Presenter: Ben Lewis

Associate Professor of Strategy

Department of Management, Brigham Young University Marriott School of Business

One and Done: How Rating Design Shapes the Distribution of Organizational Responses

ABSTRACT

In this study, we examine how the design of third-party ratings shapes the distribution of organizational responses. Prior research shows that ratings can influence firm behavior, typically focusing on whether rated organizations improve on average. We argue that rating design shapes responses along three dimensions: whether the average improves, which organizations move, and, most distinctively, the focal point around which firms converge. We theorize that when ratings define a clear threshold for acceptable performance, organizations may treat that threshold as sufficient, leading to convergence at the minimum standard rather than continued improvement. Using the introduction of KLD’s board gender diversity rating as a natural experiment, we examine how firms adjusted board composition following the implementation of a binary concern rating. Difference-in-differences estimates suggest that rated firms increased female board representation relative to unrated firms, with changes concentrated among firms that initially lacked women directors. However, additional analyses reveal a distributional signature: firms disproportionately converged to the focal response the rating defines—exactly one woman director—with limited movement beyond this level. These findings suggest that ratings can simultaneously promote and constrain social change by directing organizations toward specific performance levels. Our findings provide insights for scholarship on organizational reactivity by demonstrating that rating design shapes not only the magnitude of behavioral responses and which firms respond, but the focal point of compliance itself. More broadly, our results raise important questions for scholars and practitioners interested in designing evaluation systems that drive continued improvement.