Reputation Formation in the Australian Mining Industry ... Provider No. 00103D 2012 The Business...

CRICOS Provider No. 00103D

Reputation Formation in the Australian Mining Industry: Stakeholder and Industry Effects Jacqueline Tuck

The Business School Working Paper Series: 001 - 2012 Jacqueline Tuck - The Business School, University of Ballarat, Mt Helen, Victoria, Australia 3353 Copyright © 2012 Working papers are in draft form. This working paper is distributed for purposes of comment and discussion only. It may not be reproduced without permission of the copyright holder. Copies of working papers are available from the author.

CRICOS Provider No. 00103D 2012 The Business School Working Papers: 001-2012 Page 2 of 23

Abstract

The management of stakeholder reputations is an essential task for mining companies and today many mining companies acknowledge and understand the importance of reputation for corporate sustainability. The question remains, however, as to whether managers (or researchers) fully understand the formation of reputation and how to manage these valuable assets. This paper presents the findings of a study designed to explore the relationships between mining companies and their stakeholders. Set within the Australian mining industry, this study reveals new insights into the complex process of reputation formation from a stakeholder and industry perspective. The identification of stakeholder specific reputations, stakeholder network effects and industry effects in the formation of reputation for the Australian mining industry has important implications for mining companies. Importantly, this study provides valuable insights into the variations across stakeholder groups of both the determinants of reputation and the information sources utilised in the reputation formation process. In particular, the study identifies external risks to stakeholder reputations, through the industry effects and the changing expectations of stakeholders, and internal risks to reputations due to inefficient information flows and the levels of trust (public perception) of the mining industry. Furthermore, the study indicates the importance for mining companies of differentiating themselves from the general perception of the mining industry, the industry reputation.

Key Words: corporate reputation; Australian mining industry; industry reputation; reputational interdependencies; stakeholder networks.

Introduction

The mining industry encounters some of the most difficult challenges of any industrial sector in meeting society’s expectations (MMSD, 2002). Issues such as the depletion of resources, the stewardship of land and the impacts on local communities are central to the mining industry’s operations. Continued access to mineral resources is dependent upon the industry meeting the ever-changing expectations of society. Thus, reputations are important for companies to gain access to the necessary mineral resources, capital and labour (Lambert, 2001; Vickerman, 2004). Moreover, the mining industry has to convince its stakeholders that it should be allowed to operate, that is, the industry needs to obtain and maintain a ‘social licence to operate’ (MMSD, 2002).

The ability of mining companies to gain and maintain the trust of communities, employees, governments and investors is critical to their sustainability, with corporate reputations playing a crucial role in this phenomenon. In particular, given the interdependence of mining companies and their communities (Horwood, 2002), reputation with local communities is acknowledged as vital for mining companies to maintain their social licence. It is argued that the basis of competition for mining companies is changing and that “the key non-reproducible capability which mining companies need to aspire to in a knowledge-based society is reputation” (Humphreys, 2001, p.7).

Although there is growing interest in corporate reputation (Bennett & Kottasz, 2000), research to date has had a strong focus upon consumer oriented companies – those producing consumer goods or services (Mahon & Wartick, 2003; Berens & van Riel, 2004). By comparison, there is limited research into corporate reputation in low differentiation industries, such as the mining industry, where competition focuses on achieving lower costs of production rather than product differentiation.

There is increasing recognition within the mining industry of the importance of corporate reputation to competitive advantage, shareholder value and corporate sustainability (Jenkins, 2004; Goodyear, 2005; Jenkins & Yakovleva, 2006). An issue remains, however, as to whether managers understand the drivers of reputations, in particular, the determinants of stakeholder reputations, and thus how to manage these valuable company resources. This is perhaps to be expected as much of the reputation literature is fundamentally limited by current conceptualisations of a single corporate reputation (Bromley, 2002a; Lange, Lee, & Dai, 2011) without exploring the nuances of reputation that emerge from stakeholder theory.


This paper presents the findings of two mining company case studies, part of a larger study exploring reputation formation in the Australian mining industry. These case studies provide support for the findings (summarised in this paper) of a national expert opinion survey conducted to identify the drivers of reputation in the Australian mining industry. In particular, the case studies support the existence of stakeholder-specific reputations, stakeholder network effects and industry effects (company and industry reputational interdependencies) in the formation of reputations in the mining industry.

Corporate Reputations

Reputations are about perceptions and people’s perceptions of companies influence how they buy, sell, invest and who they work for. Importantly, for mining companies reputations influence access to new mineral deposits and community support for existing projects. Reputations are important for mining companies to gain from stakeholders both acceptance and a social licence, in particular from community stakeholders in order to access and develop mineral deposits.

Companies have reputations with their stakeholders and they are important to their functioning and profitability. This is not in dispute. However, the definition of reputation, its process of formation (the determinants of reputation), and how it can be managed, remain a matter of debate. Issues identified include; the need for more definitional clarity (Wartick, 2002), the need to acknowledge the non monolithic nature of corporate reputation and to focus upon stakeholder relations (Spencer, 2005), and the need for appropriate industry specific measures of reputation (Brammer & Millington, 2003, 2005; Zabala, et al., 2005).

In order to manage and measure reputations it is essential to understand what they are and how they form. Despite the fact that corporate reputation has been widely debated and researched, there continues to be disagreement over the theoretical grounding of the concept (Bromley, 2002a) and its definition still remains a matter of debate (Brown & Cox, 1997; Devine & Halpern, 2001; Gotsi & Wilson, 2001; Bromley, 2002b; Lewellyn, 2002; Dolphin, 2004). Participants in the debate normally treat corporate reputation as an aggregate concept (a single company reputation), being the aggregation of the evaluations all stakeholder groups make about a firm (e.g. Fombrun & van Riel, 1997; Hanson & Stuart, 2001; Roberts & Dowling, 2002; Barnett, Jermier, & Lafferty, 2006).Recent research (e.g. Cornelissen & Thorpe, 2002; Wartick, 2002; Helm, 2007) has raised fundamental questions about reputation. In particular, whether firms have multiple, stakeholder-specific, reputations?

Previous empirical research into corporate reputation has had a strong focus on reputation as an aggregate concept and comparative empirical evidence remains scarce (Helm, 2007). This limited focus on the formation of corporate reputation by a firm’s various stakeholders is surprising. Especially, as it is argued that an undifferentiated reputation construct does not reflect the complexities of reputation formation (e.g. Weigelt & Camerer, 1988; Dolphin, 2004). Neither does it reflect the diffuse nature of stakeholders’ perceptions (Cornelissen & Thorpe, 2002), given that:

[stakeholder groups] are exposed to and look for different signals and messages, and as a result form a reputation, which in its properties or attributes is likely to be distinct from images and expressions held by other stakeholder groups.(2002, p.175)

Recent theoretical work on corporate reputation (Sjovall & Talk, 2004) provides additional support for this disaggregated view of reputation. This research indicates that organisations can have multiple stakeholder-specific reputations. Each stakeholder groups will use different criteria for assessing an organisation’s performance due to variations in the saliency of issues and/or bias across stakeholder groups (Sjovall & Talk, 2004).Furthermore, the existence of asymmetric information (Akerlof, 1970) between stakeholder groups and the tendency for assessments to be based on ambiguous criteria and evidence (March & Weil, 2005)is also consistent with the disaggregated view of reputation. Whilst it has been argued that information intermediaries, such as the media, will reduce information asymmetry (Deephouse, 2000), it can be argued


that the reliance on these information intermediaries will vary between stakeholder groups, due to their differing levels of direct experience with a firm and rights to information from the firm.

Recent research into reputational interdependencies (industry effects) (Barnett & Hoffman, 2008; Yu & Lester, 2008) further indicates that the current firm centred perspectives on reputation limit our understanding of the reputation formation process Firms within an industry can be ‘tarred by the same brush’(Hoffman & Ocasio, 2001; King, Lenox, & Barnett, 2002) creating what has been termed “reputational spillover” (Yu & Lester, 2008, p.95) when major incidents or accidents occur. As such, one motivation for industries to introduce self regulation programmes is to reduce the threat of reputation-damaging activities by other firms (King & Lenox, 2000). This implies that a firm’s reputation is linked to the reputations and actions of other firms within an industry (King, et al., 2002), or, in Barnett and Hoffman’s (2008) terms that a reputation interdependency exists.

Buchholz & Rosenthal (2005) argue that firms are an intrinsic part of the communities in which they operate, indicating that a firm and its stakeholders should be viewed as part of a network. This has important implications for the study of reputation, and in particular, for the study of reputation in the mining industry where obtaining a social licence is crucial. A network view of reputation recognises the importance of a range of stakeholders to a firm’s sustainability and profitability. It acknowledges that interrelationships will exist between a firm’s stakeholder groups, interrelationships that impact on the formation of a firm’s various stakeholder reputations. The existence of industry effects (reputational interdependencies) and stakeholder network effects indicates that a view which restricts the determinants of reputation to the actions and performance of the firm (e.g. Weigelt & Camerer, 1988) is a limited view of reputation formation by stakeholders. The determinants of corporate reputations can also encompass the actions of other stakeholder groups and companies within an industry

The determinants of corporate reputation also vary by industry (Zabala, et al., 2005) and this variation may be significant for certain sectors, especially the resources sector which operates without close proximity to final customers and has significant environmental impacts (Grieg-Gran, 2002; Brammer & Pavelin, 2004.; 2006).The nature of an industry will influence the ability of stakeholders to assess a firm’s impacts, due to the variation in complexity of operations across industries (King, et al., 2002). There is a need for further research into the processes for building and sustaining favourable reputations (Balmer, 1998), and to develop a deeper understanding of the factors determining reputations for specific sectors or industries (Brammer & Millington, 2003; Schwaiger, 2004; Brammer & Millington, 2005; Zabala, et al., 2005).

In summary, the literature indicates that several issues about the nature of reputation across industries and stakeholders require further exploration and resolution. Firstly, should corporate reputation be explored at the stakeholder level rather than as a single firm level concept? Secondly, should a network view of stakeholder theory be adopted to explore the various relationships between a firm’s stakeholder groups and their impact on the formation of reputations? Finally, industry specific research is required to understand reputation formation at the industry level and to explore the existence of reputational interdependencies for specific industries.

This study addresses the need identified for industry specific research, and the call for researchers to conceptualise organisational reputation as multidimensional and dynamic (Lange, et al., 2011, p. 180), through exploration of the formation of reputation in the Australian mining industry. An industry which relies heavily on its reputation for continued access to mineral deposits, with individual companies requiring social licences to operate for their continued existence.

Identification of Determinants – the Delphi Study

The majority of previous reputation measures and studies have been multi-sectoral (de la Fuente Sabate & de Quevedo Puente, 2003; Berens & van Riel, 2004) and none of them have been designed specifically for the mining sector. As a consequence no account has been taken of the unique characteristics of mining. These include, the “uncertainties not applicable to other industries” (Runge, 1998), the environmental and


social impacts of operations, the ephemeral nature of mines, the ‘mine cycle’ nature of operations, and the fact that miners are ‘price takers’ (Lambert, 2001). Hence, it has been argued that “the studies carried out so far are not very representative of the main sustainability issues facing the mining sector” (Grieg-Gran, 2002, p. 41).

Given this current lack of knowledge about the formation of reputations in the mining industry, this exploratory study required a means to identify and compare the determinants of reputation for the various stakeholders of mining companies. This study adopted a multi-step research design, consisting of an exploratory industry focus group, a multi-stakeholder Delphi study (an expert opinion survey) and finally two case studies. The case studies, reported here, were undertaken to further explore the formation of reputation within two Australian mining companies, through the investigation of the determinants identified from the Delphi study.

An expert opinion survey, the Delphi study, was identified as an appropriate method to expose the information leading to the formation of reputation – the judgements of the stakeholders (Turoff, 1970; McKenna, 1994). Prior to the Delphi study, an industry focus group was conducted to identify the main stakeholder groups for mining companies and to inform the development of the initial Delphi questions1. The focus group included representatives from the mining industry and based upon their comments, five stakeholder groups and an industry group were included in the expert opinion survey - the Delphi study. The stakeholder groups included community, employees, shareholders/financiers, NGOs/environment and regulators. These five groups are most commonly recognised as important stakeholders for mining companies and are highly salient to managers, thus, they can be classified as “dominant stakeholders” (Mitchell, Agle, & Wood, 1997).

Each of the expert groups in the initial round of the Delphi study generated a list of determinants of reputation. These determinants were classified into themes (see Table 1) and these were used to structure the Round 2 questionnaires. Round 2 of the Delphi study generated ratings of these factors. These rounds facilitated consensus on the determinants of reputation for each of the groups and generated a final combined list of 162 determinants of reputation (provided in Appendix 1 – grouped by stakeholder group and theme). The original themes were used to structure the combined list with one exception, the community and stakeholder engagement themes were combined to create a new theme, ‘Community and Stakeholder Engagement’, to accommodate the factors spanning both of the original themes. These themes were used to structure the Delphi report2 and formed the basis for the analysis of the results of the Delphi study.

Table 1: Themes – Delphi Study3

Themes - Questionnaires Combined Themes - Analysis Community Engagement/Communication

Community and Stakeholder Engagement Stakeholder Engagement

Environment Company Performance Economic Contribution

Employees Company Leadership/Management

Corporate Social Responsibility (CSR) Miscellaneous – Company Related Global Mining Industry Performance

1 See Tuck, Lowe and McEachern (2006) for further discussion of the industry focus group. 2Tuck (2007).Corporate Reputation in the Australian Mining Industry: 2006 Delphi Survey. Unpublished (Available from the author). 3 Appendix 1 provides details of determinants identified by the expert groups within each of the themes.


In summary, the Delphi study revealed significant variations in the number and types of determinants of reputation across the stakeholder groups. The findings indicate that for each stakeholder group, corporate reputation is formed (or revised) on the basis of their stakeholder-specific combination of reputation determinants. The determinants for each of the groups include a unique combination of company, industry and other stakeholder activities. The Delphi study reveals variations in the focus (the types of determinants) of the various stakeholder groups when forming reputation.

The initial thematic analysis indicates that variations exist in the relative importance of the various types of factors determining reputation across a mining company’s stakeholder groups. The analysis also indicates that two of the stakeholder groups, the employees and the shareholder/financiers, have a much narrower focus, when forming their opinions on reputation, compared to the other stakeholder groups. A detailed analysis by stakeholder group confirms the thematic analysis and indicates that significant variations exist in the number and types of factors determining reputations.

The key findings from the Delphi study are that stakeholders construct reputations based on stakeholder specific determinants, the reputation of the mining industry and the actions of other firms in the industry do impact on the formation of a company’s reputation, and that relationships exist between the reputations held by the various stakeholder groups. However, questions and confusion remained about the reputation formation process. Firstly, do certain groups not identify factors because they either have limited or no access to information and/or are not able to make a judgement? Secondly, are all the factors, identified as determinants of reputation by the expert groups, relevant for all mining companies? Finally, these issues also raise the question of the importance of industry reputation in the formation and development of corporate reputations and whether this varies across a company’s stakeholder groups.

Case Studies - Method

The case studies provide qualitative evaluation and validation of the outcomes of the Delphi study (Powell, 2003; Campbell, et al., 2004). They explore the confusion, issues and questions arising from the Delphi study, whilst also testing the applicability and credibility of the results in an industry context. A multiple case, embedded study research design (Yin, 1994) was adopted. The cases, the mining companies, were selected to identify similar results, a literal replication (Yin, 1994) and to enable comparison across cases (Eisenhardt & Graebner, 2007).

The cases consisted of in-depth interviews with stakeholders and company representatives from two mining companies, they facilitated exploration of areas of high and low agreement within the Delphi study (Crotty, 1993). The interviews elicited information on each company’s current reputation, the development of reputation over time and opportunities for improvement from both the stakeholders’ and company perspectives. The interviews provided clarification of the Delphi findings, the factors determining reputation for each group, and elicited information of the impacts of reputation on stakeholders’ actions.

The two companies were small single site underground gold producers4 located close to regional centres in Victoria, Australia, each employing approximately 300 people in 2007. The two cases differed in a number of ways. One company (Company A) had recently commenced production at its site, the workforce was planned to increase by 50 per cent by the end of 2008, and had an expected mine life of 20 years. In contrast, the other company (Company B) had been in operation at the site for over 20 years and at the time of the study had an expected mine life of 3½ years. Although both companies had undergone corporate changes in 2007, Company B unlike Company A (at the time of the interviews) was facing uncertainty regarding its mine life and further corporate changes were anticipated. The locations of the two companies – Company A close to a large regional city and Company B close to a much smaller regional centre – had resulted in a stronger local economic reliance on Company B in contrast to Company A.

4 However, by the commencement of the case studies both companies had undergone corporate changes and were no longer single site companies.


The stakeholder interviews commenced with obtaining information about the interviewee, including their relationship to the company, and their view of the company’s reputation over time. The researcher then elicited the determinants of reputation from their stakeholder perspective. The final part of the interview focused on clarifying the findings of the Delphi study (detailed in Appendix 1), based on the determinants of reputation identified by the relevant stakeholder group, with a particular focus on the factors where disagreement existed between the experts within the groups. The interviews with the company representatives were structured similarly, however, the second part for this group focused upon identification of the company’s stakeholders, and the company’s reputation and relationships with its various stakeholder groups.

Case Study - Results

In total 19 interviews5 were conducted, interviews were conducted with a company representative and various stakeholders for each company. The stakeholders interviewed included community, employees, regulators and NGO/environment representatives. Due to the unavailability of shareholders/financier participants, this stakeholder group was not able to be included in the case study. The inability to recruit participants from this group was perhaps a result of the recent corporate changes at both sites. Interviews were undertaken with 11 Company A stakeholders (five employees, two community members, two regulators and two NGO/environment representatives) and six Company B stakeholders (two employees, two regulators, one community member and one NGO/environment representative).

Reputational status and development Both companies had relatively positive reputations with their stakeholders, with one exception. Company B’s reputation with its employees was less positive and appeared to be related to the organisational situation of the company at the time. As one employee explained, “It’s an OK place to work, it’s not a great place to work from my point of view …job security aspect of it is quite lacking” (Employee B2). Community reputation for each company was viewed positively, as indicated by both community members and regulators.

I do think they (the company) try very hard to keep people happy and to be seen to be responsible and responsive.” (Community A1) In terms of compliance they are very good … In terms of their community relationships at the moment I would suggest that they are very good. (Regulator B1)

The reputation of each of the companies with their NGO/environment stakeholders was also relatively good, in spite of the general negative perceptions of mining companies held by these stakeholders. One representative explained:

… it is very easy just to paint all mining with the one brush. (NGO/environment A1) The development of reputation over time varied across the stakeholder groups and between the companies, details are provided in Table 2. For both companies their reputation with their community stakeholders had improved over time, but there had been no change with their employees. The reputation of Company A with its NGO/environment stakeholders had improved over time but not with their regulators and vice versa for Company B. The findings indicate that for community stakeholders, the development of relationships with people within the company results in the building of trust over time leading to improvements in the reputation held by these stakeholders.

Table 2: Reputational Development and Impacts of Corporate Changes

5 The interviews lasted on average an hour, were digitally voice recorded (with the permission of the participants) and were fully transcribed.


Stakeholder Group

Company A

Company B

Community

Reputation improved over time

(Development of relationships & trust)

Corporate changes – no impact



Corporate changes – no impact Employees

No change in reputation over time

Positive impact of corporate changes

(Increased security)


Negative impact of corporate changes

(Uncertainties - employment) NGO/environment





Negative impact of corporate changes

(Uncertainties - rehabilitation) Regulators



Reputation improved over recent years


Similarly, the impact of the corporate changes at each site differed, with variations between the stakeholder groups (see Table 2). The recent corporate changes had no impact on reputation with the community and regulators for either company, as one regulator explained

… they haven’t changed any of the people we deal with day to day so I don’t imagine it is going to do too much … (Regulator A1)

However, for Company A there had been a positive impact from increased job security for employees, whereas for Company B the changes, the continuing corporate instability and relatively short mine life had a negative impact upon reputation with both their employees and NGO/environment stakeholders.

Company A’s stakeholders all identified opportunities for the company to improve its reputation. However, for Company B only the employees and regulators identified possible opportunities for improvement. Improved communication was a common focus for the regulators of both companies and the community and NGO/environment stakeholder representatives of Company A. The focus for improvement of reputation with the employees varied between the two companies. The employees of Company A, who were interviewed, although viewing that the company had a relatively good reputation, did identify areas for improvement such as ensuring employees feel part of the team and improved consultation. However, the employees of Company B focused on issues around the corporate changes and the instability of the operation.

Stakeholder impact and importance The stakeholders of both companies indicate that the reputation of the company influences their actions and behaviour towards the company.

… we [the regulators] would be far more wary of a company that came into our circle of administration and influence if they had a very bad reputation … I think we would be looking at them more closely than if they were a company that we were familiar with and comfortable with. …to start with we would be looking at increased scrutiny of the company. (Regulator B1)

Variations exist between the two companies regarding the impacts stakeholders believe they could have on the company and the perception of their importance to the company. Table 3 presents a comparison of the perceptions of each company’s stakeholders of their impact and importance.


Table 3: Stakeholder Impact and Importance

Stakeholder

Group

Company A

Company B

Impact Importance Impact Importance Community

Yes

Unsure

Yes

Yes

Employees

Yes

Yes

Yes

Unsure

NGO/environment

Yes

Yes

Unsure

Unsure

Regulators

Yes

Yes

Yes

Yes

The perceptions of the regulators were consistent, in both cases, they believed they could impact the company’s operations and that they were regarded as important stakeholders. All the employees and community representatives believed they could impact the company’s operations, however, their perceived importance differed between the two companies.

Principal determinants of reputation The principal determinants of reputation identified by each company’s stakeholders, detailed in Table 4, indicate limited variation in the determinants for each of the stakeholder groups when comparing across the two companies.

Table 4: Principal Determinants – Company Comparison

Company A Stakeholder Company Perception

Company B Stakeholder Company Perception

Community

Community impacts (Environmental and social)

Compliance (Environment) Communication

Community impacts (Environmental and social)

Communication Exploration Environmental performance

Employees

People Pay and conditions

Pay and conditions Job security Career development People Pay and conditions Management systems

Pay and conditions Stability of employment

NGO/ Environment

Environmental impacts Compliance & monitoring Company’s approach to the environment

Compliance (Environment) Communication

Environmental impacts Compliance & monitoring Company’s approach to the environment

Communication Exploration Environmental performance

Regulators Relationships & trust Compliance Environmental management Community engagement

Compliance Compliance (including health and safety) Community relationships Quality as an employer

Compliance Communication

The employees of Company B, in contrast to those of Company A, have a broader focus when forming reputation. In addition to people, pay and conditions they focus upon job security, career development and management systems. Which reflects the organisational context of corporate change and the insecurity of employees, due to the relatively short mine life at Company B.

The principal determinants of reputation identified by the company representatives (see Table 4) suggest the perceived foci for their stakeholders are similar for both companies. However, Company B, unlike Company A, perceived that exploration for mineral resources was also important for both their community and NGO/environment stakeholders and stability of employment was important for their employees. These variations appear to be a reflection of the current corporate instability at Company B and the limited mine life.


Comparison of the principal determinants identified by the company representatives with those identified by their stakeholders reveals a general understanding what determines reputation with their stakeholders. The company representatives, however, underestimate the people and relationship aspects of reputation formation for their employees. Similarly, although indicating the regulators would focus on compliance, they failed to identify the regulators’ strong focus on community engagement and relationships. Further, although identifying community environmental impacts, the company representatives underestimate the focus by the community on the social impacts.

The limited variations in the principal determinants of reputation between the two companies, as identified by the stakeholders and as perceived by the company representatives, appeared to reflect the variation in the organisational situations of these two companies. This indicates that for companies in similar organisational situations the principal determinants would not differ between mining companies. The following sections provide a comparison of the determinants of reputation identified by the company and stakeholder representatives from the two companies when the findings of the Delphi study were explored in detail.

Community As would be expected the community representatives had a strong focus upon the company’s impacts on the community, however, a broader focus emerged when the findings of the Delphi study were discussed. The determinants of reputation for the community stakeholders of both companies, based on the interviews undertaken, focus upon the activities at the local mine site and the management and employees located there, which confirms the findings of the Delphi study for this stakeholder group.

It is more the site and the people … I think it’s more the physical effect of the mine on the community. (Community A1)

In addition, the limited focus of community stakeholders on the Company Performance theme, Company Leadership/Management theme and Other Company factors was confirmed.

Clarification of the findings of the Delphi study revealed a number of previously unidentified factors as determinants of reputation by the community representatives of both companies. These included factors such as ‘Company complaints procedures’, detailed rehabilitation and closure factors and ‘Company’s management of energy and resources’. The community representatives also questioned whether mining industry performance factors, as identified in the Delphi study, were direct determinants of reputation.

I don’t think it [the mining industry] does [impact on the company’s reputation] now. I think it possible would have initially. But having, as a community rep, some access to what they [the company] are doing and how they are going about it … the better informed you are of what the company is doing the less likely you are to lump them in the same bag … (Community A1)

This finding indicates that these types of factors may not be direct determinants of reputation, but that they may have indirect influence on reputation through increased scrutiny of mining companies. Similarly, factors such as the company’s performance at other sites and changes of ownership may not be direct determinants of reputation for community stakeholders. The community representatives of Company A identified the mining industry performance factors as direct determinants of reputation only in certain circumstances, for example where a lack of information and/or knowledge of the company existed. This suggests that industry reputation may be a temporary proxy for company reputation. Given, at the time of the study, Company A had been operating for a shorter period of time than Company B, this may account for the continued impact of industry reputation at Company A.

Exploration of determinants for which consensus was not reached by the Community expert group also revealed variations and an explanation. Both “Economic contribution the company makes to the community and region” and “Salaries and wages” were identified by Company B’s community representatives as determinants, unlike the community representatives of Company A. However, the Company A community members did acknowledged that if circumstances were different these factors would become important. For example, in instances where wages/salaries were low or if there was a limited economic benefit to the community and region (for example, a non-local workforce). This indicates that certain factors may only be


determinants of reputation if they stand out as highly negative, that is, only if they fall below an acceptable standard.

The determinants of reputation, for the community representatives, appear to be consistent for the two companies with the exception of the economic factors identified which appear to reflect the stronger community economic reliance on Company B compared to Company A.

Employees The employees all had a strong focus upon pay and working conditions when asked to identify the main determinants of reputation. This provides further support for the limited focus of employees (a reflection of their priorities), compared to the other stakeholder groups when forming reputation. In both cases there were also variations in determinants between the individual employees, perhaps reflecting differences in their personal circumstances, position in the company and personal views. In addition, the employees of Company B had a strong focus upon job security and company stability compared to the employees of Company A, again a reflection of the different organisational circumstances.

In both cases, the employees interviewed believed that their knowledge, experience and expectations of the mining industry affected the types of factors taken into account when forming reputation. This may explain the limited range of determinants of reputation from an employee’s perspective. Importantly, employees have an expectation that modern mining companies will work with their communities, perform environmentally at an acceptable level and have a strong commitment to occupational health and safety.

… I think that is from the mining industry it has come so far… (now) it has become an expectation and you will just go to a company and you probably won’t delve deep into it [safety] unless you knew they had a poor track record but for most companies … you expect that [commitment to occupational health and safety] now in any company … it has become an expectation … (Employee A4)

This provides an explanation for the lack of detailed factors identified in these areas by the Employee expert group in the Delphi study. Another employee reflected on the ephemeral nature of reputation and the need to maintain health and safety performance.

So it is almost an ongoing process … reputation could start to fall if things don’t continue. So it is as much about maintaining it and expectations are perhaps changing as well. So what they need to do may change all the time as well. (Employee A2)

The relationship between the factors and reputation can also be moderated, if not negated, by the personal opinions of employees, for example, the “Company’s approach to unions and collective bargaining” can have differential impacts on reputation with employees. Furthermore, an employee’s personal circumstances and views impact on the factors which are included as determinants of reputation. This indicates there is a core of factors determining reputation for employees, factors that are important to all employees.

NGO/environment The NGO/environment representatives in both cases focused upon the environmental aspects of the company’s performance. In both cases, detailed examination revealed other non-environmental factors are important in the formation of reputation. The NGO/environment representatives of the two companies had a limited focus on the Company Performance factors, Company Leadership/Management factors and Other Company factors when forming reputation.

The NGO/environment representatives of these companies, however, appear to have a broader focus than that identified by the Delphi study. For example, in contrast to the expert group, a number of employee factors were identified as determinants of reputation, including occupational health and safety and employee conditions. This is likely to be as a result of the tendency for these representatives to also be members of the company’s community. In both cases the public perception of the mining industry and individual views of the mining industry held by the representatives appear to moderate the relationship between particular factors and reputation for these companies.


This finding suggests that the mining industry’s current performance and its historically poorer performance, although not identified by the NGO/environment expert group in the Delphi study, are important in the formation of reputation for this stakeholder group. The current and past performance of the industry is likely to indirectly influence the formation of reputation for the NGO/environment stakeholders through the impact on this group’s trust of the mining industry in general.

Regulators The regulators initially focused on the company’s regulatory compliance and relationship with the community. The determinants of reputation for the regulators interviewed in respect to the two companies had a focus upon the activities of the company at the local mine site and the management and employees located there, which confirms the findings of the Delphi study for this stakeholder group. In particular, the findings confirm the limited focus of regulators on determinants within the Company Performance, Company Leadership/Management and Industry themes.

The regulators believed that their knowledge, experience and access to information from the company influence the factors that they take into account when forming reputation in comparison to other stakeholder groups.

… [other groups] don’t have access and that [environmental reporting] is their way of getting access to that information. (Regulator A2)

All the regulators had a strong focus upon current performance in contrast to historical performance. They also identified that the management of energy and resources was becoming a focus from a regulator perspective suggesting that it is an emerging determinant of reputation for these two companies and that the determinants of reputation are changing over time.

It [management of energy and resources] is becoming more important … it is being recognised and we [the regulators] are picking it up. It has not been going on for very long (Regulator B2)

The regulators confirmed that certain factors (for example, “Information spread by special interest groups”, “Economic benefits beyond regulation” and “Commodity being mined”) were not direct determinants of reputation from their perspective. Although, acknowledging the potential indirect effects if these factors were determinants of community reputation. A number of corporate level factors were identified by the regulators of both companies as having a potential indirect effect on reputation from their perspective. For example, the company’s performance at other sites may result in increased scrutiny of the company by its regulators.

Company Consistent with the findings from the Industry expert group the two company representatives perceived that a varied and broad range of factors were determinants of reputation for the company they represented. The variation in the perceived determinants of reputation between the two companies appears to reflect the difference in the contexts in which the two companies are operating. In particular, the strong local economic reliance on Company B, the corporate instability at the time of the interviews, and the ongoing uncertainty regarding mining continuing at the site are in contrast to Company A. Company B’s representative, as against Company A’s, perceived that the history of the company and, particularly, the corporate changes were affecting the company’s reputation with its stakeholders.

The representatives of both companies believed that the determinants of reputation vary for their different stakeholder groups.

Probably (employee security and turnover is important) with some stakeholders and not others, within the employees I certainly think it does quite strongly. … it’s a small close knit industry and community and people talk … (Company A)

They also perceived that factors might be indirect determinants of reputation for certain stakeholder groups and that the relationship between factors and reputation may be mediated by the organisational circumstances and/or the personal circumstances and views of stakeholders.


Discussion

Exploration of the reputation formation process in industry settings, the case studies, provide further insights into the reputation formation process for the stakeholders of mining companies and, in particular, the issues and questions which remained following the Delphi study. The findings from the case studies provide support for the three key findings of the Delphi Study, that is, the existence of stakeholder-specific reputations, reputational interdependencies, and stakeholder network effects. The findings of the case studies also indicate that the reputation formation process varies for the stakeholder groups of a mining company, that these processes can vary over time and that trust is an important factor in the reputation formation process.

Firstly, with respect to stakeholder specific reputations, the study demonstrates that a mining company’s various stakeholder groups are exposed to and look at different signals and messages, which can influence the development of stakeholder-specific reputations. The findings support the view that corporate reputation as an aggregate concept does not reflect the complexities of reputation formation (Caruana, 1997; Cornelissen & Thorpe, 2002; Wartick, 2002) and that stakeholder-specific reputations exist (Cornelissen & Thorpe, 2002). Further, the findings from the case studies indicate that these stakeholder-specific reputations exist due to asymmetric information (Akerlof, 1970), the variation in the saliency of issues and/or bias across a company’s stakeholder groups (Sjovall & Talk, 2004), and the ambiguity inherent in the formation of reputations (March & Weil, 2005). For example, employees have greater levels of access to information than external stakeholder groups such as, community (asymmetric information) and appear to have a stronger focus on employee factors in contrast to other groups (saliency), and they have chosen to work within the industry (bias).

Secondly, this study demonstrates that reputational interdependencies (King, et al., 2002; Barnett & Hoffman, 2008; Yu & Lester, 2008) may exist in the mining industry, providing support for the expanded view of reputation. However, this study moves a step further, indicating that these interdependencies may vary across a mining company’s various stakeholder groups and thus may have differential effects upon the company’s stakeholder reputations. In this way, the study answers a recent call for reputation research “to analyse to what extent perceptions of stakeholders vary, and how a diversity of stakeholder perceptions affects the likelihood of reputation spillover” (Yu & Lester, 2008).

Thirdly, this study indicates that the reputations of a mining company’s stakeholders can impact upon the future reputations of the companies’ other stakeholders. This finding supports the adoption of a network view of stakeholder relationships (Mahon, Heugens, & Lamertz, 2004; Buchholz & Rosenthal, 2005) and reputation formation for the mining industry. These findings are consistent with the psychologists’ view of reputation, that individuals form reputation through direct experiences with the company and/or through exposure to other people’s opinions and influence (Bromley, 2000). The findings confirm that for a mining company, a network view of stakeholder relations (Mahon, et al., 2004) provides a more realistic framework to analyse the formation of reputations.

Fourthly, the findings of the case studies indicate that trust and the current reputation of a company with its stakeholders mediate the relationship between certain factors and reputation. Trust and stakeholders’ expectations based on the company’s current reputation appear to negate certain factors as determinants of reputation, however, in the absence of trust (a poor reputation) stakeholders may scrutinise the company more closely. The importance of trust in the formation of reputation is further amplified by industry-wide effects. The findings of the case studies suggest that the actions of other mining companies are direct determinants of reputation for stakeholders when there is a lack of trust or a lack of information. Whereas, when stakeholders’ trust the company and have access to information the effect is indirect, making stakeholders question their current assumptions about the company and seek out further information. The findings also suggest that the stakeholders’ perceptions of their importance to the company, their personal circumstances and views will have an impact on reputation formation and, in particular, will determine the importance of the industry effect for a particular stakeholder group.

Finally, for the mining industry the role of the media as an intermediary in reputation formation (Deephouse, 2000) may be overstated. Perhaps a result of more trusted available information sources for stakeholders,


such as employees. The level of reliance on information intermediaries, such as the media, varies across a mining company’s stakeholders, a result of variations between stakeholder groups in their levels of direct interaction with the company and their access to information from the company. In particular, the findings from the case studies indicate that stakeholders may question the motives (lack of trust) of those supplying information and thus the validity of the information. These findings indicate that the role of information intermediaries in the reputation process for mining companies is complex.

In summary, this study contributes to corporate reputation theory through the identification of stakeholder specific reputations in the mining industry and further understanding of the complex reputation formation processes. Importantly, this study highlights the need to address corporate reputation, in the mining industry, from a multi-stakeholder perspective acknowledging the existence of reputational interdependencies and stakeholder network effects.

Managerial Implications

The mining industry was explicitly chosen as the focus for this study because of the particular challenges it faces. Reputation is important for mining companies in order to gain access to mineral resources, capital and labour and it is crucial for them to obtain and maintain their ‘social licence to operate’ (Humphreys, 2001). Stakeholders such as regulators, NGOs/environment and community can exercise considerable influence over mining companies and their operations.

From a practical perspective, the findings of this study have implications for the management of reputation in the mining industry and thus for corporate sustainability. Firstly, the existence of multiple stakeholder reputations confirms the need for reputations to be managed at the stakeholder level where the variations of interests require subtle negotiation (one size does not fit all). Secondly, the variations identified in the factors determining reputation and the information sources used in the reputation formation processes across the stakeholder groups provides valuable information to assist in the management of reputation with stakeholders in the mining industry. Thirdly, the existence of stakeholder network effects indicates that stakeholder reputations cannot be managed in isolation from the reputations of other stakeholder groups. Fourthly, the variations indicated by the Delphi study in the relationship between voluntary corporate social responsibility (CSR) activities and reputation for a mining company’s stakeholder groups and the mediating effect of trust and industry reputation highlights the complexities of managing discretionary CSR due to the varying and sometimes conflicting impacts upon reputation with stakeholder groups. Finally, the existence of industry effects indicates that reputation management requires managers to be aware of the external risks to reputation from the activities of other mining companies and to avoid a singular focus upon the activities of the company and its stakeholders.

Furthermore, the interrelationships identified between company reputations, industry reputations and trust in the formation of reputation for a mining company’s stakeholder groups have implications for the management of both company and industry reputations. For example, the findings indicate that there is a need to build trust with the relevant stakeholder groups in order to reap reputational benefits from discretionary CSR activities, as a lack of trust and/or poor industry reputations may mean these activities have a negligible or even a negative impact upon reputations, whatever their social benefit. In particular, the findings suggest that if a company’s reputation is poor with one or more stakeholder groups then there is a need to focus upon other aspects of reputation building not discretionary CSR activities as these will be viewed as ‘greenwash’ (Hamann & Kapelus, 2004). In addition, this study indicates there is a need for mining companies to attain minimum acceptable standards over the entire range of their activities to facilitate trust. Poor performance in one area of a company’s operations may act as an indicator to stakeholders that the company is not to be trusted in other areas of its operations.

The potential for industry effects (reputational dependencies), combined with a lack of trust in the company and/or the mining industry, to influence reputation indicates there is a need to improve the flow of information to stakeholders about the company’s activities, in order to differentiate the company from the general


perception of the mining industry (industry reputation). There is also a need to ensure the flow of company specific information to stakeholders, to minimise reputational spillovers, especially when there are external risks to reputation due to incidents/accidents at other mining companies.

This study highlights possible barriers that the mining industry and industry bodies face in attempting to improve the public perception of the mining industry and thus of industry reputations. These include the industry effects in the formation of company reputations and the stickiness of reputations. The implication from a company perspective is that there is a need to differentiate perceptions of the company from the perception of the industry. To achieve this requires the company to build relationships with its external stakeholder groups and to narrow the gaps between the knowledge of those within the company and the company’s other stakeholder groups, thus reducing the impact of the industry effects in the reputation formation process.

This study demonstrates that reputation formation is a dynamic process, which has implications for the continuing management of reputation. The determinants of reputation for the various stakeholder groups may change over time, due to changes in stakeholder expectations and/or changes in the organisational circumstances of a mining company. Similarly, the reputation formation process for stakeholders may vary over time because of changes in the levels of trust of the individuals within the company and/or the company and/or the mining industry. Hence, managers need to be aware of the current conditions to be able to manage reputation within the ever-changing environment.

Conclusion

This exploratory study of reputation formation in the Australian mining industry examines what determines the formation of reputation for a mining company’s various stakeholders. Whilst this study is by no means conclusive, it identifies the existence of stakeholder-specific reputations, stakeholder network effects and reputational interdependencies (industry effects) in the formation of reputations in the Australian mining industry.

As with all empirical studies, this study has limitations that potentially constrain the application of the findings. Firstly, the case studies were limited by the number of companies willing to participate, the type of mining operation, type of location and size of operation. Whilst this allowed comparison across the two cases, the findings from the case studies may not be applicable to other states, other types of mining, companies mining in more remote locations and larger mining companies. Secondly, the approach used to identify participants for the case studies, which included assistance from the two companies, meant that the people who participated in the interviews might not have been representative of their stakeholder group. Finally, the case studies were limited to the stakeholders and company representatives who participated in the interviews at each of the case study sites, in particular, the use of a single company representative in each case and the use of single representatives from Company B’s community and NGO/environment stakeholders.

Studies that explore reputation formation across the full range of a mining companies stakeholder groups for mining companies in a range of contexts are necessary; thus, this study provides a template and framework to conduct further empirical studies in order to confirm or deny patterns identified in this paper on reputation formation and management. In addition, research to explore reputation formation within stakeholder groups is necessary. This study focused on the formation of stakeholder reputations in the Australian mining industry and thus the findings may not be applicable to the mining industry globally. Research is necessary to investigate whether the findings of this study are unique to the mining industry in Australia.


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Appendix 1: Delphi Study – Factors Identified by Group6

Community & Stakeholder Engagement In

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Company community involvement and communications policies

• Designated community liaison person located at site

• Company having a community consultation program The accessibility and responsiveness of company management

Company engaging local and regional communities in open dialogue

Engaging local and regional communities in decision making x Information sharing between company and community Company responsiveness and sensitivity to community concerns

• Company sensitivity to indigenous peoples’ issues

• Company sensitivity to near neighbours

• Respecting cultures and values Company complaints procedures

• Due processing of complaints

• Community feedback following complaints Honesty and openness

• Transparency in decision making x • Transparency in performance and accountability

• Company’s willingness to accept and acknowledge mistakes

• Company honouring commitments

• Consistency between what the company reports/promises and what it does

• Company agrees specific and measurable outcomes with community

Integration of community feedback into environmental and social management Independent verification of environmental and social reports Company identification and differentiation of stakeholders Company communication with shareholders, including reporting, web site, information sessions etc.

Commitment to addressing stakeholders concerns Meeting expectations of a range of stakeholders Reporting to stakeholders and provision of feedback opportunities

Engagement of indigenous groups and NGOs

Company commitment to stakeholder engagement Honest and open interaction with the Media Relationship between company and community (Due to impact on the company/regulator relationship

Management of regulatory requirements and government relationships

Company’s relationship with regulators x Company’s willingness and attitude to regular site visits

Company’s honest and open communication with regulators

6 Key All experts in the group identified the factor as a determinant of reputation.

x Disagreement existed within the group, that is, one participant did not identify the factor as a determinant of reputation.

z Disagreement existed within the group, that is, two participants did not identify the factor as a determinant of reputation.

Blank Factor not identified as a determinant of reputation by the expert group.


Environment In

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Company’s environmental policies, systems and procedures

• Commitment to protecting the environment

• Willingness to mitigate all significant impacts

• Willingness to undertake research to improve environmental performance

• Approach to rehabilitation and closure

* Progressive site rehabilitation * Early rehabilitation after closure

* Identification of rehabilitation requirements early in mine life

* Coverage of rehabilitation costs in event of early closure

• Consideration of short and long term environmental impacts

• Commitment to continuous improvement of environmental performance

Environmental track record/performance x Company’s openness and transparency with regard to environmental monitoring and reporting

• Public reporting of indiscretions, eg environmental breaches etc. Company’s concern for community health and well being x

Company’s overseas environmental standards equivalent to Australian x Company’s management of energy/resource use/efficiency

Company Performance

Company financial performance, including returns to shareholders * Profit performance * Market capitalisation x

* Management of cash costs

* Debt repayment record * Disciplined capex expenditure * Company’s financial performance history

Company ‘s regulatory compliance

Company evaluation of performance Company’s participation in research, including environmental and social research x x Company reports

Mineral exploration success

Ability to build new mines Company performance v industry best practice Company’s policies/practices v industry guidelines

Economic Contribution

Economic contribution company makes to the economy x Economic contribution company makes to the community and region, including job creation

z x

Company policy regarding local procurement


Employees In

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Behaviour of company employees in the community • employees commitment to environmental and social performance • employee volunteerism/community involvement • employees work ethic reflecting company culture, including respect for other

employees

Employee Conditions • Salaries/wages x • Working hours • Flexibility regarding annual leave etc • Training/staff development Company occupational health and safety performance, policies, procedures and reporting

• Company safety record • Company’s current safety performance • Company’s OH&S reporting • Employee commitment to OH&S • Willingness to shut down operations when safety concerns identified • Company acceptance of responsibility for OH&S • Company commitment to OH&S • Response to serious injuries and fatalities • Level of care during rehabilitation of injuries Company management/employee relations, including respecting cultures and values Company employment policies, including equal opportunities and diversity x • Approach to recruitment and retention of workforce, including growth

opportunities for employees

Employee security and turnover Company approach to unions & collective bargaining x Level and use of contractors by the company

Company Leadership/Management

Capability of company management team x Company willingness to embrace best practice in all operations Company a willing signatory to voluntary codes of conduct and practice x Company management of extraction and resources x Board commitment to environmental and social performance Board commitment to accountability and performance Company culture as demonstrated by management and employees • Management valuing employees • Culture – are people happy/satisfied Integration of sustainable development into corporate decision making process Company’s risk management policies, procedures and performance • Company’s incident response capability and reporting • Company’s dispute resolution mechanisms Stability of management and board Structure and composition of the board Structure of remuneration of senior executives Company observance of governance standards Company actively checking performance (Extra from Rd 2) Company understanding expected performance and willingness to change Fair treatment of employees Openness and honesty of management Transparency of organisation and level of employee input Accessibility of management to employees

Regulation of working conditions


Corporate Social Responsibility In

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Company performance beyond compliance • Social benefits beyond those required by regulation x • Environmental benefits beyond those required by regulation x • Economic benefits beyond those required by regulation x • Company sponsorship of community programs x • Community partnership program, with defined support criteria x • Company support for community education/training x • Company sharing knowledge/expertise with community (capacity building) x x Public accountability Company adoption of independently audited standards and systems Company/NGO partnerships on social & environmental issues x Engagement in sustainable development Miscellaneous Company Related

The commodity/commodities being mined by a company, and the final uses, eg Uranium, coal etc x

Company size x x Company origin/ownership, domestic versus overseas x Company operating location(s), e.g. protected or sensitive areas Company performance at all sites especially when operating in remote areas Company approach to life cycle product stewardship Media coverage of the company, including local, national and international Company history, including the treatment of employees Nature of company’s operations (FIFO or site based) Previous experience at other company sites Information from employees at other company sites Esteem in which company held by professional peers Countries in which a company operates Company management of developing country issues if applicable Company involvement in global dialogue on industry issues NGOs, environmental and community groups attitudes to company Company’s contribution to industry debate on best practice Company’s contribution to development of industry guidance Global Mining Industry

Mining industry performance x • Human rights abuses x • Environmental disasters x • Mine site disasters x Historically poor performance of the mining industry x x Media coverage of global mining industry and performance x x Information spread by special interest groups including anti-mining campaigns Attitudes, policies and programs of industry bodies Willingness of industry leaders to assist industry laggards x Displacement of indigenous peoples Level of regulation of mining industry Relationships with governments and effects on public policy

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