Administrative Science Quarterly

Intra-organizational comparisons—managers and units benchmarking their performance against each other—can turn colleagues into competitors. To better understand when organizations should allow or even encourage internal social comparisons, we study their implications for organizational adaptation and performance. We conceptualize internal social comparisons as an upstream competitive process that shapes performance aspirations and creates interdependencies in search behavior. We distinguish this from downstream, product market competition or complementarities where performance is interdependent across units. Integrating both aspects into a computational model, we show how internal social comparisons affect adaptation and performance through two mechanisms: a balancing effect whereby the organization is guaranteed to contain both exploring and exploiting units, and a stabilizing effect whereby internal social comparisons protect against abandoning existing technologies too early. The benefits of upstream comparisons are accentuated when units are downstream complements, helping synchronize search. When units are downstream competitors, these benefits disappear, suggesting substitutive effects. We highlight empirical implications and discuss theoretical links to work on intra-organizational competition, social comparisons and aspiration-driven search, diversification and performance, and the adaptation of multi-business firms.

I study the role of external auditors in the diffusion of stock-option backdating in the U.S. to explore the role of professional experts in the diffusion of innovative practices that subvert stakeholders’ interests. Practices that are eventually accepted as misconduct may emerge as liminal practices—ethically and legally questionable but not clearly illegitimate or outlawed—and not be categorized as misconduct until social control agents notice, scrutinize, and react to them. I examine how the role of external auditors in the diffusion of stock-option backdating changed as the practice shifted from liminality to being illegal and illegitimate. The findings suggest that professional experts’ involvement in the diffusion of liminal practices is highly responsive to the institutional environment. Initially, professional experts diffuse these practices via local networks, but when the legal environment becomes more stringent, implying that the practice will become illegitimate, experts reverse their role and extinguish the practice. The larger network remains largely uninvolved in both diffusing and extinguishing the liminal practice until the practice is publicly exposed and labeled as illegal and illegitimate. The findings further show that the diffusion and then extinguishing of backdating before it was outlawed depended on the adopter’s geographic proximity to a local office of a complacent expert and on the absence of traceable communication about backdating between these offices. This combination set the stage for each office to develop independent views about backdating, leading some offices to view backdating favorably and diffuse it, and others to view it unfavorably and curtail it—even at the same time and within the same audit firm. This study contributes to research on the diffusion of misconduct by providing insight into the role of professional experts and the mechanisms and boundary conditions governing that role.

Once a preferred strategy, corporate diversification into disparate lines of business has gradually declined in the U.S. over the past several decades. We argue that changes that occurred in a closely related domain—graduate business education—are important in understanding variation in de-diversification across firms. Building on a historical account of the transformation of business education, we explain how the rise of financial economics and agency-theoretic logic in business education changed students’ views about diversification. Nearly 20 years later, these MBA graduates rose to top decision-making positions and put the brakes on diversification. Using data on CEOs who ran 640 large U.S. corporations from 1985 to 2015, we show that CEOs who earned an MBA before the 1970s actively pursued diversification, whereas the next cohort of CEOs, who had been exposed to agency-theoretic logic in financial economics, refrained from it. We also demonstrate that the degree of managerial discretion moderated the effect of the CEO’s MBA education. Our study shows that institutional change in one domain (i.e., business education) contributed to change in another domain (i.e., corporate diversification), albeit with a considerable time lag.

We theorize that foreign multinationals wield a particularly significant competitive weapon in host markets: as outsiders, they can pinpoint social schisms in host labor markets and exploit them for competitive advantage. Using two data sets from South Korea, we show that multinationals improve profitability and productivity by aggressively hiring an excluded group, women, in the local managerial labor market. We predict and find that foreign multinationals in South Korea are in a unique position to identify social schisms, implement practices designed to support and enhance the hiring and promotion of female managers, hire and promote members of the socially excluded group to positions of managerial leadership, and enjoy a net profitability benefit from doing so despite the real risk of backlash from some regulators, customers, suppliers, and employees from the socially dominant group in society. Many multinationals, even those whose home markets discriminate against women, appear to have recognized the strategic opportunity of what we call the outsider’s network advantage. The gradualness of the host market’s shift toward a new equilibrium freer of discrimination presented multinationals a multiyear competitive opportunity for outsider’s advantage. Our study extends understanding of the multinational enterprise by showing how its competitive opportunities include identifying and exploiting social schisms in a host country’s labor market.

Some occupations and organizations rely heavily on trust, as their members’ roles involve risk and are interdependent. Trust can emerge from two sources: knowledge or evidence that is meaningful in that context, which has been studied extensively in the literature on trust, and faith, which has not. Through a multi-phase, largely inductive study of firefighters in the United States, we explore processes that facilitate and maintain leaps of faith. These processes are critical to trust under high uncertainty, when direct experience in a task domain is chronically limited, as is the case in our context because very few calls coming into a fire station are fire related. We suggest that leaps of faith are initiated and perpetuated through two sets of dynamics: supporting and sustaining. Supporting dynamics, such as telling stories about fighting fires, evoke domain-relevant standards that are applied to weak, non-domain-specific evidence, such as how routine tasks are performed at the fire station, to help members feel a sense of certainty about whom to trust. Sustaining dynamics both limit the impact of new evidence about trustworthiness and bolster one’s sense of certainty surrounding existing evidence. These two sets of dynamics, embedded in broader task and occupational conditions, act together as a largely closed system that allows trustors to be at peace with the uncertainty surrounding trust assessments—they make leaps of faith possible by increasing certainty and inhibiting doubt. Our study helps address key questions in both psychological and sociological treatments of trust, exploring an enigmatic phenomenon core to the concept of trust but rarely examined.

We develop theory on how a contentious moral market can develop, and we test it with data from a study of the commercialization of Buddhist temples in China from 2006 to 2016, as local government officials try to boost the local economy by transforming temples into tourist enterprises that charge admission fees. The practice is resisted by monks and the public such that the central government, which values public appearances of social justice, is pressured to support their resistance to local officials’ economic demands. Using a data panel of 141 temples, we show that temples’ admission fees are significantly related to the pressure that local government officials face to develop the economy. We also find that resistance to the fees exploits a factional political structure, as the monk-led movement leverages the influence of one political clique that is highly concerned with public appearances of social justice to resist the request of another. In addition, bottom-up channels such as the Internet and marketized media help the public voice its grievances, coordinate collective action, and therefore align with and mobilize the central government to override local government. The contentious view enhances our understanding of how resistance can be possible and effective, especially in an authoritarian regime.

Socially responsible investing (SRI) is gaining traction in the financial sector, but it is unclear whether the dominant financial logic complements or competes with the social logic in the founding of SRI funds. Based on insights we gained from observation at an Asian SRI industry association, interviews with SRI professionals in the U.S. and Europe, and other fieldwork, we questioned explanations for SRI’s conflicted relationship with the financial logic. Our observations prompted us to build a panel database of SRI fund foundings from 1970 to 2014 in 19 countries so that we could examine how a dominant logic interacts with alternative logics to promote or stifle institutional change. We decomposed the financial logic into interdependent dimensions as the provider of means (resources, practices, and knowledge) for novel financial ventures to be founded and the enforcer of profit-maximizing ends that constrain such foundings. Our theory suggests a paradoxical role for the financial logic, which explains an intriguing empirical finding: the founding of SRI funds has a curvilinear, inverted-U-shaped relationship with the prevalence of the financial logic. We propose and find that the relationship between the dominant financial logic and the social logic of SRI shifts from complementary to competing as the financial logic becomes more prevalent in society and its profit-maximizing end becomes taken for granted. We examined how certain alternative logics—those of unions, religion, and green political parties—moderate these effects. Our results shed light on how and to what extent institutional change can occur in fields in which one institutional logic is dominant. They also reveal country-level institutional factors that drive SRI.