Do reputational threats influence the rigidity of US agencies? A dynamic panel data approach

Abstract

What happens to organizational rigidity when public organizations faced reputational threats over time? Do they take external criticism as incentives to become less rigid and more innovative and flexible through employee involvement and empowerment? Or do reputational threats paradoxically contribute to the very rigidity that is often stereotyped as inherent parts of government? Building on threat-rigidity theory, we test the temporal relation between reputational threats (both in terms of the direction of reputation and its turbulence) and organizational rigidity. We apply a dynamic panel data approach combining different data sources on 34 US agencies over a period of 13 years. The results show that organizational rigidity increased, both when reputations evolved negatively over time and when reputations evolved more turbulently. No combined effect of negative reputations and reputational turbulence was observed. Both sources of reputational threats independently precluded organizations from creating a climate of employee empowerment, involvement, flexibility, and innovation. Evidence for practice center dot Public organizations demonstrate higher degrees of organizational rigidity when their reputations were evolving negatively or more turbulently. center dot Negatively evolving reputations generate more organizational rigidity, even under conditions of rather stable (nonturbulent) evolution. center dot Turbulently evolving reputations generate more organizational rigidity, even when these reputations evolved in a neutral or positive direction. center dot The climate of reputational negativity that many public organizations face leads to an organizational climate that is more rigid. Managers have a clear role to play in these tendencies, by avoiding the urge in situations of uncertainty to centralize control, formalize procedures, and apply pressure on employees to conform to their directions.