Source and Patterns of Organizational Defiance of Formal Institutions: Insights from Nollywood, the Nigerian Movie Industry

• Author: Uchenna Uzo,Johanna Mair
• Published date: 01 March 2014
• Date: 01 March 2014
• DOI: http://doi.org/10.1002/sej.1171

SOURCE AND PATTERNS OF ORGANIZATIONAL

DEFIANCE OF FORMAL INSTITUTIONS:

INSIGHTS FROM NOLLYWOOD,

THE NIGERIAN MOVIE INDUSTRY

UCHENNA UZO1and JOHANNA MAIR2*

1Lagos Business School, Pan-Atlantic University, Lagos, Nigeria

2Hertie School of Governance, Berlin, Germany

We extend research on informal economic activity and investigate why organizations adopt

informal rules when formal ones exist and how and why patterns of defiance vary across

organizations. We build on data from an in-depth study of four organizations operating in the

Nigerian movie industry. We identify ambiguity of formal institutions as a major source of

organizational defiance. Wealso find that the organization’s domain of embeddedness mediates

the relationship between institutional ambiguity and organizational defiance. Accordingto our

analysis, the rationale for organizing propelled by the dominant domain of embeddedness

affects whether organizations consistently or selectively defy ambiguous formal rules. Our

findings highlight the importance of the interplay between institutional and organizational

dynamics in understanding informality within an economy. Copyright © 2014 Strategic

Management Society.

INTRODUCTION

The growth and persistence of the informal economy

is now a generally accepted phenomenon (Godfrey,

2011; La Porta and Shleifer, 2008; Vogel, 2006). The

informal economy consists of economic activities

that occur outside of formal institutional boundaries

but remain within informal institutional boundaries

pertinent for large segments of society (Webb et al.,

2013). Generally, formal institutions refer to laws,

regulations, and their supporting apparatuses (North,

1990), while informal institutions refer to ‘socially

shared rules, usually unwritten, that are created,

communicated, and enforced outside officially sanc-

tioned channels’ (Helmke and Levitsky, 2004: 727).

In the past several years, there has been increased

academic interest in explaining why economic activ-

ity follows prescriptions of informal institutions in

spite of the fact that formal ones are available. The

concept of defiance, indicating a more active form of

resisting institutions (Oliver, 1991), has been applied

to discuss this phenomenon of failing to comply with

the prescriptions of formal institutions in the context

of economic activity (Bruton, Ireland, and Ketchen,

2012; Khavul, Bruton, and Wood, 2009; McGahan,

2012; Webb et al., 2013). Scholars have engaged

and offered a variety of perspectives to enhance

our understanding of origins and implications of

defiance (De Soto, 1989; Greif, 2006; Grosh and

Somolekae, 1996; Khanna and Palepu, 1997; Portes,

1994; Webb et al., 2009). Research in this area has

also started to examine the nature of defiance and

highlights that no uniform pattern of complying with

formal law exists across economies. Instead, eco-

nomic actors might choose to selectively comply

with formal prescriptions. However, why and how

Keywords: institutional ambiguity; organizational defiance;

informal economy; institutional complexity; informal institu-

tions; embeddedness

*Correspondence to: Johanna Mair, Hertie School of Gover-

nance, Friedrichstrasse 180, 10961 Berlin, Germany. E-mail:

mair@hertie-school.org

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Strategic Entrepreneurship Journal

Strat. Entrepreneurship J., 8: 56–74 (2014)

Published online in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/sej.1171

Copyright © 2014 Strategic Management Society

this occurs still need to be explained (Godfrey, 2011;

Webb et al., 2013). Also, while all these theoretical

perspectives on informal economic activity empha-

size the importance of considering the interplay

between formal and informal institutions, empirical

research has paid relatively scant attention to this

dynamic at the level of the organization. We find this

surprising. Organizations in institutionally complex

settings, such as developing countries, are often born

at the interstices of formal and informal institutions,

and their organizational life is critically shaped by

the interplay of what the law prescribes as legal and

what informal systems of beliefs foresee as socially

acceptable (Webb et al., 2009). Thus, the embed-

dedness of organizations in informal institutional

domains such as family, religion, polity, etc., consti-

tutes an important element in understanding eco-

nomic and organizational activity in these contexts

(Mair, Martí, and Ventresca, 2012; Rimac, Mair, and

Battilana, 2012). Rules, norms, and customs asso-

ciated with these informal institutional domains

provide prescription on how to act. They critically

shape the interests, identities, and relationships of

individual members of organizations and influence

strategic decisions and organizational behavior.

Thus, understanding defiance from the perspectives

of organizations requires looking more deeply into

institutional and organizational realities. It also

requires examining the interplay between the insti-

tutional and organizational aspects that shape infor-

mality within economies.

In this article, we adopt an organizational perspec-

tive on defiance of formal institutions and define

organizational defiance as an organization’s purpo-

sive pursuit of economic activity aligned with infor-

mal institutions despite the fact that formal rules are

readily available. We ask why organizations defy

formal prescriptions and how and why defiance pat-

terns might vary across organizations. We address

these questions through an inductive qualitative

study of four movie producing organizations operat-

ing in the Nigerian movie industry (Nollywood),

which is the second-largest movie industry in the

world in terms of number of productions (UNESCO,

2009). The industry is officially recognized by the

Nigerian government. Although the majority of

organizations have official licenses to operate, they

fail to comply with some aspects of the Nigerian

Copyright Act and rather engage in cash-based trans-

actions and forge agreements without written con-

tracts (James, 2009; Lobato, 2010). In addition,

Nollywood is also an industry located in a multi-

ethnic, multireligious, and multicultural country

where more than 250 indigenous languages are

spoken (Library of Congress, 2008). As a result,

Nollywood represents a unique setting for studying

organizations embedded in multiple and diverse

informal institutional domains.

This study makes a number of contributions to the

literature on informal economic activity. First, at the

institutional level, we highlight the role of ambiguity

of formal institutions in facilitating organizational

defiance. We argue that when formal rules are

ambiguous, organizations turn to informal rules as

an alternative framework for organizing rather than

as a means for exploitative rule breaking. This

insight goes beyond the dominant view in the litera-

ture that defiance is a deliberate attempt to break the

law in order to take advantage of weak formal rules

(Mahoney and Thelen, 2010; De Soto, 1989; Grosh

and Somolekae, 1996). It also opens up the oppor-

tunity for future research to explore the linkages

between institutional ambiguity, organizational defi-

ance, and innovation. Our second set of findings

exposes differences in defiance among organizations

facing institutional ambiguity. We find that the effect

of institutional ambiguity on organizational defiance

is moderated by an organization’s domain of

embeddedness. We refer to embeddedness as the

contextualization of economic activity in ongoing

patterns of social interaction (Granovetter, 1985)

shaped by institutions, culture, social structure, and

cognition (Zukin and DiMaggio, 1990; Dacin,

Ventresca,and Beal, 1999). In this study, domains of

embeddedness of our focal organizations include

religion, family, friendship, and ethnicity. We find

that organizations exhibit consistent or selective

defiance patterns and relate these patterns to the

rationale for organizing promoted by the organiza-

tion’s dominant domain of embeddedness. Overall,

our article enriches the literature on informal

economy by positioning institutional ambiguity as a

source of organizational defiance and by revealing

the salience of domains of embeddedness in shaping

how institutional ambiguity affects organizational

defiance.

THEORETICAL PERSPECTIVES

ON DEFIANCE OF

FORMAL INSTITUTIONS

An increasing amount of research has investi-

gated how and why economies or sectors defy the

Organizational Defiance of Formal Institutions 57

Copyright © 2014 Strategic Management Society Strat. Entrepreneurship J.,8: 56–74 (2014)

DOI: 10.1002/sej