RESPONSE - Insead

Findings: External factors and cognitive alignment (Objective 2) The impact of geography on the size of
cognitive gaps
5.5 The impact of geography on the size of cognitive gaps
The impact of the geographic location a company’s headquarters could influence the magnitude of
cognitive gaps for different reasons. On the one hand, the amount of pressure by stakeholders, and
their degree of sophistication, can vary depending on the cultural traits, social norms and legal
boundaries present in a given region. In more advanced regions, such as Northern Europe 12 one
would expect lower gaps because of the longer history of interaction between the companies and their
stakeholders. At the same time, though, stakeholder demand itself might evolve more rapidly in the
most advanced regions making it harder for managers to maintain a high level of cognitive alignment.
A starting hypothesis, therefore, would be that Northern Europe would exhibit lower gaps than
Southern Europe, and that European companies would have lower gaps than Anglo Saxon countries,
based on the higher levels of sophistications of companies in that region. However, if the stakeholder
sophistication effect is prevalent, i.e. stakeholders demonstrate more sophisticated demands in
advanced regions, then the sequence of the three regions would be the opposite: Anglo Saxon
countries would have smaller gaps than Europe, since stakeholders there might be even less
sophisticated or complex to manage than in Europe.
The average gaps across all the companies in each of the three regions is presented in Table 18.
Table 18. Cognitive gaps by geography (all companies)
60%
40%
20%
0%
Gap 1 Gap 2 Gap 3 Gap 4
N.Europe 26% 35% 46% 10%
S.Europe 28% 28% 37% 0%
Anglo Saxons 22% 21% 27% 1%
The evidence suggests a series of somewhat unexpected findings:
1. Managers in Anglo­Saxon companies exhibit the lowest Sequential, Risk Ranking and
Responsibility Ranking gaps, and therefore the larger degree of alignment, compared
to Southern European companies and even more compared to Northern European
companies.
2. Northern European companies also seem to misjudge (specifically, overstate) their
own social performance more than Southern European and Anglo­Saxon companies,
which are essentially on target vis­à­vis their stakeholders’ assessments.
It appears that the effect related to the sophistication of stakeholders is stronger than that of the
corporate managers, thereby penalising apparently experienced companies based in Northern
Europe. However, the fact that Northern European companies also overstate their estimates of social
performance confirms that there might also be an excessive amount of praise for the northern
European companies, compared to those headquartered in Anglo­Saxon countries and Southern
Europe.
A further explanation for the surprising finding may be related to our hypothesis that dynamic
industries are characterised by higher alignment than stable industries. In the same way, firms in
regions marked by faster economic change (e.g. North America and the UK) are associated with
12 Northern European countries typically score the highest in terms of CSP of their companies (CITE
Responsible Competitiveness study by Accountability)
RESPONSE: understanding and responding to societal demands on corporate responsibility
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