Firms are increasingly becoming referees; stuck in the crossfire between social groups and their respective opposing opinions and forced to take a stance by internal and external stakeholders through their policies and actions. Yet, our knowledge of how corporate policies regarding contested issues influence important firm outputs, both in tangible (e.g., effectiveness) and intangible (e.g., reputation) terms, is limited. We explore how the implementation of policies regarding contested issues affects corporate reputation, both as indicators of firm character and through their impact on firm effectiveness. We argue that implementing these policies demonstrates firm character but does not have a significant impact on a firm’s reputation unless stakeholders can evaluate changes in capabilities. Hence, we suggest that corporate effectiveness mediates the relationship between policy implementation and reputation. We find support for our hypotheses.
