Ethical certifications like 'Fair Trade' or 'Organic' act as a hidden trap that can prevent startups from growing or innovating.
March 31, 2026
Original Paper
Latent Hazards: Counterperformative Effects Of Certification In New Ventures
SSRN · 6469158
The Takeaway
We tend to view these certifications as pure badges of honor, but this study found they create 'strategic rigidity.' By locking young companies into hyper-specific supply chains and operational rules to keep their labels, the certifications make them too brittle to adapt to market shifts or scale their business effectively.
From the abstract
New firms make considerable efforts to obtain legitimacy in order to mobilize stakeholder resources. In line with institutional theory, certification has been argued and empirically shown to be an effective mechanism for bestowing legitimacy and unlocking stakeholder resources. However, we know little about their potential to backfire, especially for young firms. I investigate how certifications can constrain the very resources they were meant to enhance, a process I call certification counterpe