How firms respond to being rated

While many rating systems seek to help buyers overcome information asymmetries when making purchasing decisions, we investigate how these ratings also influence the companies being rated. We hypothesize that ratings are particularly likely to spur responses from firms that receive poor ratings, and especially those that face lower‐cost opportunities to improve or that anticipate greater benefits from doing do. We test our hypotheses in the context of corporate environmental ratings that guide investors to select ‘socially responsible,’ and avoid ‘socially irresponsible,’ companies. We examine how several hundred firms responded to corporate environmental ratings issued by a prominent independent social rating agency, and take advantage of an exogenous shock that occurred when the agency expanded the scope of its ratings. Our study is among the first to theorize about the impact of ratings on subsequent performance, and we introduce important contingencies that influence firm response. These theoretical advances inform stakeholder theory, institutional theory, and economic theory. Copyright © 2010 John Wiley & Sons, Ltd.     

Coerced Confessions: Self-Policing in the Shadow of the Regulator

As part of a recent trend toward more cooperative relationsbetween regulators and industry, novel government programs areencouraging firms to monitor their own regulatory complianceand voluntarily report their own violations. In this study,we examine how regulatory enforcement activities influence organizations'decisions to self-police. We created a comprehensive data setfor the "Audit Policy," a United States Environmental ProtectionAgency program that encourages companies to self-disclose violationsof environmental laws and regulations in exchange for reducedsanctions. We find that facilities are more likely to self-discloseif they were recently subjected to one of several differentenforcement measures and if they were provided with immunityfrom prosecution for self-disclosed violations.     

How Well Do Social Ratings Actually Measure Corporate Social Responsibility?

Ratings of corporations' environmental activities and capabilities influence billions of dollars of "socially responsible" investments as well as some consumers, activists, and potential employees. In one of the first studies to assess these ratings, we examine how well the most widely used ratings—those of Kinder, Lydenberg, Domini Research & Analytics (KLD)—provide transparency about past and likely future environmental performance. We find KLD "concern" ratings to be fairly good summaries of past environmental performance. In addition, firms with more KLD concerns have slightly, but statistically significantly, more pollution and regulatory compliance violations in later years. KLD environmental strengths, in contrast, do not accurately predict pollution levels or compliance violations. Moreover, we find evidence that KLD's ratings are not optimally using publicly available data. We discuss the implications of our findings for advocates and skeptics of corporate social responsibility as well as for studies that relate social responsibility ratings to financial performance.     

Responding to public and private politics: corporate disclosure of climate change strategies

The challenges associated with climate change will require governments, citizens, and firms to work collaboratively to reduce greenhouse gas emissions, a task that requires information on companies' carbon risks, opportunities, strategies, and emission levels. This paper explores the conditions under which firms participate in this endeavor. Building on theories of how social activists inspire changes in organizational norms, beliefs, and practices, we hypothesize that shareholder actions and regulatory threats are likely to prime firms to adopt practices consistent with the aims of a broader social movement. We find empirical evidence of direct and spillover effects. In the domain of private politics, shareholder resolutions filed against a firm and others in its industry increase a firm's propensity to engage in practices consistent with the aims of the related social movement. Similarly, in the realm of public politics, threats of state regulations targeted at a firm's industry as well as regulations targeted at other industries increase the likelihood that the firm will engage in such practices. These findings extend existing theory by showing that both activist groups and government actors can spur changes in organizational practices, and that challenges mounted against a single firm or a single industry can inspire both firm and field‐level changes. Copyright © 2009 John Wiley & Sons, Ltd.     

Organizational responses to environmental demands: opening the black box

This article combines new and old institutionalism to explain differences in organizational strategies. We propose that differences in the influence of corporate departments lead their facilities to prioritize different external pressures and thus adopt different management practices. Specifically, we argue that external constituents—including customers, regulators, legislators, local communities, and environmental activist organizations—who interact with influential corporate departments are more likely to affect facility managers' decisions. As a result, managers of facilities that are subjected to comparable institutional pressures adopt distinct sets of management practices that appease different external constituents. We test our framework in the context of the adoption of environmental management practices using an original survey and archival data obtained for nearly 500 facilities. We find support for these hypotheses. Copyright © 2008 John Wiley & Sons, Ltd.     

How firms respond to mandatory information disclosure

Mandatory information disclosure regulations seek to create institutional pressure to spur performance improvement. By examining how organizational characteristics moderate establishments' responses to a prominent environmental information disclosure program, we provide among the first empirical evidence characterizing heterogeneous responses by those mandated to disclose information. We find particularly rapid improvement among establishments located close to their headquarters and among establishments with proximate siblings, especially when the proximate siblings are in the same industry. Large establishments improve more slowly than small establishments in sparse regions, but both groups perform similarly in dense regions, suggesting that density mitigates the power of large establishments to resist institutional pressures. Finally, establishments owned by private firms outperform those owned by public firms. We highlight implications for institutional theory, managers, and policymakers. Copyright © 2013 John Wiley & Sons, Ltd.     

Monitoring global supply chains

Research summary : Firms seeking to avoid reputational spillovers that can arise from dangerous, illegal, and unethical behavior at supply chain factories are increasingly relying on private social auditors to provide strategic information about suppliers' conduct. But little is known about what influences auditors' ability to identify and report problems. Our analysis of nearly 17,000 supplier audits reveals that auditors report fewer violations when individual auditors have audited the factory before, when audit teams are less experienced or less trained, when audit teams are all male, and when audits are paid for by the audited supplier. This first comprehensive and systematic analysis of supply chain monitoring identifies previously overlooked transaction costs and suggests strategies to develop governance structures to mitigate reputational risks by reducing information asymmetries in supply chains. Managerial summary : Firms reliant on supply chains to manufacture their goods risk reputational harm if the working conditions in those factories are revealed to be dangerous, illegal, or otherwise problematic. While firms are increasingly relying on private‐sector “social auditors” to assess factory conditions, little has been known about the accuracy of those assessments. We analyzed nearly 17,000 code‐of‐conduct audits conducted at nearly 6,000 suppliers around the world. We found that audits yield fewer violations when the audit team has been at that particular supplier before, when audit teams are less experienced or less trained, when audit teams are all male, and when the audits were paid for by the supplier instead of by the buyer. We describe implications for firms relying on social auditors and for auditing firms. Copyright © 2015 John Wiley & Sons, Ltd.