1.1 Motivation and positioning of the study

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2 1 1 Introduction The strategic situation of most companies is constituted by an intense national as well as international competition. Due to the ongoing globalization, companies have to fight globally over resources ranging from raw materials to qualified employees and compete to acquire new customers or to retain their old ones. Consequently, strategic management research was focused on the identification of drivers of sustainable, competitive advantages, traditionally investigating tangible resources (e.g., BARNEY 1991; WERNERFELT 1984, 1995). However, in the last decade, intangible assets have come to the fore. Particularly, the firm reputation has turned out to be one of the central and most important intangible assets (HALL 1992; SCHWAIGER 2004). Numerous studies dealt with antecedents and consequences of corporate reputation and substantiated its importance and its contribution to several outcomes. It is argued that good reputation generally leads to overall advantages in respect to negotiations with different stakeholder groups (FOMBRUN 1996; BROWN 1997; CORDEIRO/SAMBHARYA 1997; DEEPHOUSE 1997; MACMILLAN/JOSHI 1997; ROBERTS/DOWLING 1997; SRIVASTAVA ET AL. 1997). Furthermore, a good reputation increases an organization s tendency to engage in joint ventures (DOLLINGER ET AL. 1997). Possessing a high reputation is also valuable for corporations in regard to other stakeholder groups: employees of more reputable companies accept lower compensation and employee retention rates as well as the recruiting chances of organizations with a good reputation are higher (STIGLER 1962; DOWLING 1986; CAMINITI 1992; PREECE ET AL. 1995; EIDSON/MASTER 2000; NAKRA 2000; TURBAN/CABLE 2003; SCHLODERER ET AL. 2009b). Effects on customers include higher trust in products and advertising campaigns (GOLDBERG/HARTWICK 1990; YOON ET AL. 1993; FOMBRUN/VAN RIEL 1998; LAFFERTY/GOLDSMITH 1999), higher customer loyalty (CAMINITI 1992; PREECE ET AL. 1995), and the customers willingness to pay higher prices (KLEIN/LEFFLER 1981; MILGROM/ROBERTS 1986; EBERL 2006a). Analyzing the shareholder perspective, research has shown that high reputation simplifies the access to the capital market (BEATTY/RITTER 1986; SCHWALBACH 2000). Additionally, private investors decisions are influenced by corporate reputation (CHEMMANUR/PAEGLIS 2005; SCHÜTZ 2005; DOWLING 2006; HELM 2007). This ascend of corporate reputation as an important construct discussed and studied in the management community lead to an increased interest of both practitioners and academics in investigating potential antecedents of corporate reputation. Management quality in general (FOMBRUN 2001, indicator: excellent leadership ; SCHWAIGER 2004, indicator: very well managed ) and

3 2 in particular that of the chief executive officer (HELM 2007, indicator: Person of CEO ) are regarded as drivers of corporate reputation by several authors in their respective models. Public relation practitioners also highlight the importance of CEO reputation for firm reputation. Studies conducted by BURSON- MARSTELLER (2006) conclude that the respondents attribute up to 55 percent (depending on the region) of corporate reputation to the reputation of the CEO. However, the Burson-Marsteller studies and most of the other practical surveys are lacking comprehensive theoretical grounding (e.g., causality between CEO and corporate reputation) as well as reliable derivation of the indicators and constructs used. This lack of research calls for a thorough theoretical concepttualization as well as a reliable and valid measurement and explanatory model. 1.1 Motivation and positioning of the study The relevance of CEO reputation is further substantiated by studies on stock price reactions demonstrating an actual economic value of the influence of executives reputation. Company s stock performance may either rise or decline following a CEO turnover. An often cited example in that context is the announcement of Al Dunlap as CEO of Sunbeam Corporation in His reputation as turnaround expert led to a rise of the shares value by more than 50 percent (RANFT ET AL. 2006). In Germany, the retirement of Jürgen Schrempp from his position as CEO of the DaimlerChrysler AG (today s Daimler AG) in 2005 represents a similar example. After the announcement, the stock prices of the DaimlerChrysler AG rose as well. In the light of the recent worldwide economic crisis, the role of reputation and especially the role of chief executive reputation have proven to be even more important. For instance, the proclamation of Oswald Grübel as new CEO at the crisis-ridden Swiss UBS AG caused quite a strong rise of the company shares, reflecting the positive market expectations towards Grübel, who became known as reputable crisis manager at Credit Suisse Group AG. 1 The reputation of chief executives is further gaining momentum with society s increasing obsession towards celebrity gossip and culture. In order to satisfy this demand, senior executives and especially the CEOs are moved into the spotlight of the news coverage by mass media. The general public sometimes obtains an almost intimate knowledge of and a devoted curiosity about the private lives of CEOs (RANFT ET AL. 2006). The increasing media exposure consequently results in higher prominence of the management in both general and specialized press (USEEM 2001). This has led to various rankings or prizes for individual senior officers or the whole management board, which are published by business and mass media magazines (e.g., Barron s Magazine: World s Best CEO). 1 UBS-Konzernchef Rohner geht ; note on the executive change at UBS AG (SWISSINFO 2010).

4 Whereas the importance of CEO reputation has increased over the last years, only very little scientific research has been conducted. Accordingly, BARNETT ET AL. (2006) see the absence of an accurate, commonly acknowledged definition of chief executive reputation in management literature as a severe problem for further research. In addition to this, HALL ET AL. (2004, p. 516) criticize the lack of empirical research and call for the development of a theory of personal or individual reputation that more precisely articulates the antecedents, consequences, moderators, and mediators of leader reputation. This study will follow these calls and offer answers to the following research questions: RQ1: What is the comprehension of the term CEO reputation? RQ2: What are relevant outcomes of CEO reputation? RQ3: What are important drivers of CEO reputation? RQ4: What are potential mediator or moderator variables? Furthermore, the thesis contributes to research on CEO reputation in several ways. As mentioned, the available approaches, rankings or studies are all lacking a theoretically well-founded development of reliable and valid measurement models for chief executive reputation (see chapter 2.3 for a detailed discussion). In addition to that, the case for managing CEO reputation would further be strengthened as to whether evidence for the often (only) postulated influences of executive reputation on important outcomes can be provided. Thus, this study extends its scope to the development of a reliable and valid measurement model of CEO reputation and the validation of identified relations to its antecedents and consequences. Accordingly, answers to the subsequent inferred research questions will be provided: RQ5: How to measure CEO reputation? RQ6: It is possible to explain CEO reputation with the chosen driver constructs to an adequate extent? RQ7: Do the CEOs reputations have an effect on the identified consequences? The thesis will additionally derive implications for the actual management of CEO reputation. With regard to the CEO positioning, practitioners should gain insights in possibilities to tackle the efficiency problem of achieving the best results with a restricted budget. 3

5 4 1.2 Objectives of the study and course of discussion In order to answer the stated questions, this work aims at the development of a new approach for the analysis and management of CEO reputation. On the one hand, the focus is thereby on the provision of a profound theoretical framework for the development of a structural model of chief executive reputation. Thus, the thesis at hand develops a preferably general definition of chief executive reputation. Additionally, it identifies and collects possible consequences and antecedents of CEO reputation. At last, hypotheses of the relationships between CEO reputation, its drivers, and its outcomes are formulated and visualized through a structural model (theoretical background, research questions 1 4). On the other hand, this study is focusing on an empirical validation of those hypothesized relations between executive reputation and its antecedents as well as potential consequences. In doing so, the derivation of the research design considers methodical aspects (particularly with regard to structural equation models 2 ) as well as commonly used procedures for scale development. The operationalization of the constructs of interest translates the previously compiled conceptualization into a measureable manner and yields to useful implications for the academic as well as practical research area of intangible assets, reputation management, and corporate communications (methodical background and empirical study, research questions 5 7). The study is organized as follows (Figure 1, illustrates the structure of the thesis): the theoretical background will be developed in the second chapter. A definition of chief executive reputation based on a literature review on definitions of CEO and corporate reputation is presented and combined with social psychological concepts dealing with person perception and attitudes towards persons. Subsequently, consequences of CEO reputation are identified and collected by reviewing findings in the fields of (1) accounting, economics, and finance, (2) management, marketing, and public relations as well as (3) politics. Potential antecedents of CEO reputation will be presented afterwards. They are basically derived from four areas: CEO and leader literature, rankings and practical measurement tools of CEO reputation, implicit leadership theories as well as studies on political leaders. The second chapter concludes with hypotheses on the relations between the analyzed constructs and proposes a theory-driven, structural model of CEO reputation. The third chapter will summarize the methodical background providing the basis for the measurement of the constructs of the developed structural model. A central point for scale development is the specification of the variables of interest. Thereby, the two different specification modes (reflective and formative) are presented in order to introduce a set of decision rules for guiding 2 The acronym SEMs is widely used and accepted.

6 the determination of the specification hypothesis. Consequently, covariancebased and variance-based structural equation models are presented as an adequate method to analyze the derived structural model as well as compared in order to decide which approach will be applied. Next, the decision to apply the PLS path modeling approach (as one representative of variance-based SEM) will be justified, before important methodological issues with regard to PLS path models are introduced. The following part will show the concrete operationalization of the CEO reputation model s latent variables. The third chapter concludes with the research design of the empirical study. Thereby, the questionnaire and the course of the study are briefly presented. Results and discussion of the empirical study are presented in the fourth chapter. At first, the sample of the study is briefly characterized. The second part examines important questions with regard to research on chief executive reputation. It is analyzed as to whether the respondents have sufficient knowledge on the CEOs in order to be capable of evaluating them. Afterwards, the reputation scores between executives and companies are compared and the individual reputation scores as well as relative positions for executives and companies are presented. Furthermore, it is tested if the respondents differentiate in their perception of the CEO reputation and corporate reputation. In addition, a driver analysis is conducted in order to identify the indicators with the highest impact on CEO reputation. Then, the assessment of the CEO trustworthiness is analyzed before the single antecedent indicators of CEO reputation are briefly examined. Consequently, the fourth part is presenting the assessment of the model s reliability and validity, before the deduced hypotheses are validated. According to the methodical issues presented, the reflective, formative, and structural models are consecutively validated, before the individual hypotheses are assessed. Finally, the thesis is completed by the fifth chapter presenting a summary and an outlook for future research. First, a summary on the provided answers to the stated research questions comprises the results and findings derived from the descriptive analyses and CEO reputation model. Consequently, the next part points to limitations and further research. Finally, the results implications for the management of CEO reputation are summarized. 5