Working Paper | HBS Working Paper Series | 2016

Signaling without Certification: The Critical Role of Civil Society Scrutiny

by Susan A. Kayser, John W. Maxwell and Michael W. Toffel

Abstract

In response to stakeholders' growing concerns, companies are joining voluntary environmental programs to signal their superior environmental management capabilities. In contrast to the literature's focus on certification programs that require a third-party audit, we show that corporate participation in programs that lack certification but instead incorporate civil society scrutiny can, under certain conditions, serve as a credible signal of environmental management capabilities by discouraging firms with inferior capabilities from joining. Specifically, we hypothesize that (a) institutional environments that support civil society scrutiny and (b) organizational characteristics that increase the impact of that scrutiny enhance the credibility of the signal. We find empirical support for these hypotheses by examining the decisions by nearly 2,600 companies in 44 countries whether to participate in the United Nations Global Compact.

Keywords: United Nations; Labor standards; Working Conditions; supply chain; supplier relationship; procurement; globalization; governance; sustainability; Sustainability Management; quality; quality and safety; safety; risk; reputation; Globalization; Globalized Markets and Industries; Supply Chain Management; Supply Chain; Corporate Social Responsibility and Impact; Quality; Risk and Uncertainty; Safety;

Citation:

Kayser, Susan A., John W. Maxwell, and Michael W. Toffel. "Signaling without Certification: The Critical Role of Civil Society Scrutiny." Harvard Business School Working Paper, No. 15-009, August 2014. (Revised July 2016.)