organizations and credibility

In a conversation with guest blogger emeritus Tim Bartley, we got into a discussion of when organizations join associations and when they are expelled. E.g., a firm being expelled from a “fair trade” group for bad labor practices. Other examples: colleges losing accreditation, or churches being expelled from their league for apostasy. A few issues came up:

  • These associations rarely expel organizations. It seems to be hard. Partly, if you expel too many people, you lose your audience.
  • A decent chance of expulsion of censure may discourage people from trying. If you know that your firm has a 30% of triggering a labor violation to start with, why join?
  • Tim brought up state sanctions, there is no way to dodge.
  • Upon reflection, states are complicated as well. There is capture, when the regulated gain influence over the state. There is also repeal, firms may successfully lobby to have certain rules revoked (e.g., the repeal of Glass-Steagall).
  • In the case of higher ed, for example, accreditation standards (e.g., law schools need law review journals) often appear to be make work, rather than genuine quality signals.

Overall, I remain skeptical of these associations and their attempts to provide a seal of approval for businesses.

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Written by fabiorojas

April 14, 2012 at 12:01 am

3 Responses

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  1. I would argue, that although imperfect, these associations are often one of the only ways to confer legitimacy. Take for instance the recent Foxconn scandal in Apple’s Chinese plants. Amid the scandal Apple had several options and chose, with growing criticism, to join the Fair Labor Association. The FLA’s independent review found Foxconn, and Apple, in violation of FLA’s standards. And so, Apple, by trying to improve their image and do the right thing was suspended from FLA for one year.

    I imagine Apple had an inkling this would be the result. Still, at the end of the year Apple will become a more permanent member and through the process its customers and stakeholders can be satisfied that Apple did the right thing. These multistakeholder initiatives are imperfect, but with MNCs acting in many different countries they may be the only solution to ensuring higher standards in labor, environment, and other areas.


    Caddie Putnam Rankin

    April 14, 2012 at 1:03 pm

  2. I should add, there are real literatures on this issue, for instance:

    It’s certainly true that states don’t solve this problem fully, and there are exit options from particular states, as well as the voice processes that Fabio raises. And some voluntary programs are more voluntary (i.e., with a lower cost of exiting) than others. But I would argue that on average, states offer fewer exit options than private bodies.



    April 14, 2012 at 8:52 pm

  3. Organizations inherit their association memberships. When the organization changes, its current agents can view that membership differently. The Protestant Reformation was one example. The formation of the American League by baseball teams dissatisfied with the National League was another. Firms change their business models: Tandy sold leather and then sold computers.

    It may not matter so much which association, as being a member of any. In other words, a merchant who posts affiliations has higher status than one who does not. A recent NBC Today segment (April 11, I believe) touted coin dealers who are members of the American Numismatic Association. Within the hobby, though, we know that the ANS has “higher” status and the Professional Numismatists Guild, and International Association of Professional Numismatists higher still. It would be rare to find a PNG member who is not in the ANA, though for “political” reasons, there have been some. Regardless, a coin dealer who shows no decal logos on his shop door or website has no status at all.

    As noted, the ANA rarely debars members, though it has happened recently as well as historically.



    April 16, 2012 at 1:56 am

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