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THEADOPTIONOFINSTITUTIONALLYCONTESTED
ORGANIZATIONALPRACTICES:
THEEMERGENCEOFSTOCKOPTIONPAYINGERMANY
WM.GERARDSANDERSBrighamYoungUniversity
ANJATUSCHKEUniversityofBern
Examiningthetransnationaldiffusionoforganizationalpracticesfrominstitutionalenvironmentsinwhichtheyarelegitimatetoenvironmentsinwhichkeyinstitutionalactorscontestthem,wecontrastprocessesfacilitatingpioneeringadoptionsofcon-testedpracticeswithprocessesthatdiffusethecontestedpractices.Courageousadopt-ersofcontestedpracticesarelikelytohave(1)exposuretohigh-statusinstitutionalenvironmentsinwhichthepracticesarelegitimateand(2)experiencewithothercontestedpractices.Regulatorylegitimizationandinstitutionalisomorphismpro-cessesthendiffusethecontestedpracticeswithinanenvironment.TheresultsofastudyofstockoptionpayadoptionamonglargeGermanfirmsgenerallysupportourhypotheses.
Howdonewpracticesthattransgresslegitimacystandardstakerootandspread?AsScott(2001)noted,thelegitimacyoforganizationalpracticesisbuiltonthreepillars:thenormative,theregulatory,andthecultural-cognitive.Anewpracticeisre-gardedasnormativelylegitimatewhenitisconsis-tentwithwidersocietalvaluesandisconsideredappropriate(Selznick,1957).Regulatorylegitimacyisconveyedwhenanewpracticeisinlinewithexistingrulesandlaws(North,1990).Apracticehascultural-cognitivelegitimacywhenitisunder-stood,recognizable,andlocatedwithinthesetofthewidelyheldcognitivestructuresofitsinstitu-tionalenvironment(Meyer&Rowan,1977).Anorganizationfacesrelativelylittleresistancetoat-temptstoadoptpracticesthatareconsistentwiththethreepillarsoflegitimacy.Indeed,adoptionofsuchpracticesaidsinthefurtherlegitimizationoftheorganization.Yetnewpracticesdoemergethatattheoutsetareinstitutionallycontestedandcon-traveneoneormoreofthepillarsoflegitimacy.Earlyadoptersruntheriskofstigmatizationifapracticeisultimatelydiscredited(Sutton&Calla-han,1987).Howdosuchpracticesgetadoptedanddiffusedwhentheneedforlegitimacywouldseemtoworkagainstadoptionanddiffusion?Fornew
WethankPeerFiss,MartaGeletkanycz,MatthewKraatz,andEdZajacforhelpfulsuggestionsonpriorversionsofthisarticle.Aprior(andreduced)versionofthispaperwaspublishedintheBestPapersProceedingsoftheAcademyofManagement,2003.
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practicestotakerootininstitutionalenvironmentsinwhichtheyfacealiabilityofillegitimacytheremustbesomecourageousorganizationsthatadoptandtherebypotentiallyinitiateaprocessoflegitimization(Scott,2001).Thefocusofthisstudyisondevelopingamodeltoexplainhowsuchcontestedpracticesareintroducedintoinstitutionalenvironments.
Someinstitutionaltheoristshavearguedthatre-searchhasunnecessarilyfocusedonsingle-dimen-sionaldefinitionsofinstitutionalcontexts,therebyimplyingthateachfirmisembeddedinasingleinstitutionalenvironment(Dacin,Goodstein,&Scott,2002;Kostova&Roth,2002).Yetmanyfirms’institutionalcontextsareactuallymultidimen-sional,andopportunitiesandconstraintsconfrontfirmsnotonlyfromtheirprimaryinstitutionalen-vironment,butalsofromothersinwhichtheyaresimultaneouslyembedded.Littleattentionhasbeenfocusedonthediffusionofmanagerialtheo-riesandpracticesovernationalandinstitutionalcontexts(Gooderham,Nordhaug,&Ringdal,1999:508).Consequently,relativelylittleisknownabouthowpracticesspreadoverdistinctinstitutionalcontexts,particularlycontextswithwidelydiffer-entnormsandvalues.
Inthisstudy,weexaminehowapracticespreadsfromoneinstitutionalenvironment,whereitiswidelyprevalentandtaken-for-granted,toanotherenvironment,whereitsintroductionviolatesallthreeofScott’spillarsoflegitimacy.Weusetheterm“institutionallycontestedpractice”tode-scribesuchapractice.Institutionallycontested
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practicesareneworganizationalpracticesthatfacestiffoppositionfromkeyconstituentsinpoten-tialadopters’primaryinstitutionalenvironment,thoughsomeactorsinthatenvironmentmayadvo-catethem.Byreferringtoapracticeascontested(ratherthanillegitimate),wetakeintoconsider-ationthattheremaybesomeimportantactorsintheprimaryinstitutionalenvironmentwhoareinfavorofthecontestedpractice.Thisusageiscon-sistentwithrecentresearchthathasusedtheterm“contestedterrain”todescribeaninstitutionalen-vironmentintowhichanewpracticeisintroducedwhereatleastsomepowerfulactorsopposeit(Fiss&Zajac,2004;Kraatz,Broschak,&Shah,2002).Toisolatediscreteinstitutionalenvironments,wefo-cusonthetransnationalmigrationofinstitution-allycontestedpractices.
OurtheorydifferentiatesprocessesthatfacilitatewhatScott(2001)referredtoas“courageous”pio-neeradoptions,whichcreategreatervarietyintheenvironment,fromprocessesthatenablelatermo-mentumadoptions,whichresultinisomorphism.Pioneeradopterswilllikelyneedmeaningfulac-cesstoothersourcesofinformation,suchasthe“rationalizedmyths”aboutthetechnicalefficiencyofpracticesemanatingfromotherinstitutionalen-vironmentsinwhichtheyaretaken-for-granted,whichcontradictassumptionsunderlyinglocalnorms(cf.Meyer&Rowan,1977).Wedevelophy-pothesesabouthoworganizationsbecomeexposedtotherationalizedmythsthatsupporttheadoptionofpracticesthatarecountertothepillarsoflegiti-macyoftheorganizations’homeenvironment.Wefocusonfourmechanismslikelytohavedifferen-tialeffectsinthetwodistinctphases(pioneeringanddiffusion)oftheadoptionprocessofinstitu-tionallycontestedpractices:learningfromotherinstitutionalenvironments,second-orderlearning,isomorphicdiffusionprocesses,andregulatorylegitimization.
CONCEPTUALDEVELOPMENT
InstitutionalChange
Earlyworkoninstitutionalchangesuggestedthatadaptiveprocessesemergeasorganizationsadjusttoenvironmentalchangesanddemands(Selznick,1957).The“newinstitutionalism”suggestedthatearlyadoptersmayimplementchangesfortechni-calreasonsbutthatlateradoptersmaydosoforsymbolicreasons(Westphal&Zajac,1994).How-ever,theprocessofchangeassociatedwiththeadoptionofinstitutionallycontestedpracticesmaybesomewhatdifferentfromprocessesassociatedwithrelativelysimplemigrationfromoneaccepted
wayofdoingthingstoanotheracceptableroutine.Recently,somescholarshaveturnedtheirattentiontoformsofinstitutionalchangelikelytobecon-testedbysomeactorsinaninstitutionalenviron-ment.Forinstance,theprocessofdiffusingwom-en’sintercollegiatesportsprogramsamongU.S.collegeshasbeendescribedasoneinwhichcol-legesanduniversitieswereembeddedwithinathickinstitutionalcontextofmale-dominatedath-letictraditionandsimultaneouslyconfrontedwithpressuretoprovideincreasedopportunitiesforath-leticparticipationforwomen(Kraatzetal.,2002).Suchinstitutionalenvironmentswithstrongyetconflictinginterestsonthepartofdifferentpartieshavebeenreferredtoas“contestedterrains”(Fiss&Zajac,2004;Kraatzetal.,2002).
Selectedresearchhasexaminedtypesofadop-tiondecisionsthatmayhavefacedstiffopposition.Forinstance,studiesofthespreadofpoisonpills(Davis,1991),greenmail(Kosnik,1987),andgoldenparachutes(Singh&Harianto,19)describeotherexamplesoforganizationalpracticesthatsomeim-portantinterestswithinthekeyinstitutionalenvi-ronmentlikelyopposed.However,mostofthisre-searchhasnotfocusedonhowtheseinstitutionallycontestedpracticesemerged,butrather,ithasfo-cusedontraditionaldiffusionprocesses.Morere-cently,someresearchhasdrawnattentiontotheemergenceofcontestedpractices.Forinstance,KraatzandZajac(1996)reportedthatthetrendamongliberalartscollegestowardofferingprofes-sionalprograms,aninnovationthatfacedsignifi-cantoppositionamongtraditionalliberalartscol-leges,didnotseemtofitstandardprocessesofinstitutionalization.SubsequentresearchbyKraatzandMoore(2002)reportedthatthisinstitutionallycontestedformofchangewasfacilitatedbytheimmigrationoforganizationalleaderswhohadpriorexperiencewithsimilarcontestedpracticesatotherorganizationsoperatingontheperipheryofthefield.
Weoutlinefourprocessesthatfacilitatethetrans-nationaldiffusionofinstitutionallycontestedprac-tices:directandindirectexposuretootherinstitu-tionalcontextsofhighrelativestandingwheresuchpracticesareconsideredlegitimateandbeneficial;second-orderlearningfrompriorexperienceswithsimilarformsofcontestedchange;isomorphicdif-fusionprocesses;andregulatorylegitimization.LearningfromOtherInstitutionalContextsInthissection,wedevelophypothesesabouthoworganizationsinoneinstitutionalenviron-mentlearnaboutpracticesthataretaken-for-grantedandlegitimateinotherenvironments.We
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focusonhoworganizationsgainaccesstothera-tionalizedmythsassociatedwithpracticesthatun-dergirdtheirlegitimacyinotherinstitutionalenvi-ronments(Meyer&Rowan,1977:25).Twotypesoflearningmechanismsaidsuchspillover.First,anorganizationoperatinginalargenumberofcoun-triesandawidevarietyofenvironmentsisexposedtoavarietyofpractices,someofwhichmaybenovelintheorganization’shomeenvironment.Wearguethatorganizationswithoperationsembeddedinmultipleinstitutionalenvironmentsmayfinditeasiertoadoptinstitutionallycontestedpracticesthanotherorganizationsthatlackmultiinstitu-tionalembeddednessbecausetheformerhaveuniqueopportunitiestobeindoctrinatedinthein-stitutionallogicsupportingtheinstitutionallycon-testedpractices.Second,topexecutiveswithcer-taintypesofeducationalexperiencesmaybemoreopenthanotherexecutivestolearningfromotherenvironments,leadingtoincreasedlikelihoodthattheorganizationstheformermanagewillattemptinstitutionallycontestedchange.Bothopportuni-tiesenableorganizationstolearnwhyapracticethatiscontestedintheirhomeenvironmentistak-en-for-grantedelsewhere.Organizationswiththeseuniquelearningopportunitiesgainaccesstothefoundationallegitimacylogicofthepracticebeingimitated—therationalizedprescriptionsthatiden-tifythetechnicalandsocialpurposesoftheprac-tice(Meyer&Rowan,1977).
Affiliationsandexchangerelationships.Wear-guethatwhenanorganizationoperatesinacountryofsimilarorgreaterstandingthanitshomebase,thelikelihoodincreasesthatboththerationaleforlocalpracticesandthelocallegitimacytheseprac-ticeshaveachievedwillpositivelyinfluenceit(D’Aunno,Sutton,&Price,1991).Exposuretoprac-ticesthatvaryinfundamentalwaysfromthoseofahomeinstitutionalcontextmayresultinareevalu-ationofassumptionsaboutandattitudestowardthesenovelpractices(Greenwood&Hinings,1996).Thisreevaluationisparticularlylikelywhenorgan-izationalaffiliationsandexchangerelationshipsareembeddedinhighlyprestigiousinstitutionalenvironments.Exchangerelationshipsacrossna-tionalbordersexposeanorganizationtodifferentpractices,perspectives,values,andbeliefsandpro-videlearningconduits.Exchangepartnersbecomeeducatedaboutnorms,customs,andeventhepotentialeconomicefficiencyofaparticularprac-tice.Moreover,theserelationshipsembeddedinmultipleinstitutionalenvironmentsprovidetheopportunityfororganizationstolearnthatsomepractices,althoughcontestedintheirhomeenvi-ronment,areacceptedinaprestigiousfieldandarewidelyusedbyfirmsofsimilarorhigherstatus.Thisinfluencetowardadoptingnewpracticesacrossinstitutionalenvironmentsneednotbeco-ercive,suchaswhenbankspressureforeignex-changepartnerstoconformtolocalreportingnorms;itisalsolikelytobemimetic,suchaswhenexecutivesandemployeeswitnesspracticesthatappealtotheirself-interest(Fligstein,1991).
Wearguethatorganizationsassessthedesirabil-ityandlegitimacyofnewpracticesnotonlyonthebasisofhowthosepracticesareperceivedintheorganization’shomeinstitutionalenvironment,butalsoonthebasisofhowtheyareperceivedelse-where,especiallyinhigh-statusinstitutionalenvi-ronments.Thatis,asorganizationsassesspracticesfromaroundtheglobe,apractice’slegitimacyinahigh-statusinstitutionalenvironmentmayspillovertootherinstitutionalcontexts(Kostova&Za-heer,1999).Legitimacyinahigh-statusinstitu-tionalcontextdecreasesthelikelihoodthataprac-ticewillberejectedsimplybecauseitviolatesadomesticinstitutionallogic.Rather,thelikeli-hoodthatapracticeviolatingthenormsofanor-ganization’shomeenvironmentwillbeadoptedincreasesifthatpracticehasachievedlegitimacyinprestigiousinstitutionalenvironmentswithinwhichtheorganizationhasaffiliationsandex-changerelationships.
Eventhoughapracticemaybelargelycontestedinanorganization’shomeinstitutionalenviron-ment,somepartieslikelytosupportitsadoptionmayexistinthatenvironment.Embeddednessinmultipleprestigiousinstitutionalenvironmentsprovideslearningopportunitiesenablingactorswhofavortheadoptionofpracticesthatareinsti-tutionallycontestedinahomeenvironmenttorelyonthenormativeinstitutionallogicofhigh-statusenvironmentstosupporttheadoptiondecision.Inaddition,affiliationswithorganizationsinpresti-giousinstitutionalcontextsinfluencethesocialrankoffirms.Justasaffiliationswithhigh-statusorganizationshelpfirmsincreasetheirownpres-tige(Podolny,1993;Washington&Zajac,2005),affiliationsembeddedinhigh-statusinstitutionalenvironmentsshouldincreaseanorganization’sstatus.Thus,firmswithhigh-statusaffiliationsaremorelikelytohaveasocialrankthatenablesthemtobedifferentfromcompetitorsintheirhomeen-vironment(Rogers,1995).
Takentogether,ourargumentssuggestthataffil-iationsandexchangerelationshipsembeddedinprestigiousinstitutionalenvironmentsincreasethelikelihoodthatinstitutionallycontestedpracticeswillbeimportedfromthoseprestigiousenviron-mentswheretheyaretaken-for-granted.Thus,wepropose:
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Hypothesis1.Anorganizationismorelikelytoadoptaninstitutionallycontestedpracticetotheextentthatithasaffiliationsandexchangerelationshipswithprestigiousinstitutionalen-vironmentsinwhichthepracticeislegitimateandtaken-for-granted.
Executiveeducationalbackground.Ourfirsthypothesisemphasizesthepowerfulinfluencesofsocialandeconomicforces,yetitisequallyimpor-tanttoexplaininstitutionalchangebydirectrefer-encetotheactorswhocomposeandadministerfirms(Kraatz&Moore,2002).Indeed,Scott(2001)suggestedthatagentshavebeenunnecessarilyrel-egatedtominimalstatusininstitutionalprocesseswheninfacttheyareoftenthecatalystforchange.Organizationalleadersandsocialeliteshavelongbeenregardedaspreserversofformalinstitutionalrules,norms,andvalues(Selznick,1957).Recenttheoreticalandempiricalworkhasalsoempha-sizedtheimportanceofleadersinsurmountingtraditionalorganizationalvaluesandbeliefstocre-ateinstitutionalchange(Fligstein,1991;Green-wood&Hinings,1996;Kraatz&Moore,2002;Young,Charns,&Shortell,2001).Becauseafirm’sinstitutionalizedassumptionsandunderstandingaretosomeextentcarriedinthemindsofitslead-ers,thevaluesandbeliefsoftheseleadersarelikelytobeinstrumentalindecisionsrelatingtotheadop-tionofaninnovation(Scott,2001).
Afurtherrationalefortheinfluenceofafirm’sleaderoninnovationadoptioncanbedrawnfromupperechelonsresearch,awell-developedbodyofworkthatportraysorganizationsasreflectionsofthevalues,beliefs,andabilitiesoftheirtopmanag-ers(Hambrick&Mason,1984).Thesevalues,be-liefs,andabilities,aswellastheresultingactions,areshapedbyexecutiveexperiencesandeducation(Hambrick&Mason,1984).Agraduatedegree,forinstance,mayhelpaCEOlearntohandlecomplexinformation,engageinboundary-spanningactivi-ties,andbemorereceptivetotheadoptionofin-novations(Youngetal.,2001).
Whereaslevelofeducationislikelytoinfluencetherateofinnovation,typeofgraduateeducationmaydirectaCEO’sattentiontocertaintypesofinnovation.Thetypeofgraduateeducationanex-ecutivehasinfluencesthespecificknowledgebaseoftheexecutive.Anduniquesetsofknowledgeenableexecutivestoadoptnoveltiesthatthosewithoutsimilarknowledgemayneverhaveexpo-sureto(Hargadon&Douglas,2001).Infact,newpoliciesandpracticesthatarenotcongruentwithexistingstructuresmaysimplybeoverlooked,in-dependentoftheirusefulness.Toexplainthisphe-nomenon,scholarsofinstitutionaltheoryhavere-ferredtocognitiveschematheory(DiMaggio,1997).Aschemais“acognitivestructurethatrepresentsorganizedknowledgeaboutagivenconceptortypeofstimulus”(Fiske&Taylor,1984:140).Itdirectsspecificindividualactionandunderstanding(Di-Maggio1997),helpsactorstobecomeawareofnewinformationintheirenvironment,andguidestheunderstandingandinterpretationofthisinforma-tion.Intheabsenceofalinktoanexistingcognitivestructure,however,anewpracticeorpolicyislikelytogounnoticedortobemisunderstood.Formalgraduatebusinesseducationprovidesex-ecutiveswiththetoolstoacquireadeepunder-standingofcorporatepoliciesandpracticesaroundtheworld.Applicationoftheseanalyticalpro-cessesandtoolsislikelytohelpshapetheexecu-tives’cognitivestructures.Asaconsequence,theyaremorelikelytopossesstheschematathattheyneedtobecomeawareofnewbusinesspracticesandtoassesstheirpotentialeconomicefficiency;theseexecutivesdeveloptheabsorptivecapacitytoscantheglobalenvironmentforbestpractices.Therefore,graduatebusinesseducationnotonlyinfluencesexecutives’values,beliefs,andabilitiesbutalsoservesasaninformallinktootherinstitu-tionalcontexts.Businesseducationtrainsfutureexecutivestobekeenlyawareofcompetitiveenvi-ronmentsandtoadoptefficientpractices.Althoughagraduatedegreesinbusinessmayexposetopex-ecutivestouniquelearningopportunitiesgenerallyunavailabletoexecutiveswithothertypesoftrain-ing,italsoorientsthemtolearningfromthecom-petitiveenvironment.Insupportofthislogic,Palmer,Jennings,andZhou’s(1993)findingthatfirmsmanagedbyCEOswithgraduatedegreesfromelitebusinessschoolsweremorelikelytoadoptthemultidivisionalformoforganizationisconsistentwiththeideathattheformaleducationalprocessallowsCEOstolearnaboutefficientorganizationalstructures.
CEOswithgraduatebusinessdegreesshouldbemorelikelytoacquireadeepknowledgeaboutbusinesspracticesoutsidetheirprimaryinstitu-tionalenvironmentsthanCEOslackingsuchaspe-cificeducationalbackground.Thisglobalperspec-tiveislikelytoweakenhistoricalculturalbiasesaboutlocalpracticesandincreasethelikelihoodthatexecutiveswillcometoanindependentassess-mentofthebenefits,pitfalls,andeconomicconse-quencesofpotentialcorporatepolicies.Conse-quently,organizationswithCEOswhopossessgraduatebusinessdegreesshouldbemorelikelytoadoptpracticesthathavedevelopedrationalmythstatusinprestigiousinstitutionalenvironmentsfortheirtechnicalefficiency.Thus:
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Hypothesis2.CEOgraduatebusinesseduca-tionincreasesthelikelihoodthatafirmwilladoptinstitutionallycontestedpracticesthathavebeenacceptedinprestigiousinstitutionalenvironments.Second-OrderLearning
Experiencecanleadtolearningthatcanbetrans-ferredtoother,similarsituations.Forinstance,firmsappeartolearnfromsometypesofacquisi-tionexperiencesandtransferthatknowledgetosimilaracquisitionexperiences(Haleblian&Finkelstein,1999).Thislearningappearsparticu-larlylikelywhenappliedtorelatedproductandgeographicdomains,asinthecaseofmultipleac-quisitionsinthesameforeigncountry(Vermeulen&Barkema,2001).Moreover,foreignacquisitionexperiencealsoincreasesthesurvivalrateofsub-sequentgreenfieldinvestments,suggestingthatwhatislearnedinacquisitionsistransferredtotheverydifferentventurestart-upprocess(Vermeulen&Barkema,2001).TheoccurrenceofthistypeoflearningisalsoconsistentwiththefindingsofWestphalandZajac(2001),whoreportedthatfirmsthatannouncedtheywouldrepurchasetheirstock,butdidn’t,werethesamefirmsthatannouncedtheywouldoffernewlong-termincentivestoexec-utives,butdidn’t.Similarly,WashingtonandVen-tresca(2004)reportedthatcollegesthatadoptedfootballteamsweremorelikelytoadoptlacrosseandhockeyteamsthancollegesthatdidnotadoptfootballteams.
Thistypeofsecond-orderlearningmayalsobeappliedtoinstitutionallycontestedpractices.Ex-periencedealingwithstakeholdersintheinstitu-tionalenvironmentsthatopposecertainpracticesandactionsalsoallowsafirmtolearnhowtodealwiththeseobstacles,andknowledgeandexperi-encegainedfrompastsituationsgivethefirmadroitnesswhendealingwithsimilarhotlycon-testedsituationsinthepresentorthefuture.Con-sequently,experienceadoptinginstitutionallycon-testedpracticesshouldincreasethelikelihoodofsubsequentadoptionsofcomplementaryinstitu-tionallycontestedpractices.Thislogicleadstothefollowinghypothesis:
Hypothesis3.Anorganization’spriorsuccess-fuladoptionofinstitutionallycontestedprac-ticesincreasesthelikelihoodofitsadoptionofinstitutionallycontestedpractices.DiffusionForces
Onceaninstitutionallycontestedpracticehasbeenintroducedtoafocalinstitutionalenviron-ment,thediffusionofthecontestedpracticecanbefacilitatedbywell-knowninstitutionalprocesses,suchascohesionandstructuralequivalence.Diffu-sionthroughdirectcontactwithprioradoptersre-liesontheprocessofcohesion;structuralequiva-lenceisfacilitatedbyindirectcontactswithinafirm’senvironment(Burt,1987).
Cohesion.Cohesionisthedegreetowhicharelationshipisencompassedbypotentconnectionstootherorganizations(Davis,1991).Theinfluenceofcohesiononinnovationdiffusionhasbeenem-phasizedinagrowingbodyofliteratureonnetworkties(Beckman&Haunschild,2002;Davis,1991;Haunschild,1993;Kraatz,1998;Westphaletal.,2001).Networktiesprovideinformationabouttheprioradoptionexperiencesofnetworkpartners.Networktiesarecharacterizedbyin-depthcommu-nicationandanexchangeofdetailedinformationwithtrustednetworkpartners.Thus,thesetieshelptoovercometheuncertaintyassociatedwiththeadoptionofariskyinnovation.Consequently,net-worktiestendtofacilitatethediffusionofpracticeswithinanetwork.
Animportantsourceofnetworktiesisboardinterlocks(e.g.,Beckman&Haunschild,2002;Car-penter&Westphal,2001;Davis,1991;Haunschild,1993;Rao&Sivakumar,1999).Boardinterlocksrepresentstrongnetworktiesthatenableparticipat-ingorganizationstoengageinacontinuoustwo-waycommunicationthatisbasedonmutualtrust(Westphal,1999).Boardinterlocksareregardedasameanstomitigateuncertaintyaboutadoptionde-cisions(Fligstein,1991).
First,boardappointmentsenableexecutivestoscantheirenvironmentfornewandtimelyinfor-mation(Useem,1982).Firmsacquirefirsthandknowledgeaboutaninnovationanditspotentialeconomicconsequencesfromboardinterlocks(Haunschild,1993).Assuch,boardinterlockstootherorganizationsthathavepreviouslyadoptedinstitutionallycontestedpracticesarelikelytohelpafocalfirmgainmoreinformationontheseprac-ticesthanfirmsthatlacktiestopriorinnovatorswillhave.Informationfromtrustedsourcesislikelytobeacrucialstepleadingtoanadoptiondecision.
Second,boardinterlocksstrengthendirectcom-municationbetweenafocalfirmandotherorgani-zations,makingadoptionsbytheseotherorganiza-tionsmorenoticeableandinfluentialforthefocalfirm(Haunschild,1993;Rogers,1995).Conse-quently,firmsarelikelytoattachmoreweighttoinformationaboutcontestedpracticesthatisgainedthroughboardinterlocksthantoinforma-tionfromothersources.Becauseinstitutionallycontestedpracticesarelikelytoevokehostilereac-
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tionsfromseveralstakeholdergroups,apositivejudgmentoftheseinnovationsfromatrustedsourcemayproveespeciallyimportant.
Third,theadoptiondecisionsofothernetworkorganizationssignalinformationaboutthevalueofaninnovation(Davis,1991).Withagrowingnum-berofinterlockednetworkpartnersamongtheearlyadoptersofacontestedpolicy,afocalfirmmayregardtheinstitutionallycontestedinnovationmorefavorablythandoesthepopulationoffirmsatlarge.Moreover,asthenumberofadopterswithinthenetworkincreases,theadoptionmaygraduallycometoseemnormativelyappropriate.Conse-quently,anincreasingnumberofboardinterlockswithprioradoptersprovidesvaluableinformationabouttheperceivedefficiencyofapractice.Inad-dition,moreinterlockswithpreviousadoptersmaysuggesttoafirmthatthepracticeisgaininglegiti-macy,evenifitisstillcontestedbysomeactorsintheinstitutionalenvironment.Consequently,wesuggestthefollowinghypothesis:
Hypothesis4.Thenumberofboardinterlockswithprioradoptersofaninstitutionallycon-testedpracticeincreasesthelikelihoodthatafirmwilladoptthatsamepractice.
Structuralequivalence.Beyondnetworkties,othersocialprocessesfacilitatethediffusionofpracticesthroughoutaninstitutionalenvironment.Severalstudieshaveindicatedthattheinfluenceofstructuralequivalencemaybeevenstrongerthantheinfluenceofnetworktieswhenitcomestotheadoptionofnewpoliciesorpractices(Burt,1987;Galaskiewicz&Burt,1991).Structuralequivalenceexplainsinnovationadoptionasaconsequenceofimitatingcompetitorswhooccupyasimilarroleinanenvironment.Asthenumberofadoptersgrows,afirmwiththesamestatusastheseadoptersislikelytofollowsuitinordertoavoidalossofreputationforbeingamongthenonadopters(Burt,1987;Galaskiewicz&Burt,1991).Withrespecttouncontestedinnovations,somestudieshaveshownevidencefortheimitationofcompetitorswithinanindustry(e.g.,Fligstein,1991;Haveman,1993).Thistypeofimitationmayalsospreadinstitu-tionallycontestedpractices.AhmadjianandRob-inson(2001)describedthiseffectwithrespecttoillegitimatedownsizingdecisionsbyJapanesefirmsthatwereforcedbyaperformancecrisis.WhenacomparativelysmallnumberofJapanesefirmsdecidedtodownsize,theyincurredhighso-cialcostsintheformofnegativepressreportsandlossofreputationwiththeiremployees.However,asmorefirmsinthepopulationdownsized,indi-vidualfirmswerelesslikelytobesingledoutfor
criticism.Thus,lateradoptersenjoyeda“safetyinnumbers”effect.
Withtheadoptiondecision,firmsfaceatrade-offbetweenexpectedefficiencygainsandthereputa-tionlossthatresultsfromhostilestakeholderreac-tions.Becauseanincreasingnumberofprioradopt-erswithinanorganization’sprimaryinstitutionalcontextmaycausehostilereactiontobelessfierceandlesslikely,thefirmisbetterabletoachievetheexpectedefficiencygainsandminimizethecostsofillegitimacy.Consequently,wearguethatprioradoptionofinstitutionallycontestedpracticeswithinafirm’sinstitutionalcontextprovidesasafetyinnumberseffectthathelpsotherfirmstofollowsuit.However,whenitcomestotheadop-tionofanovelpracticethatiscontestedintheinstitutionalcontext,thereferencegroupforstruc-turalequivalenceprocessesissomewhatambigu-ous.Withrespecttouncontestedpractices,itiswellknownthatfirmsmimicotherfirmsintheirindustry(Fligstein,1991).Whenconsideringtrans-nationaldiffusionofcontestedpractices,otherfirmsinanationaleconomymaybelogicalrefer-ents.Thislogicleadstothefollowingtwohypotheses:
Hypothesis5.Thenumberofprioradoptersofaninstitutionallycontestedpracticewithinafirm’sindustryincreasesthelikelihoodthatthefirmwillalsoadoptthepractice.
Hypothesis6.Thenumberofprioradoptersofaninstitutionallycontestedpracticeamongotherfirmswithinafirm’shomecountryin-creasesthelikelihoodthatthefirmwillalsoadoptthepractice.RegulatoryLegitimization
Regulatorylegitimacy,whichisconveyedwhenanewpracticeisinlinewithexistingrulesandlaws(North,1990),isoneofScott’s(2001)threepillarsoflegitimacy.Inadditiontofacingthepo-liticalforcesofpartiesopposingcontestedprac-tices,potentialadoptersmayfacelegalandregula-toryobstaclesthatcanimpedeadoptionrates.Inordertoadoptapracticethatistechnicallyillegal,potentialadoptersmustnotonlyfightanideologi-calwarwithopponents,butmustalsomaneuvertheirwayaroundexistinglawsandregulationstomakethepracticepossible.Theneedtofindlegalloopholestoadoptacontestedpracticelikelyex-ertsconsiderablepressureagainstadoptionoverandabovethepoliticaloppositionpresentedbyinterestgroupsfightingthespreadofthepractice.Alternatively,whenandiflawsandregulationsareamendedtopermiteasieradoptionofacon-
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testedpractice,suchlegalsanctioningislikelyto“openthefloodgates.”Advocatesforthepracticewhoseadoptionwasimpededbydetractors’reli-anceonregulationarelikelytomovequicklytotakeadvantageofthisregulatorysanctioning.Tol-bertandZucker(1983)foundstrongeffectsforchangesinlaw,butthelegalchangestheystudiedwereonesthatrequiredadoptionofnewpractices.Wearguethatwhenlegalandregulatorybarriersimpedingcontestedpracticesareremoved,thepos-itiveforcesforadoptionwillaccelerate,andrapiddiffusionwillresult.Thislogicleadstothefollow-inghypothesis:
Hypothesis7.Legalorregulatorychangesthatremovebarrierstoadoptionofaninstitution-allycontestedpracticeresultinasignificantincreaseinthelikelihoodthatafirmwilladoptthatpractice.
PioneerversusMomentumAdoption
Sofar,wehavehypothesizedthatthedecisiontoadoptacontestedpracticeisfosteredbyfourtypesofprocesses:directandindirectexposuretoprestigiousorganizationalenvironmentsinwhichthepracticeisprevalent,second-orderlearningfrompriorexperi-enceswithsimilarformsofcontestedchange,isomor-phicdiffusionprocesses,andregulatorylegitimiza-tion.Althoughallfourprocessesmayinfluencetheadoptiondecisionofafirm,theimportanceoftheseprocessesislikelytochangeovertime.Specifically,earlyadoptiondecisionsaremorelikelytodependonthefirsttwoprocesses,whichprovidefirmswiththeopportunitytolearnaboutnewpracticesandtheabilitytoputthisinformationintopractice,whereaslateradoptiondecisionsaremorelikelytobebasedonlearningconduitswithinthehomeinstitutionalenvironment.
Forpioneeradopters,thehomeinstitutionalen-vironmentprovideslittleornoopportunitytolearnaboutpracticesthatviolatethepillarsoflegitimacyinthisenvironment.However,learningconduitsconnectingafirmwithprioradopterscanbeestab-lishedthroughaffiliationsandexchangerelation-shipswithprestigiousinstitutionalenvironments.Asaconsequence,organizationsembeddedinpres-tigiousenvironmentsareinafavoredposition,rel-ativetootherorganizationsinthesamehomein-stitutionalenvironment,tobeearlymoversinadoptinginstitutionallycontestedpractices.Likeaffiliationsandexchangerelationships,CEOswithgraduatebusinessdegreesmayprovideorganiza-tionsearlyaccesstolearningaboutthepositivebenefitsandlegitimacyofcontestedpracticesinotherenvironments.Thisdistinctivesourceof
earlyinformationshouldincreasethelikelihoodthatsuchorganizationswillbepioneerratherthanmomentumadopters.Likewise,priorsuccessadoptingotherinstitutionallycontestedpracticesgivesorganizationsalearningadvantagenotpos-sessedbyotherorganizationsingeneral.Becauseorganizationswithpriorsuccesshaveprovenrou-tinesforimplementinginstitutionallycontestedpractices,theyconfrontlessinternalresistancetoadoptingnewcontestedpracticesthanfirmswith-outsuchexperience.Therefore,theydonotneedtheuncertaintyreductionprovidedbyacriticalmassoflocaladopterstogivethemthecouragetoadoptinstitutionallycontestedpractices.More-over,eveninthefaceofinternalresistance,theexperiencedfirmshaveroutinesthatallowthemtonavigatetheirwaythroughthesebattles.Thus,Hypothesis8.Affiliationsandexchangerela-tionships,CEOgraduatebusinesseducation,andpriorsuccessfuladoptionofinstitutionallycontestedpracticeshavestrongereffectsamongpioneeradoptersofinstitutionallycon-testedpracticesthanamongmomentumadopters.
Alternatively,boardinterlocksandstructuralequivalenceshouldhavestrongereffectsamonglateadoptersthanamongearlyadopters.Withre-specttoboardinterlocks,theseshouldhavemag-nifiedeffectsamonglateradoptersfortworeasons.First,pioneeradoptersarelikelytousethenetworkstructureprovidedbyboardinterlockstoactivelypromotethefurtherdisseminationandadoptionofinstitutionallycontestedpractices.Furtherpropa-gationofthesepracticeswithinotherorganizationsinthehomeinstitutionalenvironmentincreasesthemomentumoflegitimizationofthepracticeandtherebyreducestheprotestspioneeradoptersmayface.Second,earlyadoptershavesmallernetworksofprioradopterswithintheirinstitutionalenviron-mentsfromwhichtheycanlearnaboutinstitution-allycontestedpractices.Similarly,structuralequivalenceeffectsshouldbestrongestamonglateradoptersandweakestamongpioneeradopters.Aswearguedearlier,hostilityfrominstitutionalstake-holdersshouldlessenasapracticebecomesmorecommon.Moreover,anysinglefirmislesslikelytobethetargetofcontinuedcriticism.Thissafetyinnumberseffectprovidessomeprotectiontomo-mentumadoptersnotavailabletopioneeradopters.Thus,wearguethatboardinterlocksandprioradoptersinanorganization’shomeinstitutionalenvironment(e.g.,industryandcountry)shouldhavemorepronouncedeffectsamonglateadopters.Statedformally,
40AcademyofManagementJournalFebruary
Hypothesis9.Thenumberofboardinterlockswithprioradoptersandthenumberofprioradopterswithinanorganization’sindustryandhomecountryhavestrongereffectsamonglateadoptersthanamongpioneeradopters.TheEmpiricalContext
Beforemovingtoadiscussionofthemethodsusedtoexaminethehypothesesandtheempiricalfindings,wefirstreviewimportantissuesaboutthecontextinwhichourstudywasconducted.Tostudytheadoptionanddiffusionofinstitutionallycontestedpractices,weexaminedtheemergenceofstock-basedexecutivepayinGermany.Toexplainthecontestednatureofstock-basedpay,wetakeacloserlookattheinstitutionalcontextofstockop-tionadoptioninGermany.Ashortcasestudyfur-therillustratestheproblemsencounteredbyoneofthefirstadoptersofstock-basedpayinGermany.Culturalvaluesandbeliefsinfluencethedesignofcorporatepolicies,includingcompensationpractices(Gomez-Mejia&Balkin,1987).TheGer-mancorporatecontextrepresentsaninstitutionalenvironmentinwhichstock-basedformsofexecu-tivecompensationhavehistoricallybeenconstruedasantitheticaltothedominantandtaken-for-grantedcorporategovernancelogic.Indeed,thein-troductionofstock-basedpayinGermanyseemstohaveviolatedthethreepillarsoflegitimacyes-pousedbyScott(2001).However,althoughGer-manyistheprimaryinstitutionalenvironmentforGermanfirms,manyofthesefirmsaresimulta-neouslyembeddedinotherinstitutionalenviron-ments.Forinstance,allGermanmultinationalsare,throughtheirforeignsubsidiaries,embeddedinothernationalinstitutionalenvironmentsinwhichtheirforeignofficesarelocated(Kostova&Roth,2002).Additionally,theinstitutionallogicforgov-ernancemechanismssuchasstockoptionpayvar-ieswidelyacrossthesediverseinstitutionalenvi-ronments(Aguilera&Jackson,2003).WeexaminehowGermanfirmsgainexposuretostockoptionpaypracticesandcometoadopttheseformsofcompensation,whichhavefacedstrongoppositioninGermany.OurdiscussionisbuiltaroundScott’sthreepillarsoflegitimacy.
Scott’sfirstpillarreferstonormativelegitimacy.Stock-basedincentivesarenotinlinewithpreva-lentGermannormsandvalues.Thecorporategov-ernancesysteminGermanyhasanegalitarianfocusonprotectingtheinterestsofseveralclassesofstakeholders,includingemployees,customers,banks,andsocietyatlarge.Perhapsnothingillus-tratestheegalitariansystemmorethantheprinci-pleofcodetermination:thesupervisoryboard(theGermanequivalentofaboardofdirectors)ofalargepubliclyheldGermanfirmisrequiredtohavehalfofitsmembershipelectedbyownersandhalfelectedbylabor(Aguilera&Jackson,2003;Gedaj-lovic&Shapiro,1998).Inaddition,andinstarkcontrasttoU.S.managers,Germanmanagershis-toricallyreceiveverylittleperformance-basedpay.Traditionally,thelargestportionofexecutivecom-pensationisfixedanddependsmostlyonfactorssuchasfirmsizeandsales.TherelativelysmallvariablecompensationofGermanmanagersde-pendslargelyonaccountingfigureslikenetprofit(Evers,2001).
Upuntiltheearly1990s,executivestock-basedpaywasanunpracticedconceptinGermany.Be-causepowerfulownerswereabletomonitorman-agementeffectively(Tuschke&Sanders,2003),aprimaryintentofstock-basedpay—thealignmentofinterestsbetweenmanagementandowners—mayhavebeenunnecessary(Roe,1993).Moreover,aboostincompensationthroughcompanystockandstockoptionswasnotinlinewiththeegalitar-ian,stakeholder-orientedgovernancesysteminGermany.In1996,Daimler-BenzandDeutscheBank,twoGermanpowerhousecompanies,de-cidedtoofferstock-basedincentivestotheirman-agers(asmallercompanylistedontheGermanDAXexchangehadadoptedstock-basedpaysev-eralyearsearlier,buttheeventwentlargelyunno-ticed).Asnewsofthesedecisionsdisseminated,Daimler-BenzandDeutscheBankwereincreas-inglycriticizedbypowerfulshareholders,repre-sentativesofworkercouncils,themedia,politi-cians,andthetopmanagementteamsofotherfirms(Bernhardt&Witt,1997;Eglau,1996;Maak&Thilemann,1996).Forinstance,oneperiodicalstatedthis:“Thegreedinesscausedbystockop-tionswill—ifnotlimitedthroughlegislation—changeourfundamentalorientationinbusiness:moreconcernsaboutshort-termrentsandlessstaminafordifficultactivitieswithhighsunkcostsandtemporaryset-backs”(Eglau,1996:22)Othercriticsofstock-basedincentivesfearedthattheem-phasisonstockpricewouldenticemanagerstopromotecost-cuttingprogramsandlayoffs(Frank-furterAllgemeineZeitung,1997a;SueddeutscheZeitung,1998).Perhapsnothingdemonstratesthecontestednatureoftheintroductionofstock-basedpaymorethanthefactthatearlyadopters(e.g.,DeutscheBank,Daimler)weresuedforviolatingshareholders’rights(FrankfurterAllgemeineZei-tung,1997b,2000)!
Scott’s(2001)secondpillaroflegitimacyisreg-ulation.Intheconflictbetweenkeyproponentsofandopponentstostock-basedcompensation,regu-lationplayedanimportantrole.Pioneeradoptersof
2007SandersandTuschke41
stock-basedpayhadtofindlegalloopholesen-ablingthemtoofferstockoptionpay.Priorto1998,underGermanlawcompanieswerenotallowedtoprovidestockoptionstotheirtopmanagers.How-ever,earlyadoptersfoundwaystocircumventex-istinglaws;theyfoundalegalloopholethatallowedfortheuseofaninstrumentthatresembledaconvertibledebenture(the“Wandelschuldver-schreibung”).Afewcompanieschosetousethislegalinstrument,whichabidedwiththeletterofthelawprohibitingstock-basedcompensationfortopmanagersbutviolatedthespiritofthatregulation.
Despitetheuseoflegalmeanstocreatestock-basedpay,importantstakeholdersstillvehementlyprotested.Legislatorsconsideredtworeactionstothegrowingcontroversyoverstock-basedincentivecompensation:closingthelegalloopholesandpro-hibitinganyformofstock-basedpay,orlegalizingitinsomeform.In1998,thegovernmentoptedforthelatter.Animportantfactorthatfueledthechangeinlawwasthethrivingneweconomyandtheperceivedneedtoaccommodatenewcompa-nies.Agrowingnumberofstart-upfirmsinnewindustriespromisedenormouseconomicwealth.Thesefirmsarguedthattheyneededstock-basedpaytoattractexperiencedmanagersfrommorees-tablishedindustriesandthebrightesttalentfromuniversities.Asthesefirmsoperatedinanenviron-mentvirtuallydevoidofunioninvolvement,theyweresubjecttomuchlesspressureforconformity(Greenwood&Hinings,1996)andmuchlesscriti-cismaboutexecutivepaypractices.
Figure1illustratesthediffusionofstock-basedpayamongthefirmsinoursamplebetween1990and2000.Onthefaceofit,legalizingstock-basedpayhelpedtolessenthecounternormativenatureofstockoptions.However,thechangeinnormsandvalueswasmostlyconfinedtothosewhoprofitedfromstock-basedincentives—themembersofthecorporateelitewhowereabletorealizesubstantialbenefitsfromtheadoptionofstock-basedpay.Therefore,membersofthecorporateelitehadaparticularinterestinpromotingtheuseandaccep-tanceofstock-basedpayinGermany.Anothergroupthatadvocatedtheadoptionofstock-basedpaywasmanagementconsultantswhoofferedtheirassistanceindesigningincentiveplans.Withagrowingnumberofadopters,executivestock-basedpaygainedinnormativelegitimacyamongmanag-ersandconsultants.Theadoptersofstock-basedpay,however,operatedinenvironmentsthatcon-sistedofmultiplegroupswithcontradictoryde-mands(D’Aunnoetal.,1991).Inaddition,theprac-ticeofofferingstock-basedpaytoexecutivesremainedstronglycontestedbyotherstakeholders.Inattemptstopacifytheresistanceofworkersandunions,somefirms—suchasthecarmanufacturerVolkswagen—offeredsmallamountsofstock-basedpaytoalltheiremployees(Sturm,1997).WithrespecttoScott’s(2001)thirdpillarofle-gitimacy,stock-basedincentivesstillappeartohavelimitedcultural-cognitivelegitimacy.Manystakeholdersappeartostillnotunderstandhowthiscompensationmechanismissupposedtowork.Althoughstock-basedpayhasnowbeenadoptedbyasubstantialnumberofthelargestGer-mancompanies(62percentbytheendof2004),itstillfuelsawarofwordsamongvariousparties.Manycriticsevendoubtwhetherstock-basedin-centivesareinthebestinterestofshareholders.ArecentsurveyfindsthatmanyGermansbelievestockoptionprogramsincreasemanagerialincomewhiledamagingshareholders’wealth,thattheyhavenopositiveeffectonmanagements’motiva-tion,andthattheydonotreducepotentialagencyconflicts(Kroeberle-Schmid,2004).TheGermanFederalCourtofJusticeevendecidedthatfirmsshouldnotbeallowedtograntstockoptionstomembersoftheirsupervisoryboards.TheCourt
FIGURE1
CumulativeFrequencyofStockOptionAdoptionamongDAX100Firms
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wasconcernedthatsupervisionmightbelessvigi-lantifbothmembersofthesupervisoryboardandthetopmanagementteamofafirmprofitfromrisingstockprices.
AsummaryoftheideologicalbattleovertheuseofstockoptionsispresentedinTable1,wherewereportasamplingofthepublicpositionstakenbyvariousactorsfromseveralsegmentsoftheGermancorporateenvironment.WenextturntoadeeperexaminationoftheexperienceofDaimler-Benzduringthatfirm’sintroductionofexecutivestock-basedpay.
TheCaseofDaimler-Benz
In1996,Daimler-Benz(orDaimler;today,Daim-lerChrysler)wasamongthefirstGermancompa-niestoadoptstock-basedpay.Thecompanywasinturmoil,havingsufferedaDM6bnlossfor1995(equivalenttoabout$4.2billionat1995exchangerates),whichledtoachangeofCEO.Ju¨rgenSchrempp,Daimler’snewCEO,justifiedtheintro-ductionofstock-basedpayasaninternationallyacceptedandimportantincentiveformanagerstoincreaseshareholderwealth.Owingtolegalrestric-tionsatthetime,Schremppproposedusingafi-nancialinstrumenttocreatepseudostockoptions(aninstrumentsimilartoconvertibledebentures)andofferingtheseto178ofDaimler’stopmanagers.Externally,criticsviewedtheintroductionofstock-basedpayasaningeniouswaytoincreasethecom-pensationofDaimler’stopmanagement(DerSpie-gel,1997)andasanexpressionofaone-sidedorientationtowardtheinterestsofshareholders(Spegel&Bierach,1996).Daimler’ssupervisoryboardwasconflictedonthisidea,andsomemem-bersoftheboardheavilycriticizedthisplan,whileotherssupportedit(Munchau,1996).
Thesupervisoryboardeventuallyvotednar-rowlyinfavoroftheplan,passingthemeasure11votesto9.Thefightforshareholders’voteswasaidedbyDeutscheBank,whichwasDaimler’slarg-estshareholderatthattime.DeutscheBanknotonlyownedmuchofDaimler-BenzandhadboardnetworktiestoDaimler,butalso,asitturnedout,itwasalsopreparingtoaskitsshareholdersforsim-ilarapprovalafewweekslater.
Daimler-Benzcontinuedtodrawcriticismforitsoptionplanafteritwasimplemented(FrankfurterAllgemeineZeitung,1997a).Asaconsequenceofsomeofthesecriticisms,Daimlerredesigneditsoptionplanin1997tobroadenparticipationtomoremanagersandtoimposeperformancehur-dles.Yetthecriticismdidnotabate;somenowcriticizedthespreadingofoptionstotoomanymanagers,andothersstillobjectedonphilosophi-
calgrounds,arguingthatoptionsmotivatedshort-termspeculation(FrankfurterAllgemeineZeitung,1997a).PerhapsthemostpronouncedindicationthattheplanwascontestedwasasuitagainstDaimlerchargingthattheplanconstituted“unlaw-fulenrichmentatthecostoftheshareholders.”OppositiontothestockoptionplancontinuedatDaimler’sannualmeetingin1998.ChristianStrenger,thechairmanofalargeGermaninvest-mentcompanywithasizeablestakeinthecom-pany,wasoneofthekeyvoicesagainstlargeamountsofstockoptions(Israel,1998).However,in1998Daimlerfinallywonitscourtbattleovertheplan.
Inthefallof1998,DaimlerandChryslermerged.Almostovernight,thecompany’ssharepriceandthevalueofmanagement’soptionsgainedenor-mously.WhereasChrysler’smanagersprofitedfromrisingshareprices,Daimler’sexecutiveshadonlyverymodestamountsofstockoptions,andthesewerestillheldupinlitigation(Burgmaier,1998).DaimlerChryslerreintroducedastockoptionplaninyear2000.Thisagainwaschallengedincourt.Evenatthisstageofoptiondiffusion,thechairmanofaprominentGermaninvestmentcom-panycriticizedthereintroductionofstockoptionsas“arelapseintothestoneageofstock-basedpay”(FrankfurterAllgemeineZeitung,1999).Finally,in2004,DaimlerChryslerannouncedplanstodropitscontestedstockoptionplaninfavorofotherpay-mentschemes(Bu¨schemann,2004).
Ananalysisofstatements(seeTable1)madeovertheyears1996–98bywide-rangingcorporatecon-stituentsinGermany,andespeciallyconstituentsofDaimler-Benz,revealsthatstock-basedexecutivepaywasaninstitutionallycontestedpracticeinGermanyduringtheperiodofstudy.Indeed,stock-basedpayseemstohaveviolatedScott’s(2001)threepillarsoflegitimacy;yetthepracticeemergedanddiffused.Thus,weusedtheintroductionofstockoptionpayinGermanyasacontextinwhichtostudyourtheoryofhowinstitutionallycontestedpracticesemergeanddiffuse.
METHODS
DataandSample
WecollecteddataonthestatusofallfirmslistedintheDAX100withrespecttostock-basedpayforthefive-yearperiodfrom1996through2000;theresultwascompletedataforfirms.Firmfinan-cialdatawerecollectedfromannualreportsandfromtheFrankfurterAllgemeineZeitung.Detailedinformationonexecutivestock-basedincentiveplansisdifficulttoobtainformanyGermanfirms
2007SandersandTuschke43
TABLE1
OppositiontoStock-BasedIncentives1996–1998:QuotesfromRepresentativeGermanConstituents
PersonandPosition
1996
BernhardWurl,tradeunionofficial,IGMetall
KlausZwickel,tradeunionpresident
Anonymous,tradeunionofficialJu¨rgenSchrempp,CEOofDaimlerBenz
MartinPeltzer,prominentattorney
Statement
“Shareoptionsmayruncountertoatradeunion’sinterestsbecausetheychangethecompany’scorporateobjectives—andcouldmeanjobcuts.”(Munchau,1996:23)
“Shareoptionsmakethemanagementfocustoomuchonshareprice.”(Munchau,1996:23)OnthestockoptionplanofDaimler:“[Thisisa]bonusforlayingoffemployees.”(Spegel&Bierach,1996:92)
Notedthatthediscussiononshareholderwealthgenerallyhadlapsedinto:“aphantomdiscussionstampedbyclassstruggle,”(FrankfurterAllgemeineZeitung,1996:21)
“Thereisnoclearparallelismbetweenhighprofitsfromstock-basedpayandtopmanagement’sefforts.FamousexampleslikeJackWelchandRobertGoiuzeta,whoenrichedthemselvesaswellastheirshareholders,areopposedbyexamplesoflessimpressivetopmanagerswhojustbenefitedfromwindfallprofits.”(BlickdurchdieWirtschaft:108:9)
“Thestock-basedincentivesschemesthatarecurrentlyintroducedinGermancompaniesaredesignedinawaythatisnotappropriateforincreasingshareholderwealth....Itwillbeutmostdifficulttodesignstock-basedpayinawaythathelpstoreduceagencycosts.”(Menichetti,1996:1692)
“Manypeoplefearthattopmanagersfindwaysandmeanstoenrichthemselvesintimesofrisingstockpricesandfindexcusesfornegative[shareprice]developments....All
experienceswiththestockmarketpointtothefactthatsomemanagerswilltrytoblandishthecompanyinordertoincreasethestockpricebeforetheyconverttheiroptionintocash.”(Spegel&Bierach,1996:92)“This[introductionofstockoptionpay]wasrevolutionaryinacountrywherewage
differentialsbetweentopmanagementandassemblylineworkersareamongthelowestintheworldandthereisagreatdealofpublicskepticismaboutperformance-relatedpay.”(FinancialTimes,1997)
“Often,stockbasedincentivesaredesignedbadly,areopenformanipulation,anddon’tcontributetothefirm’sprofit.”(Winter,1997:K3)[Ontyingcompensationtofirmstockprice]:“Itisn’taverylogicalwaytoencourageemployees.”(Rose&Marshall,1998:6)
OnthestockoptionprogramofVolkswagen:“Thestockoptionprogramwasinitiallydesignedtoincludeonlythetopmanagementteam.Butthenthework’scouncilstartedcausingproblems.Itdemanded,thattheprogrambeofferedtoallemployees,otherwiseitwoulddenyitsapproval.Thetopmanagementteamconceded,butonlyhalf-heartedly.Theworkforcecangetamaximumof10stockoptionswhilemanagerscanget100.Thetopmanagementteamtreatsitselfto1000options.”(Sturm,1997:25)
“Alongwiththediscussiononshareholdervaluethatfocusesonincreasingshareholders’wealth,theinterestsofworkersaremoreandmorepushedtothebackground.”(SueddeutscheZeitung,1997)“Wedon’tmind[thecompetitor’s]effortstoattractexcellentmanagerswiththehelpofastock-optionprogram—[We’re]justnotinterestedinthetypeofmanagersthatareattractedbystock-basedpay.”
“It’stheEuropeanmentality.Theenrichmentofanindividual[throughstockoptions]onthebacksoftheworkersisconsideredexploitation.”(Steinmetz&White,1998:B1)“Ifemployerstellworkerstheyshouldrelinquishwageincreases,wearenotreadyforstockoptions.”(Rose&Marshall,1998:6)
“Mostoften—andIthinkrightfully—itispointedoutthatstockpricesarenotanappropriateindicatorformanagement’sperformance....Normally,thedesignofstock-basedpay
providesrewardsforamanagerialperformancethatisbelowaverage.”(Bernhardt,1998:5)Onthestock-basedpayofDaimlerChrysler’sCEOs:“Theonlyoneswhodeservesuchsumsareentrepreneurs.Noexecutivedeservesthatmuchmoney.”(Steinmetz&White,1998:B1)“Ifstockpricedevelopmentbecomesthecriterionformanagement’sactions,nooneshouldbesurprisedthatmanagerspreferlayoffsoverhiring.Stockmarketsrewardcostcutting.Therefore,stock-basedincentivescangivewrongsignals.”(Su¨eddeutscheZeitung,1998:4)
KlausMenichetti,professorof
management
HubertSpegel&BarbaraBierach,journalists
1997
RobertKoehler,CEOofSGLCarbon
StefanWinter,InstituteforManagement,HumboldtUniversity
JochenKlusman,analyst,BankJuliusBaer
NorbertSturm,journalist
HansSchneider,professorofpersonnelmanagement1998
Seniormanagerofanautomobilemanufacturingcompany.aJoergPluta,directorfortheGermanShareholderProtectionAssociation
KlausEilrich,spokesmanforGermany’sbiggesttradeunionWolfgangBernhardt,managementconsultantEkkehardWenger,professorofmanagementEditorial,Su¨ddeutscheZeitung
aThisexecutivespokeontheconditionofanonymity.
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becausedisclosurerequirementsareappreciablydifferentfromthoseintheUnitedStates.Forin-stance,until2005,Germanfirmswerenotrequiredtoreportthenumberofstockoptionsgrantedtotopexecutives.Inordertocompileinformationonstock-basedincentiveplans,wefollowedtwostrat-egies.First,wecontactedtheexecutiveinchargeofhumanresourcesineveryfirminthesampleandinquiredabouttheadoptionofstock-basedincen-tivesystems.Second,weobtainedtheproprietaryresearchreportofalargeconsultingcompanythatdetailedtheadoptionofstock-basedincentiveplansamonglargeGermanfirms.Comparingthedatacollectedbyeachmethod,wefoundonlyonefirmforwhichthedatawerecontradictory.Inthiscase,wecontactedthefirmasecondtimeandclarifiedthediscrepancy.Dataonownershipcon-centrationwasobtainedfromAGuidetoCapitalLinksinGermanCompanies(editedbytheCom-merzbank,aGermancommercialbank),abookthatcontainsinformationonownershipofGermancompanies.Detailsabouttheaccountingconven-tionsusedbyeachofthesampledfirmswerecol-lectedfromtheirannualreports.
WeobtaineddataonAmericanDepositaryRe-ceiptsbysearchingtheEdgardatabaseoftheU.S.SecuritiesandExchangeCommission.WeobtaineddataonCEOeducationfromtheMunzingerArchiv,whichisa“who’swho”forGermanbusinessexec-utives.Tocompletemissingdata,wesearchedonthecompanies’Websitesandcontactedtheinves-torrelationsdepartmentsoftherespectivefirms.Wecompileddataonboardinterlocksbyobtainingthenamesofallboardmembers(managementboardandsupervisoryboardboth)fromtheannualreportspublishedbyeachofthefirmsforthepe-riodcoveredinourstudy.Measures
Inthissection,wedescribeallofthevariablesandhowtheyweremeasured.Weusedalaggedstructuretotestourhypotheses;consequently,allindependentandcontrolvariablesweremeasuredattimet–1.
Dependentandindependentvariables.Asin-dicatedabove,westudiedtheadoptionofinstitu-tionallycontestedpracticeswithinthecontextoftheintroductionanddiffusionofstock-basedexec-utivepayinGermany.Weusedanindicatorvari-able,stockoptionadoption,todesignatewhetherafirmhadadoptedastock-basedincentiveplan.Bothstockoptionplansandpseudostockincentiveplanswerecodedasstock-basedincentiveplans.Ifafirmhadastock-basedincentiveplanduringtheyear,thevariablewascoded1and0otherwise.OtherstudiesofcorporategovernancereforminGermanyhaveusedthissamemeasure(Fiss&Zajac,2004;Tuschke&Sanders,2003).TotestHy-potheses8and9,wecreatedanewdependentvariabletoindicatewhetherafirmwasapioneeradopter,momentumadopter,ornonadopterofstockoptions.Wedefinedpioneeradoptersasfirmsthatadoptedstockoptionpaybeforeitwasformallylegalizedin1998.Theseearlyadoptersobviouslyfacedgreaterinstitutionalandlegalob-staclesthanthosewhoadoptedafterthechangeinlaw.Pioneeradopterswerecodedas1,lateadopt-ersas2,andnonadoptersas0(thereasonforthiscodingisdiscussedintheanalysissection).Be-causefirmsadoptingduring1998wereawareoftheongoinglegalproceedings,wereasonedthattheyhadbenefitsofforeknowledgethatthoseinprioryearsdidnothaveandthuswereatlessriskoflegalcontest.Sensitivityanalysisrevealedthatusing1999asthecutoffpointresultedinminimaldiffer-encesinthemodels.
ToassesswhetheraGermanDAX100firmhadassociationsorexchangerelationshipswithapres-tigiousinstitutionalcontextinwhichstockoptionpaywaslegitimate,weusedtwomeasuresindicat-ingthestrengthoftiesbetweenGermanfirmsandtheUnitedStates.ThefirstvariablewecreatedindicatedwhetheraGermanfirmhadsecuritieslistedintheUnitedStates;thevariablewascoded1ifthefirmhadAmericanDepositaryReceipts(ADRs),0otherwise.AnADRisareceiptforthesharesofaforeign-basedcompanyheldbyaU.S.bankthatentitlestheshareholdertoalldividendsandcapitalgainsoftheunderlyingstock.ADRstradesimilarlytostocksonU.S.exchangesandprovideawayforAmericanstoinvestinforeign-basedcompaniesbybuyingtheirsharesintheUnitedStatesinsteadofthroughanoverseasex-change.Likewise,ADRsprovideamechanismforforeigncompaniestoaccesstheU.S.equitymarket.BylistingADRsintheUnitedStates,foreignfirmssubmitthemselvestosomescrutinybytheSecuri-tiesandExchangeCommission(SEC)andthepo-tentialoversightoflargeU.S.investorswhomaybepurchasersoftheADRs.
OursecondmeasureindicatingwhetherGermanDAXfirmswerelinkedtotheUnitedStatesas-sessedthedegreetowhichfirmsweredependentontheUnitedStatesforsales.Wecalculatedthisvariableasthenaturallogarithmofafirm’sU.S.sales.Weattemptedtoreplacethissimplemeasurewithamorerobustmeasureoforganizationalem-beddednessintheUnitedStates,suchasthenum-berofemployeesorofficeslocatedthere.However,thesedatawereavailableonlyforaportionofour
2007SandersandTuschke45
sample,sosamplesizeproblemswouldhavere-sultedifwehadusedthosemeasures.
Todeterminewhetheranexecutivehadagradu-atedegreeinbusiness,wesearchedtheMunzingerArchivandcompanybiographiesoftopexecutives.Wecreatedanindicatorvariable,graduatebusinesseducation,thatwascoded1ifafirm’sCEOpos-sessedagraduatebusinesseducationand0other-wise.Weattemptedtocreateafiner-grainedmea-sureandcollecteddataonthesourceofCEOs’businesseducation.AgraduatedegreefromaneliteU.S.orEuropeanbusinessschoolmayprovidemoreextensivetrainingregardingbestpracticesamongleaderU.S.firms.Unfortunately,wecouldnotreliablypartitionourdataastothesourceofallCEOs’degrees.Thus,asapracticalmatter,therewasverylittlevarianceonthisdimension,andsensitivityanalysisprovedthattheresultsdidnotimprovewhenweusedthisfiner-grainedmeasure.Toindicatepreviousadoptionofanotherinstitu-tionallycontestedpracticewithinthesamegeneralpolicyarea,wecreatedavariabletoindicatewhetherafirmhadabandonedtheGermanmethodofauditedaccountingprocedures,knownastheHandelsgesetzbuch(HGB),andadoptedthemoretransparentaccountingproceduresoutlinedinei-thertheU.S.generallyacceptedaccountingprinci-ples(GAAP)ortheinternationalaccountingstan-dards(IAS).FissandZajac(2004)reportedthattheadoptionofsuchstandardswasanAnglo-Ameri-cangovernancereformthatrequiredtheabandon-mentoflong-heldGermanpracticesandthatmanypartiesinGermanyopposedit.Therefore,wetreatedanearlyadoptionandcontinueduseofGAAPorIASasasuccessfulexperiencewithaninstitutionallycontestedpracticethatmighthavesmoothedthewayforsubsequentadoptionofstock-basedincentives.Wecodedallfirms’ac-countingconventionsusingindicatorvariables.IfthefirmhadadoptedGAAPorIASaccountingconventionsduringayear,thevariableGAAP/IASwascoded1;thevariablewascoded0ifthefirm’sconventionwasHGB.
Wecreatedtwovariablestocapturehowfirmswerelocatedwithinthesocialstructureofboardinterlocks.Thesevariablesindicatedtheinterlocksbetweenafocalfirmandotherfirmsthathadpre-viouslyadoptedstock-basedcompensation.Thefirstofthese,sentinterlocks,wasthenumberofboardinterlocksinvolvingthefocalfirm’sCEOorboardchairbeingonthesupervisoryboardofan-otherfirmthathadadoptedstock-basedpay.Thesecond,receivedinterlocks,wasthenumberofboardinterlocksinwhichthefocalfirmhadout-sidesupervisoryboardmembersfromfirmsthathadpreviouslyadoptedstock-basedpay.Sentandreceivedtieswerebothdirectionaltiescreatedbypeoplewhowereprincipallyaffiliatedwithoneofthetwofirmstheyconnected.Toensurethequalityofourdata,weusedcomputerizedroutinesandalsocheckedthedataagainstthefirms’annualreportsbyhand.Becauseoftheskeweddistribu-tionofthenumberofinterlocksbyfirm,themea-suresusedintheanalysesforallinterlocksarethenaturallogsofthenumberofinterlocksplusunity;thisprocedureallowedvalidvaluesforfirmswithzerointerlocks(Davis,1991).
Fortestsofstructuralequivalence,weusedtwomeasures.First,wecreatedthemeasureindustryadoptions,whichwasthenumberoffirmswithinthesamegeneralindustryasafocalfirmthathadpreviouslyadoptedstock-basedpay.WeusedthetenindustrygroupsdefinedbytheDeutscheBoerse,anequivalentoftheSECintheUnitedStates.Oursecondindicatorofstructuralequiva-lence,Germanadoptions,wasmeasuredasthenumberofprioradopterswithintheDAX100.Fortestsofregulatorylegitimization,weusedthechangeinGermancorporatelawin1998asanindicationthatthegovernmentnowsanctionedstockoptionpay.Priorto1998,firmsusedlegalmaneuverstocircumventlawsprohibitingstock-basedpay.Wecreatedadummyvariable,prere-form,coded1forayearpriorto1998and0other-wise.Asexplainedbelow,wealsousedthisvariabletoexecutethetestsforpioneerversusmo-mentumadopters.
Controlvariables.Weincludedseveralcontrolvariablestoaccountforalternativeexplanations.First,weincludedacontrolforfirmsize(thenat-urallogarithmoffirmsales).AsintheUnitedStates,firmsizeaffectshowGermanexecutivesarepaid,andwemightexpectlargerfirmstobemorelikelytoadoptstockoptionpayinGermany.Weincludedacontrolforfirmage(log-transformed)becausefirmsbecomemoreinertastheyage,andthismayinhibittheadoptionofgovernancere-forms.Priorperformancelevelscouldinfluencegovernancereformbecauselow-performingfirmsmayencountermorepressuretoadoptnewgover-nanceforms.Therefore,weincludedacontrolforprioryearROAinthemodels.
Theadoptionofstockoptionpaymaybedrivenbyagencyandpowerrelationshipswithinthefirm.Thus,weincludedacontrolforownershipconcen-tration.Wecalculatedownershipconcentrationasthepercentageofsharesheldinblocksof5percentormore.GedaljovichandShapiro(1998)followedasimilarapproach.Theyusedthesamedatasourcebutcalculatedthepercentageofafirm’ssharesoutstandingheldbythelargestowner.Ourresultswerenotsensitivetowhetherweusedtotalown-
46AcademyofManagementJournalFebruary
ershipconcentrationof5percentownersorjustthelargestshareholder.Wealsotestedforthesensitiv-ityofthetypeofownershipbysegmentingowner-shipintocategories(e.g.,bankownership,familyownership,governmentownership)usingtheper-centagemeasuredescribedabove.However,thissegmentationdidnotimprovethefitofthemodel,andtheresultsforourindependentvariableswerenotsensitivetocontrolsforthetypeofownership.Inadditiontothetheorizedeffectswehypothe-sized,interlockscanaffectdiffusioninotherwaysaswell.Themorefirm-to-firmlinksafirmhas,themorecentralitissaidtobeinasocialstructure.Centralitywithinasocialstructureresultsinbothgreaterlevelsofsocialcapitalandmoreabundantaccesstoinformationflowswithinthesocialnet-work(Useem,1982).Centrallylocatedfirmshavetheopportunitytogathermoreinformationthanlesscentrallylocatedfirmsdoand,consequently,theyareabletorespondtoenvironmentalshiftsmorerapidlythanfirmslackingcentrality(Davis,1991).Thus,becauseitmayaffectthelikelihoodofadoptinginstitutionallycontestedpractices,wein-cludedcentralityasacontrol,measuringitasthetotalnumberofboardinterlocksafirmhadwithallotherDAXfirms(Davis,1991).
Wealsocontrolledforpossibleindustrydiffer-ences.Todoso,wecreatedtendummyvariablestobroadlyindicateindustry,usingcategoriesandin-dustrymembershipasdefinedbytheDeutscheBoerse.Intheanalyses,theutilitiesandtelecom-municationssector(industrygroup10)isthehold-outgroup.Toconservespace,wedonotshowtheindustrydummyvariablesinthetables,buttheywereincludedintheunderlyinganalyses.Analyses
Wemodeledstock-basedincentiveprogramadoptionusingdiscrete-timeeventhistoryanalysis(Allison,1984).Theuseofdiscrete-timeanalysisallowsobservationofthesameorganizationsatmultipleintervalsandpooledtimeseriesdatathroughtheestimationoflogitmodelsofdichoto-mousoutcomes.Weestimatedthesemodelsintwoways.First,weestimatedabaselinemodelofthehazardofthestock-basedincentiveprogramadop-tioninanyoftheobservedyears.Thismethodallowedforcovariatestovarybetweentimeperi-ods.Themodelhasthefollowingform:log[P(t)/(1–P(t)]ϭa(t)ϩb1x1ϩb2x2(t),wherelog[P(t)/(1–P(t)]representsthelogarithmicoddsofadoptionoccur-ringforaparticularorganizationatanytimet;arepresentsthebaselinehazardofadoptionoccur-ringatanytimet;b1representsthechangeinthelog-oddsforeachone-unitincreaseinatime-
invariantcovariatex1;andb2representsthechangeinthelog-oddsforeachone-unitincreaseinatime-varyingcovariatex2(t).Becausewehadmultipleobservationsperfirm,observationswerenotinde-pendentwithingroups.Consequently,weusedtheclusteroptioninSTATAtoestimaterobuststan-darderrors.ThismodelallowedustotestHypoth-eses1–7.
Thesecondwayinwhichwemodeledouranal-ysiswaswithamultinomiallogisticregression,whichrevealedtheeffectsoftheindependentvari-ablesonpioneerandmomentumadoptionsversusnoadoption.Thismodel,aspecialformofeventhistoryanalysis,isappropriatewhenadependentvariablehastwoormoreoutcomesandtheoccur-renceofeitherremovesthesubjectfromriskoftheother(Cannella&Shen,2001).Inthisstudy,theeventsofinterestwerepioneeradoptionversusmomentumadoption.Accordingtothetheorywedeveloped,theindependentvariablesmightnothavesymmetriceffectsonpioneerandmomentumadoption.Thecompeting-riskeventhistoryanaly-sisenabledustomodelearlyandlateadoptionsimultaneously,alongwiththecaseofnoadoption,whichservedasthecomparisongroup.Usingthenon-event-occurrenceobservationsasthecompar-isongroup,wecouldexpressthecompeting-risk,discrete-timeeventhistorymodelsinthefollowinglogisticregressionform(Allison,1984):log{Pi(t)/[P0(t)]}ϭaiϩb1iϫX1ϩb2iϫX2(t–1),wherePiisthelikelihoodofpioneeradoption(iϭ1)ormomentum(iϭ2);P0isthelikelihoodofnoadop-tion;aiistheintercepttermforpioneer(iϭ1)andmomentum(iϭ2)adoption;X1isavectoroftime-invariantexplanatoryvariables;b1iisavectorofestimatedcoefficientsforX1;X2isavectoroftime-varyingexplanatoryvariables;andb2iisavectorofestimatedcoefficientsforX2.Theabovemodelstatesthatthelikelihoodofeventoccurrenceattimeperiodtdependsontimeperiodtitself,thetime-invariantvectorX1,andthevaluesofX2attimeperiodt–1.Onceagain,wecontrolledforrobuststandarderrors.ThismodelallowedustotestHypotheses8and9.
RESULTS
Table2providesasummaryofthedescriptivestatistics.Itshouldbenotedthatthedescriptivestatisticssummarizepaneldataandthatmeanswerecalculatedforallfirm-yeardata.ThehighcorrelationbetweenindustryadoptionsandGer-manadoptionswaspotentiallyproblematic.Asnotedbelow,wetookprecautionsagainstthispos-sibleproblem.
Table3reportsresultsofthediscrete-timeevent
TABLE2CorrelationsandDescriptiveStatisticsas.d.0.340.160.310.32.42.88.16Ϫ.06.13.11Ϫ.01Ϫ.04Ϫ.03Ϫ.01.07.12Ϫ.10Ϫ.03.10.31.20Ϫ.07Ϫ.09.01.29.33.19.24.18.24.14.11.01Ϫ.23.56.14.20.54.50.15Ϫ.09Ϫ.12Ϫ.27Ϫ.14Ϫ.19Ϫ.16Ϫ.05Ϫ.04Ϫ.13Ϫ.21Ϫ.02.16Ϫ.07.05.26.30.34.18.25.10.12Ϫ.03.07Ϫ.11Ϫ.31.32.07.13Ϫ.08Ϫ.04.05.22Ϫ.08.08.02.04.07Ϫ.11.03.09.11Ϫ.06.04Ϫ.09Ϫ.12.05.04Ϫ.01.19Ϫ.07.18.01.01.28.24.32.13.17.11.12Ϫ.01.15Ϫ.13Ϫ.211.360.480.420.530.461.8114.110.931.3345.270.0525.680.49123456710111213141516VariableMean1.2.3.4.0.130.030.100.11StockoptionadoptionPioneeradoptersMomentumadoptersAmericandepositaryreceipts5.U.S.salesb6.Graduatebusinesseducation7.GAAP/IAS8.Receivedtiesb9.Senttiesb10.Industryadoption11.Germanadoption12.Centralityb13.Firmsize14.Firmage15.ROA16.Ownershipconcentration17.Prereform.09.16.55.38.14Ϫ.12Ϫ.22Ϫ.21.82Ϫ.08Ϫ.13Ϫ.03.04Ϫ.01Ϫ.598.470.350.230.370.271.3712.781.4215.07.030.0453.560.46Ϫ.11Ϫ.08.02Ϫ.02.03Ϫ.70.56.16Ϫ.12Ϫ.20.03.15Ϫ.13Ϫ.13.01Ϫ.09Ϫ.18Ϫ.04.04Ϫ.03.01abnϭ347.Correlationsgreaterthan0.11aresignificantat.05(two-tailedtest).Logarithm.sϪ1.74***(0.40)03.4053.93Model6Ϫ1.88(3.36)0.38(0.31)0.24(0.19)Ϫ0.58*(0.26)10.68***(3.33)Ϫ0.02*(0.01)IncludedModel72.27(3.70)Ϫ0.20(0.34)0.01(0.21)Ϫ0.90***(0.27)7.44**(2.77)Ϫ0.01†(0.00)Included1.29*(0.66)0.030.69†1.00*(0.16)(0.44)(0.51)0.46(0.50)1.75***(0.53)Ϫ0.63*(0.30)0.06†(0.04)†Ϫ1.31(0.82)Ϫ85.8572.55***nalPn))))))))o488153i42121020t........p300030005((((((d((Ol*e*e**d*kd***u**co128862l51M042520c51o......n..t400000I00SϪϪ1ϪϪfonoi))))))))t52947102p13128055........o4300020d00d((((((((leAe*d*d**u*o**†l†*rM488012cn69o54067070f......I..00009002sϪϪϪϪisylan)))))))A36906190212303.......y30003003((((((d(rleo**d*tsde***u*io856112l9HM220630c7......n.000060I1tnϪϪϪevEe)))))))))m257921923021170313i.........T30002000((((d0(((-2((elete*d*ed***u**ro551192l015c2470403....nc...sM53..300070I100iDϪϪϪfostl))))))u466041s921270......e200020R1((((((dl*ee*dd***uo085032lM822410c......n300090IϪϪϪyronstiosifnlntoososeoraioiltpcnttbneuopadiSsptoipodericpAeoidItdatyehnts/aaVpteipsomlePdsyelzigsyaisnrcasarrreticreaedaAveieraortcsnremmAnsuee.ioAittstmfetnrdrSsirrneriiOwm.GeceICFFROnIAUuenudBrrPRSeneIGP1Ϫ***73..41061Ϫ***0063..95Ϫ***6962..49041Ϫ***2668..04151Ϫ***6847..43141Ϫ2o1dito0510ora1000....hdiϽϽϾϽloeokhppppii†***ll-e**ogk*iLLTABLE32007SandersandTuschke49
historyanalysisoftheadoptionofstock-basedin-centiveplansamongGermanfirmslistedontheDAX100.Thecontrolmodelisreportedinmodel1.Firmagewasnegativeandsignificant.Contrarytoourassumptions,firmperformancewasposi-tivelyassociatedwiththeadoptionofstock-basedincentiveplans.Apossibleexplanationforthisresultisthatperformancewasanindicatoroffirmprestige.AsShererandLee(2002)showed,highprestigeenablesfirmstobedifferentandtovaryfromexistingstandards.Inkeepingwithpriorre-search,stockownershipconcentrationwasnega-tivelyassociatedwithstock-basedincentives(Tuschke&Sanders,2003).
Models2–7reporttestsoftheHypotheses1–7.Weenteredthepredictedeffectsinorderofthetheoreticalrationalepresentedinthehypothesesinmodels2–6,butinmodel7allthepredictorswereenteredsimultaneously.Inmodel2,wetestedHy-potheses1and2.Hypothesis1predictsthataffili-ationsandexchangerelationshipsembeddedwithinprestigiousinstitutionalenvironmentsinwhichapracticewastakenforgratedwouldbepositivelyassociatedwiththeadoptionofinstitu-tionallycontestedpractices.Inpartialsupportofthishypothesis,wefoundthatfirmsthathadADRsregisteredintheUnitedStatesweresignificantlymorelikelytoadoptstock-basedincentiveplans.Thiseffectwassignificantinthefullmodelaswell.However,sellingextensivelyintheUnitedStates(U.S.sales)didnothaveasignificanteffect.Hy-pothesis2,whichpredictsthatCEOgraduatebusi-nessdegreeeducationwouldincreasethelikeli-hoodoftheadoption,receivedonlymarginalsupportinthefullmodel.
Hypothesis3predictsthatpriororganizationalexperiencewithsimilarcontestedpracticeswouldbepositivelyassociatedwiththelikelihoodofadoptingothercontestedpractices.Supportingthishypothesis,wefoundthattheprioradoptionofGAAPorIASaccountingconventions(models3and7),whichimpliesanabandoningoftaken-for-grantedGermanHGBaccountingpolicies,waspos-itivelyassociatedwiththesubsequentadoptionofastock-basedincentiveplan.
Hypothesis4predictsthatboardinterlockswithprioradopterswillbepositivelyassociatedwiththeadoptionofinstitutionallycontestedpractices.Thefindingsreportedinmodels4and7indicatethatsentboardinterlocks(i.e.,afirm’sexecutiveservingontheboardofafirmwithaprioradop-tion)werepositivelyassociatedwithadoptionofstock-basedincentives.However,theeffectforre-ceivedinterlockswasnotsignificant.Sensitivityanalysisindicatedthatwhensentandreceivedin-terlockswerecombinedintoonemeasureoftotalinterlocks,theeffectwaspositiveandsignificant,butthecoefficientwassignificantlysmallerthanthecoefficientforsentties.Becausethetwomea-sureswerehighlycorrelated,wealsoconductedasensitivityanalysisinwhichweranmodelswithonlyoneoftheinterlockmeasuresatatime.Whenwedroppedreceivedinterlocks,thecoefficientforsentinterlockswasslightlylargerandstillverysignificant(pϽ.001).Whenwedroppedsentin-terlocksbutincludedreceivedinterlocks,thecoef-ficientforreceivedinterlockswaspositiveandmarginallysignificant(pϽ.10).Becauseofthisresult,wealsoranamodelinwhichwedroppedbothcentralityandsentinterlocks(bothofwhichwerehighlycorrelatedwithreceivedinterlocks).Inthatmodel,thecoefficientforreceivedinterlockswaspositiveandsignificant(pϽ.05).Thus,al-thoughthereisweakevidencethatreceivedinter-locksaidthediffusionofcontestedpractices,itappearsthatthetypeofinterlockmaybeimportantintheiradoption.
Hypotheses5and6predictthattherewillbesafetyinnumbers—thatis,prioradoptionswithinanorganization’sinstitutionalenvironmentwillbepositivelyassociatedwithanadoptionofinstitu-tionallycontestedpractices.Thebivariatecorrela-tionbetweenpriorindustryadoptionsandpriorGermanadoptionswassufficientlylargethatitmightresultinmulticollinearity.Multicollinearityinlogisticregressioncancausethesameproblemsasinordinaryleastsquaresregression;itcanresultininflatedvariancesoftheparameterestimates,lackofstatisticalsignificanceofindividualinde-pendentvariablesbutstrongoverallmodelsignifi-cance,wrongsignsandmagnitudesofregressioncoefficientestimates,andincorrectconclusionsaboutrelationshipsbetweenindependentandde-pendentvariablesgenerally(Berry&Feldman,1985).Tocounteractthesepotentialproblems,weexaminedmodelsinwhichoneofthepredictorswasincludedbuttheotherwasexcluded(i.e.,theindustryadoptionsvariablewasincludedbuttheGermanadoptionsvariablewasnot,andviceversa),inadditiontothemodelswithbothvari-ables.Theresultsreportedwererobustacrossthesedifferentspecifications.GoingcontrarytoHypoth-esis5,theassociationbetweenpriorindustryadop-tionsandfocalfirmadoptionwasnegativeandsignificant.However,theresultforpriorGermanadoptionswaspositiveandsignificant(onlymar-ginallysignificantinthefullmodel),inkeepingwithHypothesis6.Inthiscase,themagnitudeoftheeffect—butnotitssignificance—wasaffectedbywhetherthevariableforpriorindustryadop-tionswasincludedinthesamemodel.
Hypothesis7predictsthattheremovaloflegalor
50AcademyofManagementJournalFebruary
regulatorybarrierstotheadoptionofaninstitution-allycontestedpracticewillresultinasignificantincreaseinthespreadofthesepractices.There-sultsinmodels6and7supportthishypothesis.Thecoefficientforprereform,thetimeperioddur-ingwhichGermanlawsprohibitedstock-basedpayandfirmshadtoengineerdevicesenablingthemtotakeadvantageofapparentloopholes,wasnegativeandsignificantinmodel6butonlymarginallysignificantinthefullmodel,model7.
Table4reportstheresultsforthetestsofthehypothesesthatpredictasymmetriceffectsforpio-neerandmomentumadopters.Thefirsttwocol-umnscollectivelyreporttheresultsforthecontrolmodelandassesstheeffectsofthecontrolvariablesonpioneerandmomentumadoption,comparedtononadoption.Comparingthecoefficientsinthepi-oneerandmomentummodelsrevealssomediffer-ences.ROAhadamuchlargerpositiveeffectonearlyadoptionthanonlateadoption.Inaddition,firmagehadasignificant,negativeeffectonlyamonglateadopters.Theresultsforthefullmodel,whicharereportedinmodel2,providegeneralsupportforHypothesis8.Aspredicted,theeffectsforAmericanDepositaryReceiptsandU.S.salesweresignificantforpioneeradopters(marginallysoforU.S.sales)andnotsignificantamonglateadopt-ers.Likewise,theeffectforgraduatebusinessedu-
cationwasalsopositiveandsignificantamongpi-oneeradoptersbutwasnotsignificantamonglateadopters.PrioradoptionofGAAP/IASwaspositiveandsignificantamongbothpioneerandmomen-tumadopters,butthemagnitudeoftheeffectamongpioneeradopterswasmuchlargerthanamongmomentumadopters(pϽ.05),alsoinsup-portofHypothesis8.Hypothesis9waspartiallysupported;theeffectofreceivedtieswassignifi-cantamongmomentumadoptersbutnotamongpioneeradopters.However,theeffectforsenttieswassignificantamongmomentumadoptersandmarginallysignificantamongpioneeradopters.Thedifferenceinthemagnitudeofthecoefficientswasnotsignificant.TheeffectofprioradoptionswithinGermanywassignificantonlyamonglateadopters,providingadditionalsupportforHypoth-esis9,butagaintheeffectforindustryadoptionswasnegative(amonglateadopters)butonlymar-ginallysignificant.
DISCUSSION
Theobjectiveofthisresearchwastostudyhowinstitutionallycontestedpracticesareintroducedintoanddiffusedwithininstitutionalenviron-ments.Ourtheoryandfindingssuggestthatinsti-tutionalresearchshouldmorecarefullyexamine
TABLE4
ResultsofMultinomialLogisticRegressionAnalysisforAdoptionofStockOptionPlans
Model1
PioneerAdoptersϪ14.59†(8.46)0.11(0.54)
†0.75(0.40)Ϫ0.18(0.65)22.74***(5.30)Ϫ0.02(0.02)Included
MomentumAdoptersϪ2.05(2.16)0.18(0.24)0.13(0.16)Ϫ0.42*(0.19)5.68*(2.41)Ϫ0.01†(0.01)Included
PioneerAdoptersϪ14.03(10.81)1.33(1.13)0.15(0.73)
†Ϫ2.17(1.20)33.17**(10.46)0.03(0.03)Included2.70*(1.53)1.01†(0.68)4.83*(2.28)3.99**(1.62)Ϫ0.72(1.59)2.38†(1.63)0.34(2.24)Ϫ0.32(0.50)
Model2
Momentum
Adopters4.30(3.54)
†Ϫ0.63(0.42)Ϫ0.14(0.25)Ϫ0.99**(0.35)3.19(3.08)
†Ϫ0.02(0.01)
Included0.84(0.85)Ϫ0.04(0.15)0.44(0.49)1.09*(0.57)1.07*(0.53)1.97***(0.59)Ϫ0.41†(0.28)0.08**(0.03)
Variables
InterceptCentralityFirmsizeFirmageROA
Ownership
Industrycontrols
AmericandepositaryreceiptsU.S.sales
GraduatebusinesseducationPrioradoptionofGAAP/IASReceivedtiesSentties
IndustryadoptionsGermanadoptionsLog-likelihoodModel2pϽ.10*pϽ.05**pϽ.01***pϽ.001
†Ϫ145.765,822.26***Ϫ87.7716,608.97***
2007SandersandTuschke51
themulti-institutionalcontextinwhichmanyfirmsareembedded.Inaddition,thisstudyillumi-natesnewopportunitiestoexaminehowcontrover-sialpracticesandpoliciesspreadovertransna-tionalinstitutionalboundaries.Wedevelopedargumentsconcerninghoworganizationslearnfromotherinstitutionalcontexts,importpracticesthathavegainedlegitimacyelsewherebutthattransgresslocalpillarsoflegitimacy,andspreadthroughorganizationalnetworksinawaythatre-sultsinthepossiblegraduallegitimizationofinsti-tutionallycontestedpractices.Wearguedthatas-sociationsandexchangerelationshipsembeddedwithinprestigiousinstitutionalenvironmentsandexecutiveeducationalbackgroundsmayexposekeydecisionmakerstoideasandpracticesthatmaybeattractivetoafirmevenifopposedbykeystake-holdersinthefirm’shomeinstitutionalenviron-ment.Wealsoarguedthatorganizationslearnfrompriorexperiencewithcontestedpracticesinawaythatdevelopstheroutinesnecessarytosubse-quentlyimplementothercontestedbutpotentiallydesirablepractices.Finally,wearguedthatonceintroducedintoafocalenvironment,boardinter-locksandstructuralequivalenceshouldenablefirmstolearnaboutanewpracticeandmitigateuncertaintyaboutitsvalue.Finally,ourhypothesesalsosuggestedthatthemechanismsthatfacilitatetheintroductionanddiffusionofinstitutionallycontestedpracticeswouldhaveasymmetriceffectsacrosspioneerandmomentumadopters.FindingsandImplications
Ourfindingsprovidesupportformanyofthetheoreticalarguments,andthegeneralpatternofourfindingsoffersinsightintotheprocessesthatareinvolvedintheadoptionofinstitutionallycon-testedpractices.First,wefoundsupportfortheideathataninstitutionallycontestedpracticeisintroducedintonewenvironmentsbyorganiza-tionsthathavetheuniqueopportunitytogainex-posuretothesepracticesinprestigiousinstitu-tionalcontextswheresuchpracticeshavegainedlegitimacy.However,thisprivilegedaccesstoin-formationandrelationshipsconveysanearlymoveradvantage,butitdoesnotseemtofacilitatelateradoption.
Ourresultsbuildonearlierworkinthefieldwithrespecttolegalprocessesaffectingthediffusionofpractices.TolbertandZucker’s(1983)workdem-onstratedhowlegalmandatesworktorapidlyfa-cilitateinstitutionalchange.Ourworkshowsthatthemerelegalsanctionofapracticecanbesuffi-cienttosignificantlyincreaseadoptionratesamongpracticesthatfaceconsiderableoppositionelse-wherewithinaninstitutionalenvironment.Thisfindingmayhavewide-rangingapplicationtootherpracticescontestedinsociety(e.g.,gaymarriage).Inaddition,ourfindingsbuildonearlierworkre-gardingdifferencesbetweenthecriteriamotivatingpioneerversusmomentumadoption.Priorworkhasemphasizedtechnicalcriteriasuchaseffi-ciencymotives(Westphaletal.,1997),butourworkdrawsattentiontouniquecharacteristicsofpioneeradoptersthatgrantthemprivilegedaccesstoinformationaboutpotentialtechnicalreasonsforadoption.Forinstance,CEObusinesseducation,whichcanfacilitatetheabsorptionoftechnicalin-formationfromotherinstitutionalenvironments,facilitatesearlyadoption.Likewise,otherpotentialsourcesofearlyaccesstoinformationfromotherinstitutionalenvironmentsleadtopioneeradop-tion,butnottolateradoption.Thus,ourresultsprovidefurtherevidencethattherearefundamen-taldifferencesbetweenpioneeradopters,orcoura-geousadopters,asScott(2001)calledthem,andlaggards.
Ourresultssupportrecentcallsforthereintro-ductionoforganizationalleadersintotheprocessofinstitutionalchange(Kraatz&Moore,2002;Scott,2001).Inkeepingwiththeideathatexecu-tiveeducationalbackgrounddifferencesaffecthowleadersscanandprocessinformation,wefoundthatearlyadoptionofacontestedpracticeismuchmorecommoninfirmsrunbyCEOswithgraduatebusinesseducations.Wefocusedonanattributethatwouldfacilitateearlyadoption.Theremayalsobesystematicattributesofleadersoflaggardfirms,andidentifyingthesecharacteristicswouldhelpadvancethisnascentstreamofresearch.
Institutionallycontestedchangeismoredifficultthanchangethatisnotatoddswithinstitutionalnorms.Ourfindingssuggestthatpriorexperiencewithcontestedchangeenablesorganizationstomakesubsequentcontestedchangeswithgreaterfacility.Thisobservationprovidesafirsthintthatsecond-orderlearningisnotrestrictedtoinstitu-tionallylegitimatesettings.Rather,thistypeoflearningmaybeavitalmechanismfororganiza-tionsintheireffortstoleavethe“ironcage”(Di-Maggio&Powell,1983;Hambrick,Finkelstein,Cho,&Jackson,2005)andtoovercomethebound-ariesoftheirinstitutionalenvironment.However,unlikeuniqueandprivilegedaccesstorelation-shipsandinformationinotherenvironments,theroutinesestablishedingainingexperiencewithin-stitutionallycontestedchangeareseenamongbothpioneerandmomentumadopters,thoughitap-pearsthattheseroutinesaremorelikelytobeusedtomakeearlydecisionstoadopt.
Theresultsofthisstudysuggestthatpioneer
52AcademyofManagementJournalFebruary
adoptersuseboardinterlockstofurthertheadop-tionofinstitutionallycontestedpractices.Earlyadoptersarethemostsusceptibletostrongopposi-tionregardingimportedpracticesthatviolatesomeactors’perceptionsoflegitimacy.Thus,itisintheinterestsofearlyadopterstoactivelyspawnsubse-quentadopterswithintheirspheresofinfluence.Arelatedfactoraddingtothestrengthofsentinter-locks,relativetoreceivedinterlocks,istheuniquelearningopportunityenjoyedbysentdirectors.Inthecaseofsentties,thefocalfirm’sCEOand/orthechairmanofthesupervisoryboardbecomeedu-catedonthepotentialefficiencyrationaleforaninstitutionallycontestedpractice.Becausetheytakepartinthedeliberationsleadingtotheactualadoptiondecisionamongpioneeradopters,sentdirectorsarelikelytohavepositivejudgmentsofthisinnovation.Combinedwiththefactthatsentdirectorshavetherelativestandingtoinitiatechangeintheirhomeorganizations,sentnetworktiesappeartobeespeciallylikelytofurtherthediffusionofaninstitutionallycontestedpractice.Comparedtotheinformationcarriedbysentties,theinformationcarriedbyreceivedtiesislikelytohaveaweakereffectontheadoptiondecision.Al-thoughprioradoptersmayusereceivedtiestoac-tivelypromotetheadoptionofacontestedpractice,theyonlyprovidethedecisionmakersofafocalfirmwithsecond-handinformationonapractice.Moreover,otherdirectorsofthefocalfirmwhoopposetheadoptionofaninstitutionallycontestedpracticemaychallengethisinformation.Therefore,receivedtiesmayhaveaweakerinfluenceonthediffusionofacontestedpracticethansentties.Itisalsoworthnotingthatitcouldbearguedthatearlyadoptersofstock-basedincentivesmaywishtorestrictthefurtheradoptionoftheseprogramsiftheyperceivethattheygranttheirfirmacompeti-tiveadvantage.1However,itmustberecalledthatanycompetitiveadvantageconveyedbybeingoneofthefewadoptersofthistypeofcontestedprac-ticemustbeweighedagainsttheaccompanyinglegitimacylosses(Meyer&Rowan,1977).Legiti-macyeffectsmaytrumpconcernforpossiblecom-petitiveadvantagewhenacompanyisnotabletoachievethedesiredadvantagewithoutthesupportofotheradopters.Wheneverthecostsoflegitimacyexceedthebenefitsofbeingthesoleuserofanewpractice,itshouldbeinthebestinterestsofafirmtosharethepractice(aswellastherelatedcompet-itiveadvantage)withothers.Secondarily,itshouldberememberedthattheinterlocktiesareprimarily
1Wethanktheeditorforbringingthisissuetoourattention.
withfirmsinotherindustries,sotheimitationthatisbeingpromotedisn’tamongdirectcompetitors.Onefindingcontrarytoourtheorydeservesmen-tion.Inconsistentwithourargumentonstructuralequivalencewasthefindingthatprioradoptionofinstitutionallycontestedpracticesbyindustrypeersreducedthelikelihoodthatafocalorganiza-tionwouldmakethesamedecisiontoadopt;how-ever,wedidfindevidenceofstructuralequiva-lenceatthelevelofGermanadoptionsgenerally.Thenegativefindingattheindustrylevelisconsis-tentwithfindingsofRaoandSivakumar(1999),whoreportedanegativeassociationbetweenpriorindustryadoptionsandfocalfirmadoptionofin-vestorrelationsdepartments.Thisassociationcouldbeduetooneofseveralfactors.First,nega-tiveinformationcascadeswithinparticularindus-triescouldbeinfluencingtheresults.AswenotedinthediscussionoftheGermancontext,Daimler,DeutscheBank,andVolkswagenweresuedforvi-olatingshareholders’rightsbyadoptingstock-basedincentives.Thiseventmayhavecausedsig-nificantnegativeinformationcascadeswithintheautomotiveandbankingindustries.Asthesefirmswerepioneeradopters,thenegativeinformationcascadesinthesetwoindustriesmaybedrivingtheresultsforindustryadoptionrates.Itisalsopossi-blethatthereareonlyacertainnumberofpotentialadopters(potentiallyforreasonsthatresearcherscannotobserve)withinmostindustries.Forin-stance,thespecificownershipstructureofsomefirmsinanindustrymaymakeadoptionofstock-basedincentivesystemsunlikely(Fiss&Zajac,2004;Tuschke&Sanders,2003).Asthepooloflikelyadoptersshrinkswithinanindustry,theneg-ativeeffectweobservedcouldresult.Futurere-searchisneededtoinvestigatewhyindustryandmoremacroindicatorsofstructuralequivalencesometimespresentoppositeeffects.
Inaglobaleconomy,organizationalpracticesarenotconfinedtohomogeneousinstitutionalenvi-ronments.ThetypeoforganizationalchangewestudiediscontestedbymanyimportantactorswithinGermanyandmayfacecontinuedopposi-tion.Learningacrossinstitutionalcontextsmaypresentoneofthemostimportantorganizationallearningopportunities.However,manypracticesobservedinotherinstitutionalcontextsmaybeatoddswithstronglyandwidelyheldbeliefsandnormsinalocalinstitutionalenvironment.Howpracticesaretransferredoverinstitutionalenviron-mentsrepresentsanimportanttheoreticalprocess(Dacinetal.,2002).Thefindingsofthisresearchsuggestthatsometypesofweaklinkswithotherinstitutionalenvironmentsprovidesufficientboundary-spanningandlearningopportunitiesto
2007SandersandTuschke53
introduceinstitutionallycontestedpracticesintonewenvironments.Consequently,ourfindingsil-lustratehowtraditionalinstitutionaldescriptionsoforganizationallearning(Selznick,1957;Thomp-son,1967)mayworktointroducevarietyintoanenvironmentassomeuniquelypositionedorgani-zationslearnfromotherenvironmentsthroughboundary-spanningmechanisms,while“new”in-stitutionalperspectivesdescribehowthesemech-anismsdiffusewithinthefield,perhapseventuallyleadingthefieldtoanewstateofisomorphism.Iforganizationalleaderstriggersomeformsofcourageousorganizationalchange(Scott,2001),adirectionforpossiblefutureresearchistoconsiderhowsomefirmsbecomepositionedtohavegreateropportunitiestolearnfromotherinstitutionalen-vironmentsinthefirstplace.Forinstance,whatleadershipfactorsotherthaneducationcouldre-sultinopennesstoideasfromotherenvironments?Whatresultsinsomeleadersbeingmorecosmopol-itan?Leaderswhoaremoreopentochangebasedonwhattheyhavelearnedfromotherenviron-mentsmaybemorelikelytoenterrelationshipsthatembedtheirorganizationsinmultipleinstitu-tionalenvironments,exhibitmoreadventurous-nessinusingnewpractices,andignorewhatiscommonplaceintheirindustry.LimitationsandConclusions
Likeallempiricalresearch,thisstudyhassomeinherentlimitations.Withrespecttoourfindingsregardingconnectionstoprestigiousinstitutionalcontexts,ourresultsdonotsuggestthataffiliationswithlessprestigiousinstitutionalenvironmentswillaffectcorporatesocialmovementsinthesameway.Thenatureofthepracticeweexaminedalsolimitedourfindings.Asstock-basedincentivesaf-fectmanagement’scompensation,theyenableustodemonstratehowmanagement’sowninterestsdriveinstitutionallycontestedchange.Futurere-searchisneededtoshowwhethersimilaradoptionpatternscanbefoundforpracticesthataremoreinthegeneralinterestsoffirmsthanintheindividualinterestsoftheirmanagers.
Otherlimitationsofthisresearchincludethefo-cusononepractice,indirectmeasuresofconnec-tionstotheUnitedStates,afocusonCEOeduca-tion,andafocusonCEOsandsupervisorboardchairsonly.Itshouldbekeptinmindthatweonlyusedasingleindicatorofacontestedpractice.Al-thoughconsiderableevidencesuggeststhatseveralimportantconstituentsinGermanystronglycontestthispractice,thereisnoguaranteethatitisrepre-sentativeofallcontestedpractices.Oneofourmea-suresfortiestotheUnitedStateswasveryindirect.
ItcouldbethatthevariableU.S.saleswasaverycrudemeasureofexposuretoU.S.practices.Forinstance,betterresultsmayhavebeenfoundhadwebeenabletousedatasuchasthenumberofU.S.operations,thenumberofexecutivesstationedintheUnitedStates,orthenumberofU.S.employees.Likewise,ourfocusonCEObusinesseducationmayhaveunderstatedtheinfluenceofothermem-bersofafirm’sboardofdirectorsontheadoptiondecision.Finally,ourinterlockmeasuresfocusedonlyontiesestablishedbyCEOsandchairsofsupervisorycommittees.Inthefuture,itwouldbeveryinterestingtoincludeallinterlockties,includ-inginternationalties.Duringtheperiodofthisstudy,therewerefewifanyinternationaltiesinthissample,butthatislikelytochangeinthefutureastheownershipoffirmscontinuestodif-fusearoundtheglobe.
Inrecentyears,researchhasgreatlyexpandedscholars’understandingofhoworganizationslearnfromtheexperiencesofother,similarorganiza-tions,adoptpracticesintroducedfromelsewhere,andmoveinstitutionalenvironmentstowardaho-mogeneousstateofisomorphism.Lessattentionhasbeenfocusedonhoworganizationsinanenvi-ronmentbecomelesssimilar.Thisresearchaddstoanimportantandemergingreemphasisonvarietywithinenvironmentsandinstitutionalcontexts(Kraatz,1998;Kraatz&Moore,2002;Kraatz&Zajac,1996).Wedemonstratehoworganizationsembeddedinmultipleinstitutionalenvironmentsbecomeexposedtonewrationalizedmythsaboutthetechnicalefficiencyofcertainpractices.Ourfindingssupporttheargumentthatthisexposureandmanagement’sownperceivedbenefitstriggertheintroductionandadoptionofpracticesthataretakenforgrantedinotherinstitutionalenviron-mentsbutfacesignificantresistancebykeyactorsinthehomeinstitutionalenvironment.Onceintro-duced,eveninstitutionallycontestedpracticescandiffuse.Thus,weshowhowcontestedpracticesspreadacrossandwithinnewinstitutionalcontexts.
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Wm.GerardSanders(gsanders@byu.edu)istheJ.EarlGarrettFellowandanassociateprofessorattheMarriottSchoolofManagementatBrighamYoungUniversity.Hisresearchfocusesontheinterfaceofcorporategover-nance,executiveleadership,andfirmstrategy.Here-ceivedhisPh.D.instrategicmanagementfromtheUni-versityofTexasatAustin.
AnjaTuschke(tuschke@iop.unibe.ch)isaprofessorattheInstituteofOrganizationandHumanResourceMan-agementattheUniversityofBern,Switzerland.Shere-ceivedherdoctoraldegreeinbusinessadministrationfromtheUniversityofPassau,Germany.Herresearchfocusesoncorporategovernance,organizationalinnova-tions,andstrategy.
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