Changing the rules of the game: how firms respond to the revision of responsible product standards

Summary

While voluntary responsible business standards are more flexible than regulation and thus more responsive to changes in society, revising standards can have negative effects on compliance rates. We hypothesize that when non-compliance is visible to external stakeholders and participating firms receive a clear signal that their products are non-compliant, the firms will respond by re-certifying their products, which will raise their certification rates. We tested our hypothesis by conducting a multi-level regression on the certification rates before and after the revision of a voluntary label for healthier food products, active in the Dutch market from 2006 until 2015 in the Dutch market (76 firms, 22 product categories, 1354 firm-category-year observations). Our results show the opposite effect than hypothesized: after standards’ revision, firms with decertified products significantly decrease their certification rates compared to firms without decertified products. We conclude that making standards stricter over time is not always a successful strategy to maintain compliance. We argue that this decrease in compliance after standards’ revisions can be explained by the low behavioural visibility of non-compliance, restricting stakeholder pressure both at the product level by consumers as well as at the firm level by other stakeholders.