constitue ncy excluded from all marke ts for organiza-

tional standin g, though they act as gatekeepers, for instance by removing

nonconforming players from the standing competition in the name of pro-

tecting such stake holde rs as customers and employe es. Take n toge ther,

these shifting coalitions are key to the dynamics of organizational standing.

They explain the segmented nature of organizational standing markets, the

temporal nature of their conve rsion, and the resulting challenge s to organ-

izational theory and practice .

An example of such a challe nge can be seen in current scholarship

on stake holde r manage ment (e.g., Clarkson, 1995). Propone nts of stake -

holde r manage ment advocate that manage ment pays “simultaneous atten-

tion to the legitimate inte rests of all appropriate stake holders” (Donaldson

& Preston, 1995, p. 67) . Given the temporal and segmented nature of the

markets for organizational standing, simultane ous attention may be actu-

ally contrary to the inte rests of give n stakeholders. Not only do the various

stake holde rs use diffe rent criteria to assess standing, making simultane ous

signaling virtually impossible , but temporal variability virtually assure s that

simultane ous attention will like ly shortchange those constitue ncies who,

at a give n time, are at the low end of the inve stment/re turn curve in their

relevant market. This is especially true in such situations as mergers and

acquisitions, which often impose new cycle s of organizationa l standing for

the double set of a constitue ncy (e.g., employe es of the acquiring firm

and employe es of the acquired firm).


Research Proposition s

Having laid out a preliminary model of organizational standing, it is now

possible to present a number of research propositions which should enable

theory testing and furthe r theory deve lopment in the future, as follows.

Resolving Uncertainty. Since organizational standing is an uncertainty-

resolving mechanism, it will be affected by the uncertainty embedded in

organizational tasks and by the amount of relevant information a given

constitue ncy has on their products and service s. Organizations whose prod-

ucts and services are less measurable in terms of quality and performance

are like ly to benefit from the value of standing as a slack resource to a

greater extent and for a longe r time than will be possible for organizations

whose products and services are more measurable . This will hold for vari-

ous constitue ncie s, but especially for those who are less like ly to have

knowledge of the inne r workings of the organization. Thus, for instance ,

Proposition 1. Other things being equal, universities and hospitals will be

able to use standing as slack vis-à-vis the general public for a longer time than

business firms, especially those with more tangible products or services.

Proposition 2. Other things being equal, standing will play a more impor-

tant role in the decision of customers to purchase intangibles, say, insurance,

than in the purchase of tangibles, e.g., paper products. (Note that Proposition

2 assumes the abse nce of a mediator, i.e ., an insurance agent. A key role

of the agent, in fact, is to resolve the uncertainty of the customer regarding

the product.)

Proposition 3. Other things being equal, new job candidates are more

likely to agree to lesser compensation from high standing organizations than

veterans of the industry in which the organ ization has been operating.

Because of its diffuse nature , organizational standing is like ly to create

a “halo effect” which transcends a given product or service. Its greater im-

pact, both positive ly and negative ly, is hence like ly to be for diversified

organizations or those marke ting a wide range of products within their in-

dustry. Thus,

Proposition 4. The greater its variety of organization al products and serv-

ices, the more importan t standing will be for the organ ization.

The Context for Organizational Standing Formation . Given that organ-

izational standing is a social mechanism, it is obvious that the social, eco-

nomic, and cultural context within which it is formed will have major

repercussions in terms of the de terminants, proce ss, and implications of

the construct for various constituencies. The following three propositions

are intended to illustrate the potential for expanding the treatment of or-

ganizational standing via a consideration of contextual elements.

When an organization is in a monopoly position, standing will have

little value in the eyes of customers, as there is little uncertainty to resolve


on the ir part (see Weizsacker, 1980 for a discussion of monopolie s and

other barriers to entry) . Take , for example , the case of Chinese or Sovie t

customers, who until the reform period had typically no choice among com-

peting products and had to be content when one was available at all. Or-

ganizat ions in those e nvironm ents did not inve st in signaling to the ir

customers since the information had no value for eithe r group. Organiza-

tions did invest, however, where it mattered—in signaling to the ir regula-

tory ministrie s. In a marke t economy, organizations in a strong monopoly

position will inve st in building standin g in the eyes of relevant constituen-

cies, to include not only potential customers. From an economic perspec-

tive, the most relevant constituencie s in a monopoly situation are pote ntial

entrants who might threaten the monopolist (Kreps & Wilson, 1982) ; from

a sociological perspective , the most relevant constitue ncies are the regula-

tors and those groups who can mobilize support for or against the monop-

oly among the regulators.

Proposition 5. The more secure the monopoly position of an organization,

the less likely it will be to invest in its standin g vis-à-vis potential custom ers

and the more likely it will be to invest in signaling to constituencies with the

econom ic, social, and political power to alter or defend its monopoly position.

Given the intangible and relative nature of organizational standing, it

is also reasonable to assume that its value will vary systematically across

cultural line s. Since organizational standing provide s a resolution for un-

certainty, members of cultures which are high on uncertainty avoidance ,

that is, where there is relative ly little tolerance of unpre dictable , ill-struc-

tured events (Hofstede, 1980) , are like ly to attach greater importance to

this construct. Culture s high on collectivism are also like ly to put more

emphasis on organ izational standin g than on individual determinants of

status and position, e.g., on occupational prestige. In Japan, which ranks

high on both dimensions, employe es tend to identify themselves by the ir

company name rather than by their occupation. Thus,

Proposition 6. Other things being equal, the higher uncertainty avoidance

and collectivism in a culture, the more likely it is that organization al standing

will serve as a basis for social identification .

Organizational standing is merely one determinant of an individual ’ssocial position, however, it is not devoid of his/her standing on othe r lad-

ders. For instance , Shrum and Wuthnow (1988) report that in addition to

performance and structure , the reputational status of scientific and techno-

logical research organizations is affected by the network position of the

organization among knowledgeable responde nts. Individuals who occupy

positions in high standing organizations, say in the workplace , will also tend

to occupy positions in other high standing organizations, say in the ir vol-

untary and political activitie s, or othe rwise suffer status inconsiste ncy. An-


other important type of status inconsiste ncy may be formed between a high

status profession and a low standing organization (e.g., a physician in the

prison service ). Such status inconsiste ncie s, which have been all but ne-

glected in the sociological literature, may have implications for the indi-

vidual’s self-esteem and career prospects. Thus,

Proposition 7. Individuals and organ ization s will attempt to reconcile

status incon sistencies stemming from multiple membership in industrial, or-

ganizational, and/or occupational groupings.

CONCLUSIONS

The propositions presented here constitute a series of theory state-

ments, which, toge ther with the model from which they are derived, should

be regarde d as a first step toward the deve lopme nt of an interdisciplinary

theory of organizational standin g. Even before it provide s answe rs, an in-

terdisciplinary theory will raise many questions which have so far been ne-

gle cte d. For instance , what are the human re source implications of

perceived status inconsiste ncie s, e.g., engaging in a high standin g profession

in a low standing organization? What is the financial value of organizational

standin g in the eyes of prospective and current staff, and what are its im-

plications for the value of this organization in the eyes of potential suitors?

Linking organizational standin g with current theorie s is a relate d chal-

lenge, that can serve as a catalyst for intradisciplinary as well as interdis-

ciplinary cooperation. The study of organizational standing illustrate s, for

instance , where such organizational theorie s as resource-depende nce, ex-

change , structural¯functionalism, and institutional theorie s conve rge, and

where they offer a distinct contribution. For instance , the present analysis

suggests that a functionalist perspective may be valuable in predicting dif-

ferences in standin g between “core” and “periphery” organizations, while

exchange theory may be more instrumental in explaining how standin g, once

acquired, is converted to other resources. This, in turn, can assist in theory

deve lopment, e .g., by indicating when stake holde r¯age ncy relationships

(Donaldson & Preston, 1995) are like ly to exceed equilibrium for a given

set of players.

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BIOGRAPHICAL NOTES

ODED SHENKAR is affilitated with The Leon Recanati Graduate School of Business Ad-ministration at Tel-Aviv Unive rsity and the College of Business Administration, University of

Hawaii at Manoa. He holds degrees in East-Asian Studies and Sociology from the Hebre wUniversity of Jerusale m and an MPhil and PhD from Columbia Unive rsity, where he special-

ized in the sociology of organizations and international management , with a special emphasison China. In rece nt years, his work has focused on the establishment and manage ment of

international strategic alliances in ge neral and joint ve ntures in particular.

EPHRAIM YUCHTMAN-YAAR is Professor of Sociology and Social Psychology at Tel-Aviv

University and former dean of the Faculty of Social Sciences at this Unive rsity. He also holdsthe Rapoport Chair in the Sociology of Labor. Professor Yaar receive d his BA and MA de-

grees at the Hebre w University of Jerusale m and his PhD at the University of Michigan. Hepublished several books and numerous articles in the area of organizations as well as industrial

and political sociology.


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Reputation, Image, Prestige, and Goodwill: An Interdisciplinary Approach to Organizational Standing

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