Reputational Imprints: How Public Criticism During Crises Affects Sustainability-Driven Innovation

Abstract

Public criticism of firms’ environmental, social, and governance (ESG) practices offers an important source of environmental feedback that can prompt innovation. However, such criticism can also affect organizations’ reputations in ways that constrain innovation, limiting both access to necessary resources for and the potential payoff from such innovation. In this study we examine this tension between public criticism as a source of organizational learning and reputational constraint in the context of global crises. Building on the organizational imprinting literature, we argue that global crises represent pronounced periods of upheaval for firms, during which firms are imprinted by public criticism in ways that over time channel firms’ sustainability–related strategies. We test our hypotheses using a panel data set of 4,738 companies across a 12–year period beginning during the 2007–2009 global financial crisis. Our findings suggest that although the firms initially engaged in similar levels of sustainable practices, firms differed over time in their embrace of innovation in response to ESG incidents depending on how extensively they were criticized during the crisis. Moreover, competition is shown to amplify the resulting virtuous and vicious spirals. Our findings contribute to scholarship on imprinting, corporate reputation, and organizational sustainability.