Why companies conform: the strategic benefits of doing the right thing

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There’s a view that conforming to accepted standards and norms is something organizations do reactively, mainly due to external pressures, and to avoid being penalized. But research by Déborah Philippe and Rodolphe Durand, focusing on environmental practices and reputation, shows that organizational conformity is actually a complex, nuanced, activity that can be used for strategic gain if managed well.

 4 min read 

PhilippeDéborah Philippe is a professor of Corporate Social Responsibility. Her research examines the role of social evaluations (status, reputation, legitimacy, and stigma) in shaping organizations’ strategic behavior.

The stories of maverick firms that succeed or fail by behaving differently from the crowd are often highlighted in the media. The dynamics of change agents, or corporations that deviate from standards and shatter conventions, has also been well researched in management literature. But what about those firms that follow the herd, sticking to social norms and behavioral standards and act as expected? What about the conformers?

Conforming to norms has largely been seen a non-strategic passive response to the institutional pressures placed on firms. Such pressures might come from a regulatory environment, for example, or from the expectations of stakeholders. Either way, firms are conforming because that it is what is expected from them.

But Déborah Philippe and Rodolphe Durand suspected that conformity may be more nuanced and strategic than previously imagined. They set out to examine conformity through the lens of responsible environmental practices, in particular environmental transparency and its impact on a firm’s reputation.

To assess how compliant a firm was with regard to environmental transparency, the researchers considered two dimensions of conformity: the firm’s adherence to the underlying goal of environmental friendliness – whether the firm is “doing the right thing” in terms of environmental responsibility – and its level of commitment to adopting socially-approved procedures – the extent to which the firm uses stringent and transparent methods of reporting on its environmental performance.

Firms could conform yet still exercise considerable discretion over the actions which allowed them to conform.

Philippe and Durand observed that firms could conform yet still exercise considerable discretion over the actions which allowed them to conform. With respect to the two dimensions being studied, they grouped the behavior of companies into four types.

Actions that both comply with the goal of being environmentally friendly and show a high commitment to the reporting procedures are strengthening behaviors. Strengtheners do the right thing and are committed to fully exposing their environmental behavior. Complying with the underlying goal but having a low commitment to reporting procedures is abiding behavior. Although they do the right thing, abiders don’t reinforce this through a strong commitment to reporting.

The targeting behavior category refers to firms that don’t fully comply with the underlying goal (because their actions are not all environmentally-friendly), but demonstrate a high commitment to reporting procedures. Finally, finessing behavior is where firms don’t fully comply with the underlying goal, and conceal this through minimal reporting. Finessers rarely do the right thing and hide their inaction through poor reporting, yet, they still partially conform to the norm of environmental transparency.

To assess the potential benefits or negative impact of conformity on the firm, the authors focused on reputation. A firm’s reputation is seen by stakeholders as an indication of its ability to provide value compared with its peers and rivals. A strong reputation provides a firm with strategic advantages and is an important factor in a company’s performance and survival. Furthermore, in recent years, a firm’s environmental performance has become bound up with its reputation.

The authors predicted that the four types of behavior would impact a firm’s reputation in different ways. Strengtheners and abiders would, they believe, be rewarded with some reputational pay-off as credit for doing the right thing. Moreover, strengtheners, by doing the right thing and reporting on it, would do better reputationally than abiders. They also predicted that targeters and finessers would be socially penalized for failing to do the right thing. Targeters, who at least were committed to reporting, would be penalized less harshly than finessers, they predicted.

The study used environmental performance related data from 90 US firms operating in 11 different sectors, covering the period from 2001 to 2004. For reputational performance they used Fortune magazine’s reputation scores, published with its list of “America’s Most Admired Corporations”. The data was used to construct a number of models to test the authors’ predictions, while controlling for variables.

Partial conformity to a norm may be sufficient to gain social acceptance

As predicted, both strengthening and abiding behavior enhanced firm’s reputational score, with firms showing a high level of commitment to the goal and procedure of the norm benefiting more than those who showed a lower commitment to the reporting procedure. In contrast to their predictions, however, the authors found that firms that disclosed partially negative information about their environmental behavior – targeting and finessing – were not sanctioned. In fact, firms were even rewarded for targeting behaviors, which suggests that partial conformity to a norm may be sufficient to gain social acceptance. However, the authors also found that the absence of goal conformity in environmentally sensitive industries was heavily sanctioned.

As Philippe and Durand conclude far from being a passive non-strategic response to external pressures, conformity is complex, strategic and nuanced, with different types of conforming behaviors affecting a firm’s reputation to differing degrees. This means that, as far as environmental practices are concerned, firms should carefully consider their conforming behaviors in order to find the best fit with their overall corporate strategy, whether that is optimizing the reputational benefit derived from those behaviors or otherwise.

So in most cases conforming with norms does pay; but the extent of the benefits depends on how firms go about it.

Read the original research paper: The Impact of Norm-Conforming Behaviors on Firm Reputation by Déborah Philippe, Faculty of Business and Economics of the University of Lausanne (HEC Lausanne) and Rodolphe Durand, HEC School of Management, Paris, Department of Strategy and Business Policy. Strategic Management Journal (2011).

Featured image by Özgür Mülaz?mo?lu Flickr CC