When Firms Benefit from Public Criticism: Oscillating Pressures of Conformity and Differentiation

Abstract

While organizations are increasingly expected to conform with industry-based sustainability standards, it is less clear how the accumulation of public criticism directed toward the industry might reshape such expectations. This paper argues that depending on the accumulation of public criticism directed toward an industry in a given year, organizations are likely to face oscillating pressures to both conform with and deviate from industry sustainability norms. We test our hypotheses using a balanced panel dataset of 2,313 companies across 62 industries and 70 countries from 2013 to 2018. Our results suggest that although on average firms that conform with industry sustainability norms benefit from positive long-term investor evaluations, once annual public criticism of industry peers reaches a threshold, both positive and, surprisingly, negative deviation from industry sustainability norms are rewarded. Moreover, amid such accentuated public criticism, rewards are even greater for deviating firms within the context of highly homogenous industries with respect to sustainability practices and performance. Our findings contribute to longstanding research on categorization, while advancing the growing and important literature at the intersection of social evaluations and optimal distinctiveness.