Corporate social responsibility (CSR)

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Jun 19, 2012 - care assistance for its employees by a fictional electronics manufacturer in the local community. In fact, similar stories have often been covered ...

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Corporate social responsibility (CSR) as a halo effect in issue management: public response to negative news about pro-social local private companies a

Seungho Cho & Yong-Chan Kim

b

a

Department of International Commerce, Soongsil University, Seoul, Republic of Korea b

Department of Communication, Yonsei University, Seoul, Republic of Korea Version of record first published: 19 Jun 2012.

To cite this article: Seungho Cho & Yong-Chan Kim (2012): Corporate social responsibility (CSR) as a halo effect in issue management: public response to negative news about pro-social local private companies, Asian Journal of Communication, 22:4, 372-385 To link to this article: http://dx.doi.org/10.1080/01292986.2012.681666

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Asian Journal of Communication Vol. 22, No. 4, August 2012, 372385

ORIGINAL ARTICLE Corporate social responsibility (CSR) as a halo effect in issue management: public response to negative news about pro-social local private companies Seungho Choa and Yong-Chan Kimb* a

Department of International Commerce, Soongsil University, Seoul, Republic of Korea; b Department of Communication, Yonsei University, Seoul, Republic of Korea

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(Received 9 May 2011; final version received 8 November 2011) This study investigates the effect of corporate social responsibility (CSR) and corporate nationality on public reactions to negative news about corporations. To explain how CSR activity works as a buffer for a negative issue of an organization, we propose a halo effect theory. This study conducted an experiment using a 2 (CSR activity vs. no CSR activity) x 2 (domestic company vs. foreign company) between-subject design. For this experiment, we developed a negative news story about a fictitious Asian local company. The dependent variable was whether individuals showed willingness to take actions against this company. We found that both CRS activities and corporation nationality have the main effects on individuals’ willingness to take an action against the local company. CSR activities and the company’s national identity (being domestic) were significant positive factors in attenuating participants’ intention to take action against the local company. Further, there was a significant interaction effect of CSR activity and the company’s nationality on individuals’ willingness to take action against the company: CSR activity had a greater positive impact on soothing the public’s negative reactions when the local company was identified as foreign rather than domestic. The results were discussed as a halo effect of CSR activities. Keywords: corporate social responsibility; halo effect; issue management; nationality; pro-social image

Introduction As one of the strategies to enhance positive images in the local community, many local companies conduct corporate social responsibility (CSR) activities such as hosting or sponsoring community events, actively engaging in local community activities, or donating money to community organizations, e.g., local schools, libraries, hospitals, cultural organizations, and charities (Heath & Ryan, 1989; Lee, 2004). Past research has demonstrated various public relations benefits that a private company would gain from their CSR activities (Jamali & Mirshak, 2007). In this study, we are particularly interested in the benefits that a local company would gain due to their prior CSR activities during an organizational crisis. We conducted an experiment to examine whether CSR activities would help local companies with their issue management efforts to recover from negative local news about them. *Corresponding author. Email: [email protected] ISSN 0129-2986 print/ISSN 1742-0911 online # 2012 AMIC/SCI-NTU http://dx.doi.org/10.1080/01292986.2012.681666 http://www.tandfonline.com

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Negative news about a local company could lead to detrimental outcomes such as residents’ boycotts, negative letters to the news media, and negative buzz about the company. If not managed timely and effectively, even minor negative news about a local company can be amplified to become a prelude to a major crisis (Kasperson, Renn, Slovic, Brown, Emel, Goble, et al., 2006). Could image enhancement activities as proactive efforts of issue management give a local company more control over how the public processes negative news stories about it (Hallahan, 2001)? Would positive images and good reputations created by various CSR activities work as critical assets that a local company can use to effectively respond to negative news about it (Coates, Coates, Jarratt, & Heinz, 1986; Ewing, 1997)? We do not have much previous research to offer clear answers to these questions. Our study is one of the first attempts to conduct a laboratory experiment to answer these important questions and provide theoretical underpinnings to understand CSR effects as halo effects in issue management. Since the early 1990s, many East Asian companies, especially in Korea, Japan, and China, have increased their presence in local communities in the United States mostly by way of direct investment (e.g., Toyota in Georgetown, KY; Hyundai Motors in Montgomery, AL; Honda in Greensburg, IN; Toyota in Blue Spring, MS; Nissan in Canton, MS). More recently, Korean companies have aggressively expanded business ownership in mobile communication. East Asian countries (i.e., China, Japan, and Korea) now have a higher level of business ownership in the United States than any other countries including Canada and the UK (Fairlie, 2006). Even self-employed East Asian businesses in the United States have grown faster than those from other regions (Robb & Fairlie, 2009). Such expansion of business has required East Asian companies to comply with legal and ethical standards in the host country. However, cultural differences in the United States have made Asian companies face difficulties in operating their companies. According to Hofstede’s cultural dimensions ranking (2001), East Asian countries show huge differences from the United States in terms of many cultural dimensions such as power distance, individualism, masculinity, and uncertainty avoidance. Such cultural differences may create serious problems for East Asian companies in the United States regarding organizational management, communication with local employees, or relations with the local community (Mead, 1998). Negative issues based on these potential cultural difference problems, once they materialize, would be easily picked up by the local media. Our primary research question in this study is whether, as negative news stories about a local company are covered by the local media, the nationality of a company would make a significant difference in the level of negative public responses to the company. We further ask a question regarding the effect of past CSR activities on public responses to negative news about a local company. By relying on the social identity theory (Tajfel & Turner, 1985), we compare East Asian and US companies in terms of the extent to which their past CSR activities attenuate the effect of negative news stories on public reactions to them. Literature review Pro-social image through corporate social responsibility Public relations scholars have studied CSR as one of the most effective pro-social activities for building a positive corporate image (Balmer, 2001; Benoit, 1997;

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Brown & Dacin, 1997; Heath & Ryan, 1989; Lee, 2004). It was during the 1950s when CSR was first conceptualized as one of the critical organizational activities to build, restore, or maintain positive organizational images (Carroll, 1991). In general, CSR can include any activities that an organization conducts based on their perception about what social responsibilities they are expected to take (Bowen, 1953). More recently, Carroll (1991) and Wood (1991) provided a multi-dimensional definition of CSR as having various domains such as economic, legal, ethical, and philanthropic domains. Economical CSR refers to an organization’s responsibility to provide high quality goods and services to members in society. Legal CSR has to do with the obligation to comply with the laws and regulations at the federal, state, and local levels. Ethical CSR refers to adherence to social standards, norms, or expectations. Finally, Philanthropic CSR refers to engaging in programs to promote human welfare or goodwill. A number of studies have adopted these domains of CRSs to examine the effects of CSR initiatives on various positive outcomes, including public attitudes toward an organizational image (Wigley, 2008), consumer intention to purchase products (David, Kline, & Dai, 2005; Wigley, 2008), customer-company identification (Sen & Bhatacharya, 2001), consumer product response (Brown, 1998; Brown & Dacin, 1997), customer attitudes toward products (Berens, Van Riel, & Van Bruggen, 2005), citizens’ donation to a nonprofit organization (Lichtenstein, Drumwright, & Bridgette, 2004), and corporate financial performance in general (Luo & Donthu, 2006; McGuire, Sundgren, & Schneeweis, 1988). All of these outcomes of CRS activities indicate that CSR should be considered as strategic issue management for public relations. CSR and issue management Issue management is ‘a proactive and systematic approach to predict problems, anticipate threats, minimize surprises, resolve issues, and prevent crises’ (Wilcox & Cameron, 2007, p. 256). An issue management process includes a mix of activities such as identifying and analyzing an issue, determining strategy options, setting a time frame, implementing an action, and evaluating the action taken (Jones & Chase, 1986). A well-prepared issue management process should guide organizations to develop effective issue response strategies customized for target publics and target issues. Every organization is susceptible to an emergence of negative issues against it, which may be raised and distributed by various parties such as activist groups, environmental groups, governments, or other stakeholders, including the media. Depending on which party is responsible for the negative news against it, an organization should use different strategies. Hallahan (2001) explained four types of issue management strategies made for different types of publics as grouped based on their levels of issue awareness and involvement: negotiation-based strategy for active groups, intervention-based strategy, education-based strategy, and engagement in prevention-based strategy. The negotiation-based strategy uses concession or bargaining to address various claims from active publics who often have high-level issue awareness and involvement. The intervention-based strategy focuses on monitoring, outreaching, or collaboration activities to address the concerns of aroused publics who have low-level issue awareness and high-level issue involvement.

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For responding to aware publics who are characterized by high-level issue awareness and low-level issue involvement, it is recommended to use the education-based strategy that includes efforts of alliance building with stakeholders, media advocacy, or lobbying. Finally, the prevention-based strategy is directed to inactive publics who are low in both issue involvement and awareness. This strategy is composed of preventive efforts to make negative issues less salient or less important among the public. One of the tactics for this prevention-based strategy is making reputation enhancement efforts such as conducting socially-valued activities, including protecting the environment, involvement in community issues, donating to non-profit organizations, or supporting local schools. These efforts are overlapped with CSR activities. CSR activities can be discussed as part of issue management efforts, especially based on prevention-based strategy. When a negative issue about a company emerges in the local community context, especially through the local media, there will be a number of situations the company cannot control: for example, negative news will be rapidly disseminated to the inactive public by various channels, including the local news media (newspapers or local TV news), Internet-based news media (various websites, blogs, and social media such as Facebook or Twitter), or interpersonal networks composed of local opinion leaders, activists, or other residents; the inactive public could become more aware of and/or more involved in the negative issue; and the public may participate in various activist groups that activate and amplify the issue. It is often both impossible and unwise for an organization to deny the existence of the negatively framed issue once inactive publics become aware, aroused, or turn into active publics. Sjovall and Talk (2004) said that one way for corporations to mitigate the damage from a negative event is to have built up positive brand identification with the public or to have a good reputation or image. CSR activities may contribute to building an image of a pro-social organization, which will work as a ‘buffer’ against negative news (Coombs & Holladay, 2001; Lyon & Cameron, 1998). CSR as a halo effect in issue management In the current study, we suggest that CSR has a halo effect by which a company’s favorable and pro-social images built by its past CRS activities can prevent the company from being damaged by any negative event or crisis (Ulmer, 2001). The halo effect has been defined as the influence of a global evaluation of an object or person (e.g., Company X is an ethnical organization) on its particular attributes (e.g., Company X’s employment policy should be also ethical) (Nisbett & Wilson, 1977). The halo effect is theoretically explained by cognitive consistency theories: people strive to maintain a consistent set of beliefs, because inconsistency in the cognitive system induces adverse psychological tension (Leuthesser, Chiranjeev, Kohli, & Harich, 1995). The halo effect is based on bias spilling over to other evaluations or assessments (Beckwith & Lehmann, 1975; Thorndike, 1920). Discussions about the halo effect are found extensively in marketing research that addresses such issues as pre-choice evaluation (e.g., Beckwith, Kassarjian, & Lehmann, 1978; Holbrook, 1983), evaluation of goods (e.g., Moore & James, 1978), evaluation of retail stores (Wu & Petroshius, 1987), recruitment and performance appraisal (e.g., Farh, Cannella, & Bedeian, 1991), consumer satisfaction (e.g., Wirtz & Bateson, 1995), and consumer behavior (e.g., Klein & Dawar, 2004).

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A few studies have mentioned a halo effect in the context of public relations. For example, Coombs and Holladay (2006) reconsidered the reputation effect as a halo effect and found that as companies established organizational images favorable to their stakeholders, the stakeholders may be more likely to discount or ignore negative information about the organization (Coombs & Holladay, 2006; Dean, 2004). Klein and Dawar (2004) also found that CSR had a halo effect on routine consumer judgment, such as the evaluations of new products. Based on the previous studies addressing, either directly or indirectly, halo effects of CSR activities, we suggest in the current study that CSR as an issue management effort would have a halo effect on public responses to a negative issue about a company. CSR activities conducted during non-crisis times may be taken as insurance against negative issues that may be activated during future crises. In an organizational crisis, past CSR activities could make a positive bias in public perceptions and reactions to the negative situation. If local residents perceive a company as pro-social, they might continue to support the company even with the emergence of a negative issue about it, rather than taking actions against the company. Thus, CRS activities are related to the core idea of the prevention-based strategy of issue management. An organization’s CSR activities in a pre-crisis situation form a halo (as positive attitudes toward the organization) in publics’ minds. Thus, CSR activities of an organization will attenuate publics’ intentions to take actions against negative news about it. The following hypothesis summarizes our discussion of CRS as a source of halo effects. H1. Respondents would be less likely to have an intention to take actions against a local company when they read a negative news story about the company with a reference to the company’s past pro-social activities than when they read the same news story without a reference to the company’s pro-social activities.

Asian vs. US companies in the US The present study addresses another issue: would there be a difference between domestic companies and foreign companies in terms of the value of having a prosocial image during the emergence of a negative issue? Since the early 1990s, many Asian companies have operated their businesses in the United States. In 2004, the market value of the total accumulated Asian direct investment (FDI) in the US was US$2.7 trillion, which is approximately 10% of the total market value of all publicly traded firms. The data shows an increasing number of Asian investments in the United States. Some of the Asian companies have been successful in becoming integrated into their host communities, while others failed to establish themselves within the local community. As more Asian companies directly invest in the US by building plants and hiring local workers, more attention needs to be paid to how an Asian company manages negative issues in their host communities. Unlike a domestic company, a foreign company has to face additional challenges in community relations, employee relations, or media relations, mainly due to their out-group status that will become more salient when a negative issue emerges. Such additional challenges for Asian companies are aggravated because of much difference of culture as Hofstede (2001) addressed. Cultural gaps might mentally intensify an issue of identification as being in-group or out-group.

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According to the social identity theory (Tajfel & Turner, 1985), individuals will take extra cognitive or behavioral efforts to maintain, protect, or enhance their group identity in situations where a particular in-group/out-group identity becomes more salient (Tajfel, 1969; Tajfel & Turner, 1985). This salient in-group/out-group identification will form a stereotype that will bring about affective (favor vs. disfavor) or behavioral (approach vs. avoid) consequences (e.g. Ashforth & Mael, 1989; Hamilton, 1981) such as donations to an institution (Mael, 1988), group cohesion, cooperation, evaluations of the group (Turner, 1982), employee loyalty, recognition as a member, support, compelling images, or intergroup relations (e. g., Dovidio, Gaertner, & Kafati, 2000; Peteraf & Shanley, 1997; Pondy, Frost, Morgan, & Dandridge, 1983). Based on social identity theory, Tajfel (1982) explained that foreign companies could be perceived more negatively than domestic companies when they became involved in negative news. In the context of the increasing presence of foreign companies in local communities in the United States, we may see more cases where local residents make in-group/out-group distinctions for local companies based on their nationalities. The company’s national identity may not be salient in non-crisis situations, however, when a company (especially Asian company) is involved in a crisis, its nationality will act as a trigger for in-group/out-group distinctions among local residents. Thus, we hypothesize that the company’s nationality will affect how individual residents evaluate negative issues about it. H2. Respondents who read a negative news story about a local foreign company (Asian company) will be more likely to show intention to take action than those who read a story about a domestic company.

One of the ways for foreign companies to overcome their identity as out-group, especially before a crisis, is to develop corporate citizenship (Pinkston & Carroll, 1994) by incorporating CSR activities as part of their routine programs. In Hypothesis 1, we hypothesized about the effect of CSR as a halo effect that will influence local residents’ reaction to negative news about local companies. Our question here is whether an equal halo effect will be found in both foreign and domestic companies. To answer this question, we have the following research question and examine whether there is an interaction effect of CSR and national identity on individuals’ intention to take actions against a local company involved in negative news. RQ1. Will there be a difference between domestic and foreign companies in the extent to which CSR activities attenuate people’s intention to take action against a company involved in negative news?

Method Participants The respondents in this experiment were 128 undergraduate students in three communication classes in a large public university in the United States. About 52% were male; 19% were freshman, 20% sophomore, 32% junior, and 29% senior students. For a pilot test as separated from the main test, 74 additional students were

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recruited from the same University. The pilot test was conducted for manipulation check and a test of message order effect.

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Design A 2 (CSR activity vs. no CSR activity) X 2 (Foreign-Asian vs. Domestic-US) between-subject design was used for this study. Four randomly assigned groups were asked to read one of the following four newspaper stories about poor health care assistance to employees: (1) in a locally-based foreign company (named ‘Asian SHIN Inc.’) with additional reference to the company’s past pro-social activities (i.e., donating money to local charitable organizations); (2) in a local domestic company (named ‘SUNSHINE Inc.’) with reference to the company’s past pro-social activities; (3) in a local foreign company without any reference to its pro-social activities; and (4) in a local domestic company without any reference to its pro-social activities. The dependent variable is the news readers’ intention to take action against the negative issue in the news.

Materials The fictional news stories were prepared by a professional journalist working for a local public radio station. All stories were written in news style and had headlines (see Appendix 1). The main issue addressed in the news stories was about poor health care assistance for its employees by a fictional electronics manufacturer in the local community. In fact, similar stories have often been covered by the mass media (e.g., NACCP poor treatment of women in 2006, the poor treatment at Casino in 2006, a Wal-Mart case in 2005, etc.).

Measures This study examined a behavioral intention as the dependent variable which predicts a behavior quite well (Ajzen & Fishbein, 1980). Intention to take action against the local company involved in the negative news was measured by using the following five items: (a) I would like to take action against the company; (b) I would like to join a community group to protest the company’s action; (c) I would like to complain about the company to my friends; (d) I would like to write a complaint letter to the company about the issue; and (e) I would like to participate in a boycott against the company. These items were measured by using an 11-point scale ranging from 0 (strongly disagree) to 10 (strongly agree). One factor was extracted based on a factor analysis of the five items. The mean value of the five items was calculated for the dependent variable. Cronbach’s alpha for reliability for the variable was .85.

Procedure Each participant was asked to read one news story that was randomly assigned to him/her out of the four different versions and to answer the battery of questions about his/her intention to take actions against the company in the news story. The whole procedure took less than 10 minutes.

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Results Pilot test results A pilot test was conducted with 74 students, who were different from those participating in the main experiment, to ensure that the experimental treatment had intended effects. First of all, in order to check if the manipulation of nationality worked as intended, the participants in the pilot test were asked ‘did you perceive the nationality of the company in the news article?’ Seventy students (94.6%) answered ‘yes’ to this question. Second, we checked if the manipulation of CSR activity worked in the right direction. We asked the pilot test participants in both CSR condition and no-CSR condition to evaluate how socially responsible the company was perceived in the news stories they read, by using a 5-point Likert scale (1 strongly disagree, 5 strongly agree). The company in the CSR story condition (M3.56, SD.98) was assessed as more socially responsible, than the company in no CSR story condition (M2.15, SD.55), t(30) 2.75, p B.001. We compared two different types of news stories in the main experiment: [Unethical event  CSR information] vs. [Unethical event only.] Since the information about CRS activities of the company appeared only after the unethical event, the effect of CSR activities information may not show the full effect on the dependent variable. In other words, the difference between the two story conditions may be attenuated only because the CSR information appeared later than the ethical event and readers pay less attention to the later part (e.g., the CRS activities) of the news story. To see if this is really the case, we developed a new set of news stories, where the CSR information was put before the unethical event. Then, we compared the two different news stories with different message orders: [Unethical event CSR information] vs. [CSR information Unethical event]. We did not find any significant difference between these two cases in terms of intention to take an action against the company in the news story, t(37) .283, p.779. Therefore, whether putting CRS information before or after the negative event story does not have a significant effect on the dependent variable.

Main hypotheses We hypothesized that respondents would be less likely to show their intention to take action against negative news about a local company when they read the story with the reference to the company’s past pro-social activities than when they read the story without such a reference (H1). An ANOVA test was conducted to test this hypothesis. We found that having (or not having) CSR information in the news story had a significant effect on readers’ intention to take actions against the company involved in the story, F(1, 128) 3.72, pB.05. As predicted, the participants who read the story with the reference of CRS activities were less likely to take action against the company in the story (M 4.76, SD 1.70) than those who read the story without the CSR activity reference (M5.33, SD 1.84). In Hypothesis 2, we proposed that subjects who read a negative news story about a local foreign company would more likely indicate an intention to take action against the company than those who read a story about a domestic company. This hypothesis was also confirmed, F(1, 128)  6.30, p B.05. The subjects who read the negative news story about a domestic company (M 4.67, SD  1.84) showed less

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intention to take action about the negative issue than those who read the story about a foreign company (M 5.43, SD 1.84). To address the research question, we tested an interaction effect of nationality and CSR activity reference on the participants’ intention to take action against the negative issue mentioned in the news story. As a result of an ANOVA test, we found a significant interaction effect of CSR activity reference and national identity of the company in the story on the intention to take action against the negative issue. Figure 1 shows that CSR activity in the news story had a much greater impact on attenuating subjects’ intention to take action when the story was about a foreign company (M6.07 for the story without a CSR reference vs. M4.80 for the story with a CSR reference) than when it was about a domestic company (M4.62 for the story without a CSR reference vs. M 4.72 for the story with a CSR reference).

Discussion This study was designed to test the effects of a past experience in conducting CSR activities as a halo on the public’s reactions to negative news coverage. This study also examined whether such CSR’s halo effect varies depending on whether the company is identified as domestic or foreign (Asian) in the US local community. We found that CSR activity and in-group identity (i.e., being a domestic company rather than a foreign one) in a news story are significant mitigating factors in readers’ intention to take negative actions toward the company involved in a negative issue 6.20

Nationality Foreign

6.00

Domestic

5.80 5.60 5.40 5.20 5.00 4.80 4.60 Non Pro-social Activity

Pro-social Activity

Social Responsibility Figure 1. Interaction effect between nationality and pro-social activity.

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(such as providing employees with poor health care treatment). When people are reminded that the company in the negative news story has conducted CSR activities, they are less likely to take antagonistic actions against the company in the story. This finding suggests a halo effect of CSR for the time when a company is involved in a negative event. The information about the company’s past CSR activities may affect how the public perceive the company even when it is involved in a very negative issue. People may discount the level of seriousness of the negative issue in the story about the company if they know the company has been pro-social. This finding indicates that a CSR halo would be an effective prevention-based strategy for issue management. Prevention-based programs for issue management usually aim to help a company take preventive actions to reduce negative public reaction to possible future negative events (Hallahan, 2001). Another interesting finding in the current study was that people responded differently to the same negative issue depending on whether the company involved in the issue is foreign or domestic. As we predicted in Hypothesis 2, based on social identity theory, the subjects showed less negative reactions when the negative news story was about a domestic company than it was about a foreign company. During non-crisis times, it may not matter much whether a local company is domestic or foreign. Local residents may pay more attention to some advantages from having a foreign company in their local community, such as more local jobs created by the company. However, when some negative issues emerge and a foreign company is suspected to be involved in the issue, local residents’ ingroup/outgroup distinction is activated and their responses are different depending on the national identity of the company involved in the negative issue. Can a foreign company overcome this ingroup/outgroup difference? The analysis of interaction effects indicates that they can by extra efforts to conduct CSR activities. The results regarding our research questions show that when it is brought to attention that a foreign company has conducted CSR activities, the difference between foreign and domestic companies disappear in terms of the likelihood of the public having antagonistic reactions to negative news about the company. On the other hand, we found that CSR activities do not help domestic companies as much as foreign companies when they are involved in a negative event. The halo effect of CSR activity appeared only in the foreign company. This result may have to do with a ceiling effect, or it may be based on different expectations regarding CSR activities between domestic and foreign companies. The information about past CSR activities conducted by a domestic company only confirms what people have already expected (e.g., a local company should be a responsible citizen). On the other hand, CSR activities by a foreign company can cause people to form a new expectation in that a foreign company may have the potential to become ‘us’ rather than remaining as ‘them’. Such different expectations between foreign and domestic companies might be explained by legitimacy theory. Suchman (1995) defined legitimacy as ‘a generalized perception or assumption that the action of an entity is desirable, proper, or appropriate within some socially constructed system of norms, value, belief, and definition’ (p. 574). According to legitimacy theory, individuals develop different levels of expectations toward companies, depending on whether or not they belong to the legitimacy boundary (e.g., defined by nationality, race, class, etc.). Our finding strongly suggests that it is critical for a foreign company in the United Sates to make a great deal of effort to

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conduct CSR activities to overcome the issue of legitimacy in the US local contexts and assure the host community that the company is a true member of the community. When foreign companies are actively involved in socially responsible activities and can appropriately and effectively disseminate stories of their CSR activities through the local media to their local community members, our findings suggest that they may overcome the legitimacy disadvantage that they may face as a foreign company. The current study suggests that domestic companies’ CSR activities as part of preventive issue management strategy have a limited effect compared to the cases for foreign companies. We do not have much information from the current study regarding what would be the most effective prevention strategy for domestic companies, but we can still suggest at least two recommendations: (1) directly face the issue and do not avoid it; and (2) put more emphasis on future actions, i.e. what they will do to solve the problem. Several limitations exist in the current study. First, the experiment should have measured participants’ pre-existing attitudes toward a domestic corporation and a foreign corporation as a control variable. The experimental design of this study did not include a pre-test. There is a possibility that participants’ preexisting attitudes confounded the effects of the experimental treatments. Indeed, an Asian company used as a representative for a foreign company in this study should be controlled, because participants might have different attitudes or perceptions toward Asia, Europe, South America, and so on. Thus, generalization of the findings in applying to other countries would be limited. Second, a halo effect established by previous CSR activity might not always produce positive outcome for a company because public cognitive dissonance created between prior good image and wrongdoing at present could reduce the halo effect. For instance, if a company having good reputation conducted unethical or immoral violation such gender discrimination at workplace, sweating system, or pollutant emission from a factory, the good image of the company would cause reverse effect on public response more severely. In future studies, this cognitive dissonance should be discussed to clarify when the halo effect activates. Second, issue involvement and issue knowledge can function as moderators influencing people’s perception of negative news about a company. According to the situational theory (Grunig & Hunt, 1984), issue knowledge and involvement can significantly predict individual communication behaviors or activism. However, the current study failed to include these factors. Future research needs to consider these variables. This study provides evidence that it is critical for a company to conduct CSR activities in preparation for a possible future crisis. In particular, the current study strongly implies that CSR is critical for foreign companies to survive in their local host community. In practice, this study suggests that PR or marketing practitioners working for foreign corporations in the United States must advise their clients to make special efforts to conduct pro-social activities as efforts of proactive issue management. References Ajzen, I., & Fishbein, M. (1980). Prediction of goal directed behavior: Attitude, intentions, and perceived behavioral control. Journal of Experimental Social Psychology, 22, 453474. Ashforth, B.E., & Mael, F. (1989). Social identity theory and the organization. Academy of Management Review, 14, 2039. Balmer, J. (2001). Corporate identity, corporate branding and corporate marketing-seeing through the fog. European Journal of Marketing, 35, 248291.

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Appendix 1: Copies of news stories Charitable foreign corporation stung by employee accusations An Asian electronics manufacturer, SHIN, that has an operation in our community is being criticized for the way it treats its employees. The company has been accused of offering poor health care treatment to its workers and requiring them to pay more and more for health benefits. This contrasts with the company’s public image. SHIN Corporation is known for making generous financial contributions to various social causes and educational organizations, including our school and senior citizen groups. Before the healthcare accusations, the company had been generally considered as a good corporate citizen. SHIN Corporation established a factory in our community in 2002 and employs about 10,000 workers worldwide. Charitable corporation stung by employee accusation An American electronics manufacturer that has an operation in our community is being criticized for the way it treats its employees. The company has been accused of offering poor health care treatment to its workers and requiring them to pay more and more for health benefits. This contrasts with the company’s public image. SUNSHINE Corporation is known for making generous financial contributions to various social causes and educational organizations, including our schools and senior citizen groups. Before the healthcare accusations, the company had been generally considered as a good corporate citizen. SUNSHINE Corporation established a factory in our community in 2002 and employs about 10,000 workers worldwide. A foreign corporation stung by employee accusation An Asian electronics manufacturer that has an operation in our community is being criticized for the way it treats its employees. The company has been accused of offering poor health care treatment to its workers and requiring them to pay more and more for health benefits. SHIN Corporation established a factory in our community in 2002 and employs about 10,000 workers worldwide. A corporation stung by employee accusation An American electronics manufacturer that has an operation in our community is being criticized for the way it treats its employees. The company has been accused of offering poor health care treatment to its workers and requiring them to pay more and more for health benefits. SUNSHINE Corporation established a factory in our community in 2002 and employs about 10,000 workers worldwide.

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