Working Paper | HBS Working Paper Series | 2015

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, firms are joining self-regulatory environmental programs to signal their superior environmental management capabilities. In contrast to the literature's focus on programs featuring third-party certification, we theorize that programs lacking certification can nonetheless sometimes serve as credible signals by instead promoting civil society scrutiny, thus mitigating adverse selection. 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 by making participation more costly for firms with inferior capabilities. Our theory is supported by examining the decisions by 2,604 firms 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 2015.)