When consumers turn to a moral authority

Ethical consumerism, or “voting with your wallet,” is an increasingly popular way for consumers to express their personal values through the products and services they purchase. The idea is that every bag of fair-trade coffee beans, can of dolphin-safe tuna or bundle of non-GMO carrots purchased sends a message to corporations and leads to positive impacts. Of course, this strategy hinges on consensus between consumers and producers as to what makes something ethical or morally acceptable, and how the market reacts to such consensus. 

Amanda Sharkey, an economic sociologist and the Coyle Collegiate Professor of Management & Organization at the University of Notre Dame’s Mendoza College of Business, is an expert on how markets reach consensus on standards such as rankings and rating systems. She is especially interested in how the status and reputation that an organization achieves through these systems shapes behavior.

“As more and more people think of their purchasing decisions as having moral implications, they want to purchase things that reflect positively on themselves and align with their own values,” she said. “I was intrigued by how people would navigate that in a place where the rules are a little bit murky.”    

Consumers who seek to make morally acceptable purchases will naturally focus on finding products with widely regarded certifications and labels such as Cruelty Free International or USDA Organic. However, not every industry has standard setters or certifying agents, and not all values are widely accepted to begin with.

In the recent paper, “Lending Leniency: The Relationship Between High-Status Affiliations and Consumer Acceptance of Products in Contested Markets,” published in Organization Science and co-authored by Lionel Paolella of University of Cambridge and Maima Aulia Syakhroza of University of London, Sharkey examined how producers can still gain consumer acceptance when consensus is volatile by engaging moral authorities. 

“A lot of times, we see these [ethical standards] at their end stage or after things have settled down, but usually there was a time when they were very contested,” she explained, using the USDA Organic standards as an example. “Before it was clear what it meant to be organic, an organic food producer had to make unclear decisions every day in order for their business to survive. This paper gives some guidance to producers working with that same uncertainty.”

The researchers found that producers can overcome the absence of official guidelines and certifications by receiving endorsements from experts who are considered moral authorities. Further, the study demonstrates that in contested moral markets, consumers are willing to trade financial returns for the reassurance that they are affiliated with brands or products approved by high-status moral authorities.

To examine how producers operate and cultivate consumer acceptance in a morally contested financial market, Sharkey and her co-authors turned to a specific market that is entirely tied to morality: the Islamic investment bonds, or sukuk, market. This served as a rich research setting since Islamic finance practices must be halal, or Sharia-law compliant, emphasizing a risk-sharing framework that forbids interest (riba), excessive risk (gharar), gambling (maysir) or investment in products and services that are haram, or prohibited, such as alcohol and pornography.  

Though Sharia principles are generally agreed upon, how they are interpreted and implemented is often up for debate. In the sukuk market, for example, some issuers charge late-payment fees, while others consider the fees as a violation of Islam’s strict ban on interest. Some argue that derivatives are haram since they involve excessive risk, although others believe they are halal as long as Islamic banks use them to hedge risks. 

Amid this moral ambiguity and lack of transparent guidelines, sukuk issuers often assure customers by employing Sharia scholars to review a sukuk product’s structure for Sharia compliance. When scholars determine a sukuk to be halal, their names are listed as a figurative stamp of approval alongside other details provided to potential investors. Elite scholars, known as sheikhs, are in higher demand for these endorsements since their title carries greater moral authority.      

“Morals are constructed over time, and there's not always a hard and fast understanding of right and wrong,” said Sharkey. “In this case, these Sharia scholars help to construct guidance for people as to what is considered moral and what is not.”      

The authors reviewed 1,540 sukuk issued between 2012 and 2017, focusing on the fixed rate of return that investors were guaranteed. Higher rates are preferred by investors, due to their greater financial returns, while issuers favor lower rates. The researchers found that sukuk endorsed by in-demand sheikhs featured lower rates, suggesting that investors willingly accepted lower returns if it meant stronger moral approval. Conversely, sukuk featuring strict product features that an investor could more easily interpret as halal had higher rates. This finding further underscored the value that investors placed on the scholars’ authority to make clear moral opacity. 

“This shows there are two different ways of attracting customers in this type of market. One is to abide by strict rules and the other is this more informal way of getting an authority who will attest that your product is moral,” Sharkey said. “But if you're a shrewd or strategic producer, then you probably don't invest in both of those things. If you can abide by the strictest interpretations of moral compliance, then it would be a waste of money to pay for an authority because people will be happy with your product either way.”

Sharkey can imagine a similar outcome in other settings that are less about moral status, but still about status. For example, investors might pay more for shares during a relatively unknown biotech startup’s IPO if its board of directors includes high-status doctors. The use of high-status authority figures could also be studied in other morally contested markets such as sustainable finance. In recent years, efforts to invest in sustainable funds have animated frequent debates about what it means for a corporation to combat climate change and environmental destruction while promoting healthy corporate governance. 

Whether through future research into how social and cultural factors impact organizational behaviors, or in the classes she teaches at Mendoza, Sharkey is eager to continue exploring the tension created by personal morals and the systems we navigate.

“I like for my students to wrestle with the fact that even if they're not in an industry that is obviously moral, like a religious industry, so many of our business decisions have some ethical and moral component that will affect the bottom line — and more — someday,” she said.