A BEHAVIORAL THEORY OF SOCIAL PERFORMANCE: SOCIAL IDENTITY AND STAKEHOLDER EXPECTATIONS
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Q Academy of Management Review
2018, Vol. 43, No. 2, 259–283.
https://doi.org/10.5465/amr.2015.0081
A BEHAVIORAL THEORY OF SOCIAL PERFORMANCE:
SOCIAL IDENTITY AND STAKEHOLDER EXPECTATIONS
ROBERT S. NASON
Concordia University
SOPHIE BACQ
Northeastern University
DAVID GRAS
University of Tennessee
Firms use reference points to evaluate financial performance, frame gain or loss posi-
tions, and guide strategic behavior. However, there is little theoretical underpinning to
explain how social performance is evaluated and integrated into strategic decision
making. We fill this void with new theory built on the premise that inherently ambiguous
social performance is evaluated and interpreted differently than largely clear financial
performance. We propose that firms seek to negotiate a shared social performance
reference point with stakeholders who identify with the organization and care about
social performance. While incentivized to align with the firm, firm-identified stake-
holders provide intense feedback when there are major discrepancies between their
expectations and the firm’s actual social performance. Firms frame and respond to
feedback differently depending on the feedback valence: negative feedback will be
framed as a legitimacy threat, and firm responses are likely to be substantive; positive
feedback will be framed as an efficiency threat, and firm responses are likely to be
symbolic. However, social enterprises face a double standard in evaluations and cali-
brate responses to social performance feedback differently than do nonsocial enter-
prises. Our behavioral theory of social performance advances knowledge of
organizational evaluations and responses to stakeholder feedback.
Firms use reference points to evaluate perfor- on assets (ROA; Chrisman & Patel, 2012), Altman’s
mance and frame gain or loss positions (Cyert & Z (Iyer & Miller, 2008), and sales (Greve, 2008),
March, 1963; Shinkle, 2012). The discrepancy be- against a firm’s own historical performance
tween a reference point and a firm’s actual per- (Greve, 1998; Massini, Lewin, & Greve, 2005) or the
formance, referred to as performance feedback, is performance of industry peers (Mishina, Dykes,
used to guide future strategic behavior (Cyert & Block, & Pollock, 2010).
March, 1963; Shinkle, 2012). A growing body of However, financial performance is not the sole
performance feedback literature (Gavetti, Greve, reference point for firms. Firms are increasingly
Levinthal, & Ocasio, 2012) has evaluated readily pushed to engage in societal contributions beyond
quantifiable financial indicators, such as return mere regulatory compliance (Filatotchev &
Nakajima, 2014; Foerstl, Azadegan, Leppelt, &
We are completely indebted to former associate editor Mike Hartmann, 2015). As a result, social performance—
Pfarrer for his thoughtful and careful guidance and three voluntary business action(s) with social or third-
anonymous reviewers for developmental comments that party effects (Schuler & Cording, 2006)—is now
brought out the best in our ideas. Big thanks to Ruth Aguilera squarely on the strategic agenda of contemporary
and all of those who graciously provided precious advice and
feedback on previous versions of the manuscript, including
firms (Waddock, Bodwell, & Graves, 2002). As Porter
Marya Besharov, Michael Carney, Greg Fisher, Young-Chul and Kramer claimed, “Social performance has
Jeong, and Gideon Markman, as well as participants in the emerged as an inescapable priority for business
JMSB Research Conversations Brownbag. We are also in- leaders in every country” (2006: 1).
credibly grateful to those who inspired and supported us along We draw on behavioral theory of the firm and
the way, including Elizabeth Eley, Tara Pandya, Gary Weckx,
and Hadrien, who arrived during the publication process.
social identity theory to build new theory capable
Special thanks to Lili and Oli for contributions that fueled the of explaining how firms form, frame, and respond
writing process for one author. Usual disclaimers apply. to social performance reference points. In doing
259
Copyright of the Academy of Management, all rights reserved. Contents may not be copied, emailed, posted to a listserv, or otherwise transmitted without the copyright holder’s
express written permission. Users may print, download, or email articles for individual use only.260 Academy of Management Review April so we elucidate key differences between behav- benefits of social performance (Walters, Kroll, & ioral theory of the firm grounded in financial Wright, 2010; Wood & Jones, 1995), firms will try to performance and our behavioral theory of the firm avoid undertaking social performance activities grounded in social performance. First, there are too far above FI stakeholder expectations. As differences regarding performance feedback for- a result, we differentiate between weak perfor- mation. Behavioral theory of the firm grounded in mance feedback that results from minor discrep- financial performance tends to assume that firms ancies with FI stakeholder expectations and select their reference point, composed of a cri- intense performance feedback that flows from tertion and referent, and directly infer perfor- major discrepancies. We theorize that firms are mance feedback. For instance, a firm can likely to respond only to intense social perfor- immediately recognize its position relative to a mance feedback involving a critical mass of con- financial reference point by comparing its ROA sistent (negative or positive) FI stakeholder (the criterion) against the industry average ROA feedback. As such, whereas behavioral theory of (the referent). In contrast, social performance the firm grounded in financial performance sug- lacks clear reference points. There is little con- gests that strategic responses are most pro- sensus about how to measure the criterion of nounced close to the reference point (Cyert & social performance (Aguinis & Glavas, 2012; March, 1963), we theorize that firms are rather Clarkson, 1995; Margolis & Walsh, 2003), let content when close to a social performance ref- alone reliable referents to use as benchmarks. erence point but use more marked responses We argue that under these ambiguous conditions when far away from it. firms tend to rely primarily on the expectations Third, there are critical differences in how firms of their firm-identified (FI) stakeholders—that respond to social performance feedback com- is, stakeholders who derive their identity from pared to financial performance feedback. The organizational attributes (Zavyalova, Pfarrer, ambiguous nature of social performance allows Reger, & Hubbard, 2016). In particular, we sug- firms to enact a broader range of strategic re- gest that FI stakeholders who care about social sponses to address a more malleable reference performance are incentivized to provide social point of stakeholder expectations. However, firms performance feedback since they derive their self- vary significantly in the importance that they concept from the organization, and firms have place on social performance, which is likely to incentives to heed their feedback because of influence how firms are evaluated and respond the power and legitimacy-based salience of FI to social performance feedback. We theorize stakeholders. We define social performance that FI stakeholders are likely to hold social feedback as the visible and active expression of enterprises—firms for which social performance discrepancies between stakeholder expectations is central to organizational identity—to higher and the firm’s actual social performance. standards than nonsocial enterprises that do not Second, there are differences regarding firm have social performance as central to organiza- framing of social performance feedback. Tradi- tional identity. Since social performance feed- tionally, firms adopt a loss frame to interpret back strikes at the core of their self-concept by negative feedback, which triggers problemistic generating identity threats and opportunities search in order to solve the performance short- (Crane & Livesey, 2003), social enterprises are falling (Cyert & March, 1963), whereas firms adopt likely to enact responses that differentiate them a gain frame to interpret positive feedback, which from nonsocial enterprises. induces strategic conservatism due to satisficing By integrating social performance into behav- and unwillingness to fall below the reference ioral theory of the firm, we advance existing re- point (Greve, 2003). When assessing social per- search in three primary ways. First, we address formance, we theorize that a loss frame will calls to provide theoretical grounding to reference manifest as a legitimacy frame and a gain frame point formation (Holmes, Bromiley, Devers, will manifest as an efficiency frame. On the one Holcomb, & McGuire, 2011; Shinkle, 2012), espe- hand, in a loss position, given the threat of losing cially under ambiguous conditions (Fang, Kim, & crucial FI stakeholder support, firms will be con- Milliken, 2014). Rather than assuming that a ref- cerned about falling too far below FI stakeholder erence point is a static benchmark that is selected expectations. On the other hand, in a gain posi- by the firm and sequentially adapted from year to tion, given the cost and the uncertain financial year (Chen, 2008; Chrisman & Patel, 2012), or an
2018 Nason, Bacq, and Gras 261
empirically driven weight of referents (Greve, evaluated, and a referent, which is the object of
2003, 2007, 2008), we conceptualize reference point comparison against which the firm is evaluated
formation as a negotiation between FI stake- (Shinkle, 2012).
holder referents and an organization endowed In the vast majority of work examining the role
with a broad array of strategic responses to in- of performance feedback, scholars have used fi-
fluence those referents. nancial performance as the criterion component
Second, we explicate the role of identity in so- of the reference point (Gavetti et al., 2012; Shinkle,
cial performance reference point formation, 2012). Financial performance is generally clear
framing, and response. We theorize that FI and readily quantifiable. The presentation of
stakeholder identification with a firm generates financial performance is institutionalized in
self-continuity incentives to align expectations annual reports and business plans (Honig &
with the firm when discrepancies are minor Karlsson, 2004). Furthermore, financial perfor-
(Cooper & Fazio, 1984; Zavyalova et al., 2016), but mance feedback mechanisms are easily accessi-
identity considerations of self-protection and self- ble. Firms can readily review their own historical
enhancement induce FI stakeholders to provide financial statements and assess their standing
intense—visible and active—feedback when within an industry (Watson, 1993), and public
discrepancies are major. Further, our theory not companies can rely on capital markets for real-
only contends that identity considerations impact time performance appraisals. This clear and rel-
how stakeholders assess social performance ac- atively quick financial performance feedback
tivities across firms with different organizational allows firms to adapt strategies accordingly.
identities but also that organizational identity However, the rise of corporations engaging in
affects firm responses to performance feedback social performance activity (Porter & Kramer,
(Bundy, Shropshire, & Buchholtz, 2013). 2011) makes it untenable that financial perfor-
Third, we extend the literature on organiza- mance is the only criterion on which firm perfor-
tional evaluations by examining firm responses mance is evaluated. We explore another salient
to positive evaluations. Burgeoning research on criterion of firm performance—social performance—
“wrongdoing” (e.g., scandals, product recalls, and build important distinctions between behavioral
boycotts) has shed valuable insight into how firms theory of the firm grounded in financial performance
respond to negative social performance feedback and our behavioral theory of the firm grounded in
with a robust repertoire of defensive measures social performance. Table 1 provides a summary of
(McDonnell & King, 2013; Zavyalova et al., 2016). these critical differences, each of which we elaborate
Our theory allows us to also examine when firms on in the following sections.
are above a social performance reference point
and specifies the risks associated with positive
Social Performance Feedback: An Important
social performance feedback, including social
Criterion Without Referents
performance investments exceeding financial ef-
ficiency (Barnett & Salomon, 2006) and increased Social performance has become an increasingly
likelihood of future violations of stakeholder ex- important and expected performance criterion of
pectations (Graffin, Bundy, Porac, Wade, & Quinn, contemporary firms (Porter & Kramer, 2011; Steger,
2013; Mishina, Block, & Mannor, 2012). In doing so we Ionescu-Somers, & Salzmann, 2007). Today’s man-
expound on the benefits and costs of “rightdoing.” agers are pushed to add social value, beyond that
required by regulations, and therefore tend to pur-
sue social performance alongside financial goals
REFERENCE POINT FORMATION (Porter & Kramer, 2006). While social performance
constitutes a critical criterion for contemporary
Financial Performance Feedback
firms, evaluation of social performance remains
Performance feedback plays a key role in firms’ problematic because of a lack of clear, reliable, and
decisions to adapt their strategies (Argote & easily accessible referents (Table 1, row 1).
Greve, 2007; Cyert & March, 1963; Greve, 2003) as The term social performance itself has been
they react to the discrepancy between a reference subject to great definitional debate. Clarkson
point and actual performance (Cyert & March, (1995) pointed to inherent “fuzziness” in the term,
1963). A reference point is composed of a criterion, while Waddock and Graves (1997) lamented the
which is the specific goal or outcome that is broad and poor measurement of the construct.262 Academy of Management Review April
TABLE 1
Contrasting Behavioral Theory Grounded in Financial versus Social Performance
Feature of Theory Financial Performance Social Performance
(1) Reference point criterion Clear Ambiguous
(2) Reference point referent Fixed Malleable
(3) Reference point formation Selected or imposed Negotiated
(4) Performance feedback Inferred Expressed
(5) Role of social identity Low High
(6) Strategic responses Occur close to reference point Occur far from reference point
Moreover, social performance activities fall along In a negotiation process, two parties have their own
a wide spectrum, from specific issues such as positions, with a set of expectations and desires
greenhouse gas emission reduction or gover- (Fisher, Ury, & Patton, 2011), but the full range of ex-
nance reform (Bundy et al., 2013) to broad appeals pectations is not immediately known by the other
to be good corporate citizens. Thus, while firms party (Fisher et al., 2011). As a result, social perfor-
may develop specific indicators (e.g., reduced mance reference point formation starts with an
amount of carbon emissions, more transparent opening stance—the firm exhibits a certain level of
reporting practices, improved union relations, social performance. Stakeholders subsequently as-
fewer product recalls), widely applicable mea- sess the firm’s social performance relative to their
sures and evaluation mechanisms across social expectations, which define “socially accepted and
performance initiatives and industry boundaries expected structures or behaviors” (Mitchell, Agle, &
remain elusive (Ballou, Heitger, & Landes, 2006; Wood, 1997: 866). In this way stakeholder expectations
Kroeger & Weber, 2014). In short, firm social per- provide a standard—or referent—against which the
formance is difficult to quantify and evaluate firm may evaluate its actual social performance.
(Luo, Wang, Raithel, & Zheng, 2015). In traditional However, since an accurate accounting of
behavioral theory of the firm terms, firms lack stakeholder expectations is not readily available,
referents for the increasingly important criterion firms cannot directly infer social performance
of social performance. We propose that under feedback as the discrepancy between a reference
these ambiguous conditions stakeholder expec- point and their actual behavior, as they do in the
tations play an important evaluation role by case of behavioral theory of the firm grounded in
serving as social performance referents. financial performance (cf. Shinkle, 2012). Instead,
stakeholders must express visible and active so-
cial performance feedback (Table 1, row 4). The
Stakeholder Expectations As a Social
expression of social performance feedback may
Performance Referent
take many forms, including direct conversations
In behavioral theory of the firm grounded in fi- with managers, social media communication,
nancial performance, reference points tend to be letter writing campaigns, or shareholder pro-
either selected by the firm or imposed on the firm posals. Yet not all stakeholders provide social
by external forces (Shinkle, 2012).1 In contrast, we performance feedback to firms, and not all feed-
propose that firms have agency in the degree to back is addressed by firms (Waldron, Navis, &
which they adopt, rebuff, or shape more malleable Fisher, 2013). We draw on social identity theory to
social performance reference points (e.g., Suchman, offer stakeholder identification with the firm as
1995). We view the formation of a social performance a theoretical explanation of when and how social
reference point as the outcome of a negotiation pro- performance feedback is likely to be expressed
cess between the firm and its stakeholders (Table 1, and addressed (Table 1, row 5).
rows 2 and 3).
A SOCIAL IDENTITY EXPLANATION FOR
SOCIAL PERFORMANCE FEEDBACK
1
A notable exception is the negotiation of financial perfor-
mance expectations with analysts (Bromiley, 1991; Luo et al., Social identity theory suggests that one’s self is
2015) or auditors (Bame-Aldred & Kida, 2007). defined by membership in social categories or2018 Nason, Bacq, and Gras 263 groups, including, among others, nationality, across the diverse set of stakeholders affiliated sports teams, or religious affiliation (Tajfel & with the firm, as stakeholders adopt a common set Turner, 1979). Individuals derive value and emo- of values and beliefs so as to conform to an ideal tional significance from their identification by prototype (Hogg, Terry, & White, 1995; Tajfel & perceiving a sense of oneness with other mem- Turner, 1979). Such a sense of oneness engenders bers of the ingroup (Ashforth & Mael, 1989; Dutton, collective ingroup cohesion and an adherence to Dukerich, & Harquail, 1994). Group identification the ingroup’s (i.e., the firm’s) membership norms may best be portrayed as a reciprocal relation- (Ashforth & Mael, 1989; Dutton et al., 1994; Tajfel & ship such that the individual derives meaning, Turner, 1979). belonging, and positive distinctiveness that de- Stakeholders can internalize a firm’s central fine and enhance the individual’s self-concept and distinctive organizational features, such as (Hogg & Terry, 2014; Whetten & Mackey, 2002), prestige (Mael & Ashforth, 1992), quality (Press & while the individual’s membership supports and Arnould, 2011), innovativeness (Kreiner & Ashforth, strengthens the group (Ashforth & Mael, 1989). 2004), or social performance (Bhattacharya & Sen, Social identity has been used to explain the 2004), by affiliating themselves with the organi- motivation of certain stakeholders to evaluate zation and participating in firm-related activities firms and provide negative social performance (Whetten & Mackey, 2002). For instance, con- feedback. Rowley and Moldoveanu (2003) de- sumers can prominently display their purchases scribed how identification with a cause in- (He, Li, & Harris, 2012; Simoes, Dibb, & Fisk, 2005), centivizes stakeholders to mobilize against firms. employees can participate in voluntary organi- For such cause-identified activists, negative so- zational activities outside of work (Dutton & cial performance feedback against a firm repre- Dukerich, 1991; Smidts, Pruyn, & Van Riel, 2001), sents an opportunity to express shared identity university graduates can engage with alumni centered around the cause and reinforces their networks (Mael & Ashforth, 1992; Zavyalova et al., distinctiveness as an outgroup relative to the firm 2016), suppliers can openly collaborate with (Ashforth & Mael, 1989). From a social identity buyers (Corsten, Gruen, & Peyinghaus, 2011), fi- perspective, negative feedback from an outgroup nanciers can invest in organizations that resonate is unsurprising (Tajfel & Turner, 1979). In fact, re- with their values (Bauer & Smeets, 2015), and any cent research indicates that firms have grown to stakeholder can become an organizational am- expect negative feedback from activists and have bassador (Del Rı́o, Vazquez, & Iglesias, 2001; Gyrd- developed a well-codified repertoire of defensive Jones & Kornum, 2013). These markers of identifi- actions in response (McDonnell & King, 2013). This cation enable stakeholders to internalize ingroup literature debates the degree to which firms view characteristics, serve as differentiators from out- activists as gadflies (Falconer, 2004), respond groups, and allow organizations to observe, keep meaningfully to hostile sources (Waldron et al., track of, and interact with this salient group of 2013), or are more subtly strategically morphed by stakeholders. We focus on stakeholders who use cause-identified feedback (McDonnell, King, & organizational features to define themselves and Soule, 2015). While the dynamics of “cause iden- who care about social performance. We refer to tification” have seen extensive developments in these important constituents as FI (firm-identified) the growing social movements literature (Briscoe stakeholders (cf. Zavyalova et al., 2016). & Gupta, 2016), we argue that organizational For FI stakeholders, the firm’s social perfor- identification represents an important, unexplored, mance, positive or negative, spills over into their and fundamentally different force undergirding identity. As Zavyalova and colleagues described both negative and positive social performance highly identified stakeholders, “They may ‘bask feedback. in the reflected glory’ of positive events (Cialdini Organizational identification provides the et al., 1976: 366), and may feel that their personal means to incorporate a firm’s central, distinctive, identities are threatened following negative and enduring characteristics into an individual’s events (Harrison, Ashforth, & Corley, 2009)” (2016: self-concept (Albert & Whetten, 1985; Dukerich, 258). For instance, in the context of social perfor- Golden, & Shortell, 2002) in order to satisfy the mance, there was a negative identity spillover for need for self-definition and meaning (Whetten & Volkswagen (VW) FI stakeholders when it was Mackey, 2002). Indeed, organizational identifica- revealed that the German car manufacturer tion fosters a sense of belonging and oneness cheated on emissions tests, and many VW-identified
264 Academy of Management Review April
customers felt “betrayed” by an organization they inconsistencies, focusing on consistencies, chang-
perceived as reliable and environmentally friendly ing expectations, or altering evaluations (Cooper &
(see AFP TV, 2015). Fazio, 1984; Sherman & Gorkin, 1980). We suggest
Indeed, social performance is of high interest to that FI stakeholders seek to maintain coherency
FI stakeholders (Sen & Bhattacharya, 2001) since it regarding their identity by granting the firm they
increasingly affects the decision of employees, identify with a relatively wide range of acceptable
consumers, and investors alike to engage with social performance behaviors. On the one hand,
an organization (Bhattacharya & Sen, 2004). For when there are minor negative discrepancies be-
instance, more than 70 percent of college students tween their expectations and the firm’s social per-
and 50 percent of workers are looking for jobs with formance, FI stakeholders will tend to avoid identity
social impact, and nearly 60 percent of students conflict when judging the firm’s social performance
are even willing to take a pay cut in order to work in order to preserve a sense of oneness with the firm
for a company that embodies their values. More (Ashforth & Mael, 1989). For instance, previous re-
than 50 percent of consumers would be willing search has shown that organizational identification
to pay more for goods and services offered by increases resilience by supporting the firm during
a company that gives back to society (Net Impact, times of negative attention (Bhattacharya & Sen,
2012). Our theory predicts that the growing set of FI 2004; Zavyalova et al., 2016). On the other hand, mi-
stakeholders who care about social performance nor positive discrepancies will fall in line with the FI
is at the source of meaningful social performance stakeholders’ perceptions of their firm. FI stake-
evaluation and feedback. holders will appreciate the positive attributes
As a result of their identity attachment to the derived from their firm identification, and it will
firm, FI stakeholders are incentivized to form clear reinforce FI stakeholders’ self-concept.
expectations and closely monitor the social per- Thus, to maintain and reinforce self-continuity in
formance activities of the firm they identify with. their identity, FI stakeholders are likely to tolerate
This stands in marked contrast to stakeholders and adapt to minor discrepancies by granting
who are nonidentified (i.e., identify neither with a wide range of acceptable social performance
the firm nor a cause). From a social identity per- behaviors to their firm. In other words, FI stake-
spective, nonidentified stakeholders have little holders’ organizational identification drives con-
incentive to express social performance feedback vergence between stakeholder expectations and
since they primarily derive their identity from a firm’s actual social performance, reducing the
other membership groups. Rather, following need to provide visible and active social perfor-
a negative event, nonidentified stakeholders face mance feedback to the firm. However, in the face of
low identity barriers to the stakeholder relation- major discrepancies, our theory contends that FI
ship and, thus, may be quick to cease their affili- stakeholders face other identity incentives to enter
ation (Packer, 2008; Zavyalova et al., 2016) or, a substantial negotiation process with the firm.
alternatively, may join more motivated stake-
holder groups, such as cause-identified activists
NEGOTIATING A SOCIAL PERFORMANCE
(Waldron et al., 2013). However, when a firm ex-
REFERENCE POINT
hibits high social performance, nonidentified
stakeholders may increase their organizational While we expect FI stakeholders to grant lati-
identification (Bhattacharya & Sen, 2004). We tude to a firm’s actual social performance when
suggest, though, that nonidentified stakeholders facing minor discrepancies, identity-driven moti-
are less likely to independently form codified ex- vations will incentivize FI stakeholders to provide
pectations regarding the social performance of visible and active social performance feedback
a firm, monitor firm activities, or invest efforts to when they face a major discrepancy. On the neg-
provide visible and active feedback to a firm from ative side, there are limits to the level of discrep-
which they do not derive identity characteristics. ancy a stakeholder is willing to endure (Blomqvist
In contrast, FI stakeholders are not only more & Posner, 2004; Zavyalova et al., 2016); on the
likely to closely monitor their firm’s social per- positive side, there are benefits to visibly praising
formance activities but also more likely to have an organization a stakeholder identifies with
strong incentives to agree with the firm’s social (Cialdini et al., 1976).
performance actions. Individuals seek to preserve Major discrepancies reflect a critical discon-
congruence in all aspects of their life by denying nect between firm and FI stakeholder views2018 Nason, Bacq, and Gras 265 regarding the appropriate level of social perfor- events (Mael & Ashforth, 1992). As a result, FI mance for the firm. Since FI stakeholders and stakeholders, as a collective, are likely to be rec- firms have agency regarding their responses, we ognized by firms and have high salience with propose that both firms and FI stakeholders enter firms owing to stakeholder power and legitimacy a negotiation process aimed at forming a social (Mitchell et al., 1997; Zavyalova et al., 2016). Power performance reference point. This negotiation is gained by FI stakeholders’ deep engagement process rests on conflict between stakeholders’ with the firm and the material support that would desire to maintain a positive self-concept and be lost if FI stakeholders exited the relationship, firms’ desire to maintain financial efficiency. As in essence giving FI stakeholders a utilitarian a result, negative feedback emanates from power base to influence the firm (Etzioni, 1964; stakeholder concerns around a firm’s past social Mitchell et al., 1997). Legitimacy stems from the performance activities, and positive feedback notion that FI stakeholders make up a foundation creates firm concerns around its future social of the firm’s most committed and engaged performance responsibilities. This negotiation stakeholders. may or may not end in a shared social perfor- Given this intimate connection, if a firm cannot mance reference point. satisfy the social performance expectations of its From the perspective of FI stakeholders, there is most enthusiastic stakeholders, it will likely not a range of strategies available to express social continue in the long run. Together, the power and performance feedback. Most broadly, FI stake- legitimacy accrued by the collective of FI stake- holders express feedback by providing or with- holders give FI stakeholders’ social performance holding financial, human, social, or natural feedback credence with firms. In this way FI resources (Frooman, 1999; Rowley, 1997; Rowley & stakeholders take an active stance in the stake- Moldoveanu, 2003). In a direct and conventional holder relationship (Mitchell et al., 1997), and fashion, FI stakeholders can write letters or have firms are incentivized to monitor FI stakeholder offline interactions with firm managers to express social performance feedback (Hall, 2015; Keys, their expectations. Technological advancements Malnight, & van der Graaf, 2009). provide contemporary stakeholders with even The social performance feedback expressed by greater ability to quickly and clearly communi- FI stakeholders provides an important bench- cate directly with firms. As of 2014, 83 percent of mark for firm social performance activities. How- Fortune 500 companies were on Facebook, 83 ever, firms have agency in responding to percent had Twitter accounts, and 97 were on stakeholder feedback (Berman, Wicks, Kotha, & LinkedIn (Barnes & Lascault, 2015). By utilizing Jones, 1999), and they can use a broad array of social media, blogs, video platforms, and con- strategies in their negotiation of the reference sumer review websites, stakeholders can air their point. This repertoire of tools can be broadly cat- praise or grievances in a forum that the public will egorized into two types: substantive and symbolic view and firms will monitor (Wang, Wezel, & (Bundy et al., 2013; Westphal & Zajac, 1998). Table 2 Forgues, 2016). provides an overview of each category of sub- From the perspective of the firm, it has in- stantive and symbolic strategic responses, in- centives to monitor and respond to FI stakeholder cluding definitions, precedent in the literature, feedback. Many firms seek to engender identifi- and select examples. cation among their stakeholders and even ac- Substantive actions alter firms’ actual social tively create FI stakeholders through initiatives performance levels. That is, firms undertake developing brand ambassadors, social media large-scale strategic changes that directly in- influencers, or highly dedicated employees crease or decrease social performance activities. (Malhotra, Malhotra, & See, 2013). In addition, FI Since measuring social performance is ambigu- stakeholders are often loyal constituents (Mael & ous, there is flexibility in how aggregate levels of Ashforth, 1995) and, thus, provide important re- social performance are altered. Substantive ac- sources to the firm (Ashforth & Mael, 1989). Em- tions may be technical, which we use to refer to ployee identification increases job satisfaction social performance changes to existing opera- and tenure (Turban & Greening, 1997). Alumni’s tions that address the root cause of the feedback identification with their alma mater increases the (Zavyalova, Pfarrer, Reger, & Shapiro, 2012). For likelihood they will donate (Zavyalova et al., 2016) instance, a clothing company facing criticism for and encourage their relatives to attend university poor labor practices in its manufacturing facilities
266 Academy of Management Review April
TABLE 2
Examples of Strategic Responses to Social Performance Feedback
Strategic Response Definition Precedent in the Literature (If Any) Select Examples from Text
Substantive actions Actions directed at moving Westphal & Zajac (1998),
actual social performance Zavyalova, Pfarrer, Reger, &
closer to expectations Hubbard (2016)
Substantive Social performance changes to Godfrey, Merrill, & Hansen (2009), Moving manufacturing location to
technical existing operations (addresses Zavyalova, Pfarrer, Reger, & more worker-friendly location
the root cause of the feedback) Shapiro (2012)
Substantive New social performance Developed in this article Launching a new line of eco-
additive initiatives (does not address friendly products
the root cause of feedback)
Symbolic actions Actions attempting to influence Ashforth & Gibbs (1990),
stakeholder expectations Westphal & Zajac (1998),
without changing actual social Zavyalova et al. (2012)
performance
Symbolic related Symbolic actions that are related Developed in this article Press release or social media
to social performance posting about volunteer
activities, philanthropic work,
or social performance award
Symbolic Symbolic actions that are Developed in this article Press release or social media
unrelated unrelated to social posting about product quality
performance award or strong financial
performance
may move the location of its manufacturing opera- in behavioral theory of the firm. Behavioral theory
tions to a more worker-friendly location. Alterna- of the firm grounded in financial performance
tively, substantive actions may be additive, which largely predicts changes in search behavior—
we define as creating new social performance ini- stimulating problemistic search below the refer-
tiatives that do not address the root cause. For in- ence point and reducing search above the reference
stance, the same clothing company may launch point (Cyert & March, 1963; Greve, 2003). We suggest
a new line of environmentally friendly clothes from that the ambiguous nature of social performance
recycled materials, without changing the location allows for a different pattern of firm strategic re-
or conditions of its manufacturing facility. Both sponses than those predicted by extant behavioral
substantive-technical and substantive-additive ac- theory. First, behavioral theory of the firm grounded
tions are intended to more closely align the firm with in financial performance predicts that pronounced
FI stakeholder expectations by increasing the ag- strategic responses will occur close to the reference
gregate level of firm social performance. point, since firms are most sensitive to feedback
In contrast, symbolic actions are intended to when they are just above or just below their refer-
alter stakeholder social performance expecta- ence point (Cyert & March, 1963). When it concerns
tions (Carroll, 1979; Davis & Blomstrom, 1966; social performance, we suggest that strategic re-
Mahon & Wartick, 2003), without changing the sponses will be more pronounced far away from the
actual level of the firm’s social performance (cf. reference point. That is, firms will tolerate relatively
Oliver, 1991). Symbolic tactics include public re- weak feedback and only be induced to make
lations and bargaining approaches to manage or meaningful responses when there are major dis-
manipulate FI stakeholder social performance crepancies and, thus, intense social performance
expectations. Symbolic actions may be related to feedback (Table 1, row 6).
social performance, such as drawing attention to Second, firms may directly increase or decrease
employee safety initiatives in a corporate social social performance (substantive actions) in a manner
responsibility (CSR) report, or unrelated to social that is not possible with financial performance. In-
performance, such as drawing attention to a deed, while there is certainty in quantifying financial
product quality award with a new press release. performance, there is little certainty regarding strat-
Substantive and symbolic responses expand egies implemented to improve financial perfor-
the traditional reactions to performance feedback mance, and, thus, financial performance must be2018 Nason, Bacq, and Gras 267
adjusted through indirect search behaviors (Gavetti from nonsocial enterprises (Table 1, row 5). Figure 1
et al., 2012). In contrast, ambiguity in measuring and illustrates the underlying logic and possible initial
aggregating social performance actually allows outcomes of the negotiation process depending on
firms to directly adapt it, since more recent initiatives feedback valence (negative or positive) and orga-
may overshadow past behaviors (Levinthal & March nizational identity (nonsocial versus social enter-
1993; Wagner, Lutz, & Weitz, 2009) and quickly change prise). Below we unpack this model by describing
stakeholder perceptions. why and how FI stakeholders and firms negotiate
Third, social performance also allows firms to acceptable levels of social performance in each of
alter reference points themselves in a manner these four scenarios.
that is not possible with more fixed financial
performance benchmarks. While firms may select
Nonsocial Enterprise Social Performance Below
different referents when underperforming finan-
FI Stakeholder Expectations
cially to cast themselves in a more positive light
(Jordan & Audia, 2012), they have little to no ability Expressing intense negative social perfor-
to change a referent itself. Firms cannot sub- mance feedback. When FI stakeholders discover
stantively change last year’s ROA or industry that the firm does not perform as well as expected
average ROA (Shinkle, 2012). In contrast, stake- in terms of, for example, recycling and sustain-
holder expectations are malleable (Coombs & able sourcing, stakeholders may rationalize the
Holladay, 2004; Finkelstein & Hambrick, 1988) and, behavior. Thoughts of the nature “That is proba-
thus, may be altered by symbolic actions that do bly standard for the industry” or “Limiting envi-
not involve changing the underlying social per- ronmental initiatives allows the company to
formance level. For these reasons, in contrast to provide reasonable prices to consumers or bene-
traditional behavioral theory of the firm, where fits to employees” essentially dismiss and avoid
a financial performance reference point is se- recognition of discrepancies between expecta-
lected and feedback is inferred, we suggest that tions and actual firm social performance. How-
a shared social performance reference point is ever, if the same stakeholders discover that the
actively negotiated between FI stakeholders and firm runs sweatshops using child labor, this dis-
the firm (Table 1, rows 1–4). covery may create an insurmountable discrep-
ancy with their expectations. For instance,
Zavyalova and colleagues (2016) found that, de-
SOCIAL PERFORMANCE FEEDBACK AND
spite initial support, highly identified stake-
STRATEGIC RESPONSES
holders eventually withdraw support from
There are two possible outcomes of the initial reputable organizations as the level of negative
negotiation stance: (1) actual social performance attention to the organization increases.
is below FI stakeholder expectations (i.e., negative Because individuals seek to view themselves in
feedback) or (2) actual social performance is above a positive light (Tajfel & Turner, 1979), FI stake-
FI stakeholder expectations (i.e., positive feed- holders will be concerned with the negative im-
back). Negative or positive performance feedback plications of such low social performance on
is a foundational basis in behavioral theory of the personal self-concept. This will trigger an
firm; however, we argue that social performance identity-driven reaction of self-protection, which
feedback dynamics will also depend on whether is the desire to shelter or defend one’s positive
social performance is central to organizational self-views in one’s own eyes or in the eyes of
identity (i.e., whether the firm is a social enterprise others (Alicke & Sedikides, 2009; Sedikides, 2009).
or not). While stakeholder identification with the We propose that self-protection will drive FI
firm motivates feedback, FI stakeholder percep- stakeholders to provide intense negative social
tions of acceptable social performance will be performance feedback—that is, visible and active
different when stakeholders identify with the firm criticism of the firm. Stakeholders may withhold
because of its social performance, as in the case of or provide critical resources (Frooman, 1999; Pfeffer
social enterprises. In addition, given that social & Salancik, 1978) or may seek to compel change
performance is at the core of their organizational (James & Wooten, 2006; Morrison, 1991). For in-
identity, social enterprises have identity-driven stance, FI employees may directly express concerns
incentives to respond to FI stakeholder social per- to managers of the firm (O’Connell, Stephens, Betz,
formance feedback and to distinguish their actions Shepard, & Hendry, 2005), decrease productivity268 Academy of Management Review April
FIGURE 1
Strategic Responses to Social Performance Feedback
Feedback valence
Negative Positive
Nonsocial enterprise
Legitimacy frame Efficiency frame
Substantive-additive responses Symbolic-unrelated responses
(P1) (P2)
Organizational identity
Social enterprise
Legitimacy + Efficiency +
self-protection frames self-enhancement frames
Substantive-technical responses Symbolic-related responses
(P3) (P4)
(Kristof-Brown, Zimmerman, & Johnson, 2005), and identity by differentiating the FI stakeholders
threaten to quit (Turban & Greening, 1997). FI con- from negative identity spillover. Individuals pro-
sumers may vocalize concerns through the media, tect their identity by distancing themselves from
decrease consumption, or demand change (Sen & unfavorable events and attempting to cast them-
Bhattacharya, 2001). FI suppliers may reduce the selves in a positive light (Hogg & Terry, 2014).
exchange of valuable tacit knowledge and explicit When the discrepancy between FI stakeholder
information (Dyer & Nobeoka, 2000) or decrease expectations and firm social performance is too
asset-specific investments (Dyer, 1997). significant to adapt expectations, intense nega-
The case of Market Basket provides a compel- tive social performance feedback is the mecha-
ling example of how FI stakeholders across di- nism that reconciles the identity threat. Intense
verse types can band together to express intense negative feedback serves to differentiate the FI
negative social performance feedback. Suppliers, stakeholders’ firm membership from the firm’s
employees, customers, and community members lower social performance activities. Second, in-
organized visible and active protests online and tense negative feedback seeks to preserve FI
in person, even boycotting the New England stakeholder identity by compelling the firm to re-
grocery store chain they cherished, to provoke align with FI stakeholders’ higher social perfor-
change after new leadership gained power, mance expectations.
forced out the beloved CEO, and violated FI While exiting the relationship with a firm that
stakeholder expectations by cutting the firm’s falls far below social performance expectations is
long-standing commitment to community social an option for non-FI stakeholders, this is not the
performance (Newbert & Craig, 2015). case for FI stakeholders. FI stakeholders are
We contend that this intense negative feedback deeply associated with the firm, to the extent that
fulfills two self-protection identity purposes for FI they derive their self-concept from it. As a result,
stakeholders. First, it protects current stakeholder exiting the relationship means undertaking a2018 Nason, Bacq, and Gras 269 challenging, uncomfortable, time-consuming, and legitimacy loss from other stakeholders. Ingroup FI costly process of identity change to disidentify from stakeholders may utilize their power to mobilize the firm. External recognition of group member- nonidentified stakeholders or add credibility to the ship means that organizational features become claims of outgroup activist stakeholders (Waldron entrenched in how FI stakeholders are perceived et al., 2013). Indeed, if loyal stakeholders are un- and categorized by others (Turner & Onorato, 1999). satisfied with social performance levels, the firm is Other groups are unlikely to be willing to accept unlikely to find support from other stakeholder new and stigmatized members into their own groups. Thus, firms must take FI stakeholders’ ingroup under unfavorable conditions. In addition, grievances seriously. the internal fulfillment of identity from group Firms have several options regarding how to membership means that removing something from respond to this intense negative social perfor- one’s identity involves questioning one’s beliefs, mance feedback. First, they could ignore the remodeling mental schemas, and redefining who negative feedback. While some firms may come one is (Burke, 2006). As described above, there are out relatively unscathed when ignoring cause- strong self-continuity incentives not to undergo identified activists (Waldron et al., 2013), FI dramatic identity changes. Since disentangling stakeholders provide far more support and ulti- identity once one is highly identified is very dif- mately confer legitimacy. Thus, we argue that FI ficult, FI stakeholders are likely to view dis- stakeholders hold greater bargaining power in identifying and rebuilding identity through other the reference point negotiation with the firm than groups as a tactic of last resort (Burke, 2006). activists and will demand a response. While However, FI stakeholders’ dissent (i.e., attempts a firm may consider leaving the negotiation and to challenge group behavior) can actually signal engendering identification in an alternative set of their loyalty to the firm while showing a willingness stakeholders (who can then provide them with to improve the group (Packer, 2008). For these rea- legitimacy), this is not likely to be feasible in the sons, we suggest that FI stakeholders have strong midst of intense negative scrutiny. incentives to provide intense negative feedback Second, firms may respond with symbolic ac- that brings about changes in social performance tions that seek to appease FI stakeholders and activities to restore the firm and corresponding manipulate their expectations. Again, symbolic stakeholder self-identity to a positive light. actions may be an effective tactic when facing Strategic framing and responding to negative activist criticisms, since this tactic can mollify social performance feedback. In the context of outrage and mitigate the spread of negative social performance, we contend that the tradi- attention to other more salient stakeholders tional behavioral theory of the firm’s loss (McDonnell & King, 2013; Waldron et al., 2013). frame—which captures concern regarding pre- However, since FI stakeholders share identity at- vious financial performance below the reference tributes with the firm, they are likely to see point—will manifest as a legitimacy concern. through the veil of symbolic actions intended to That is, we propose that nonsocial enterprises move stakeholder expectations without changing filter intense negative social performance feed- actual social performance. In fact, attempts to back from FI stakeholders through a strategic “greenwash” or enact other less meaningful ini- frame of legitimacy. When firm social perfor- tiatives when facing intense negative social per- mance falls below FI stakeholder expectations, formance feedback may actually exacerbate the firm will question whether it adheres to negative impressions (Zavyalova et al., 2012) and stakeholders’ values and norms of acceptable stimulate further backlash against the firm’s behavior (Suchman, 1995). Since FI stakeholders perceived insincere response to intense identity- are salient stakeholders, violating their expecta- driven feedback. As a result, we theorize that tions has material influence on firm resources firms receiving intense negative feedback from FI (Cragg & Greenbaum, 2002; Pajunen, 2006). If left stakeholders will move beyond a mere concern unchecked, a loss of legitimacy may destabilize with keeping up appearances (cf. McDonnell & operations and even threaten the very survival of King, 2013). the firm (Dowling & Pfeffer, 1975; Suchman, 1995). Connelly, Tihanyi, Certo, and Hitt (2010) have Furthermore, if FI stakeholders deem firm be- made analogous arguments about substantive ac- haviors to be illegitimate, they can not only with- tions by firms with dedicated institutional investors draw legitimacy endowments but also stimulate who have higher ownership concentrations—and,
270 Academy of Management Review April we suggest, are likely to hold stronger identification I voice my concerns” section, encouraging stake- with their investments—compared to more tran- holders to visibly and actively vocalize feedback sient investors. These authors found that firms with across outlets, such as commenting on their dedicated institutional investors are more likely to stories, contacting the company, or contacting enact tangible strategic competitive actions com- the Environmental Protection Agency (Barlett, pared to potentially reversible tactical actions. In Naranjo, & Plungis, 2017). In response, VW the case of social performance, we propose that announced a new major social performance firms will respond to intense negative FI stake- initiative—an aggressive strategic plan focused holder feedback with substantive responses that on electric cars, with no less than thirty new increase actual levels of social performance, rather electric vehicles across its brands by 2025 (Geuss, than more superficial symbolic actions. However, 2016). This additive approach introduces a new since social performance is ambiguous, its level and more legitimately eco-friendly product to its can be directly increased either by launching new existing line of reliable and high-performance social performance initiatives (substantive addi- cars. tive) or by addressing the root cause of the negative This practical evidence exemplifies our more attention (substantive technical). formal proposition. We suggest that firms for which social perfor- mance is not central to organizational identity are Proposition 1: Nonsocial enterprises are likely to enact substantive-additive responses to likely to respond to intense negative intense negative performance feedback. Substantive- social performance feedback from FI additive responses are tangible and meaningful so- stakeholders with new social perfor- cial performance actions but do not involve the same mance initiatives (substantive additive). level of cost and risk as altering core operational ac- Nonsocial Enterprise Social Performance Above tivities. In this way, substantive-additive strategies FI Stakeholder Expectations allow firms to create new social performance activi- ties without making dramatic changes to existing Expressing intense positive social perfor- operations. However, the new social initiatives serve mance feedback. On the positive side of the ref- the purpose of restoring FI stakeholder alignment erence point, when an FI stakeholder realizes that with the firm, since overall levels of social perfor- their firm sponsors a local Little League baseball mance activity increase. Thus, in this scenario, team, they may align expectations with perfor- substantive-additive responses of social perfor- mance through such thoughts as “Of course it mance represent the most viable means to realign does things like this; it’s a good corporate citizen” expectations and restore legitimacy. or “That is normal for modern corporations.” The recent VW “dieselgate” emissions scandal However, if the same stakeholder discovers that exemplifies the dynamics of negative social per- the firm unexpectedly donated $10 million to a formance feedback. VW is generally known for local homeless shelter, they are likely to have safety, quality, and reliability; hence, stake- a more intense response driven by self-enhancement holders are likely to identify with these central identity considerations. Self-enhancement refers to organizational characteristics. When it was re- the desire to amplify the positive aspects of the self vealed that VW cheated by artificially reducing in one’s own eyes or in the eyes of others (Shore, emissions levels during testing compared to real- Cleveland, & Goldberg, 2003). This need for high world driving, VW’s FI stakeholders who cared self-esteem will induce FI stakeholders to further about social performance were motivated to pro- associate their self with the firm. tect their own identity by voicing intense negative Self-enhancement will drive FI stakeholders to social performance feedback. CNN profiled FI VW provide intense positive social performance drivers who described identity harm arising from feedback—that is, visible and active praise for being deceived by a car they really believed in their firm. Visible and active praise allows at- (Garcia, 2015). The intense identity reactions of FI tractive firm attributes to reflect on and be stakeholders even became the subject a popular incorporated into identity (Ashforth & Mael, 1989; parody featuring FI VW owners expressing their Cialdini et al., 1976). In the case of social perfor- feelings of betrayal to their cars (Funny or Die, mance above FI stakeholder expectations, in- 2015). Consumer reports created a guide to the tense positive feedback allows FI stakeholders emissions scandal that concluded with a “How do to reap the positive benefits of firm affiliation. In
2018 Nason, Bacq, and Gras 271 doing so, FI stakeholders incorporate the higher earlier, when positive attributes of higher social levels of social performance into their self- performance are incorporated into an FI stake- concept, which also raises their future expecta- holder’s self-concept, it raises their future expec- tions of social performance. tations of firm social performance. In this way, Stakeholders have a broad range of means to firms may face a type of social performance “Red communicate visible and active praise to a firm. Queen effect” (Derfus, Maggitti, Grimm, & Smith, They may increase their direct contact with the 2008; van Valen, 1977) such that the more social firm through writing letters of appreciation, a firm becomes, the more social performance FI “@”ing the firm on social media with praise, and stakeholders will expect. This can create an es- producing more favorable reviews (Bhattacharya calating cycle whereby firms must engage in an & Sen, 2004). They may also seek to engage other increasing level of social performance to satisfy stakeholder groups in recognition of the firm by stakeholder demands, which, in turn, causes mobilizing social media campaigns or garnering firms to endure increasing expenditures and risk more traditional media attention. Employees may future legitimacy loss. increase organizational citizenship and extra- As a result, firms for which social performance role behaviors (Dutton et al., 1994). is not central to organizational identity will take In sum, we suggest that FI stakeholders express action to mitigate rising social performance ex- the major positive discrepancy between expec- pectations. However, managing future expectations tations and firm social performance by providing under conditions of positive social performance intense positive social performance feedback to feedback from FI stakeholders is a delicate issue. enhance their own self-concept. Whereas embracing positive acclaim makes Strategic framing and responding to positive firms vulnerable to violating rising expectations social performance feedback. In the context of and experiencing intense negative social perfor- social performance, we suggest that the tradi- mance feedback in the future, rejecting positive tional behavioral theory of the firm’s gain social performance feedback risks alienating FI frame—which captures the perspective re- stakeholders who welcome the reputational ben- garding previous financial performance above efits conferred by higher levels of firm social the reference point—will manifest as an effi- performance than expected. ciency concern. Intense positive social perfor- We propose that firms address this conundrum mance feedback signals to a firm that it is by resorting to symbolic actions that attempt to investing in social performance activities that alter stakeholder expectations without changing were not demanded or expected. Engaging in so- the actual level of firm social performance. Past cial performance activities is costly (Walters research has examined how firms utilize sym- et al., 2010; Williamson, Lynch-Wood, & Ramsay, bolic actions related to social performance to 2006), and these activities’ financial returns are address negative feedback from activists not always clear (Ullmann, 1985; Wood & Jones, (McDonnell & King, 2013; Oliver, 1991; Suchman, 1995). As such, the benefits of social performance 1995), including the use of CSR reports (Feldner & beyond FI stakeholder expectations are likely to Berg, 2014), social media activity touting philan- be lower than the costs. In fact, Barnett and thropic programs (Gershbein, 2015), or press re- Salomon (2006) proposed that the relationship leases related to social performance awards between social performance and financial per- (Zavyalova et al., 2012). However, we argue that formance takes an inverted-U shape, indicating when firms face intense positive social perfor- that an overabundance of social performance will mance feedback, symbolic actions related to so- ultimately conflict with financial performance. cial performance may serve to “pile on” social We follow this logic and argue that the turning accolades that are likely to exacerbate already point where social performance activities exhibit rising expectations. In contrast to extant litera- diminishing returns is at the level of FI stake- ture, we contend that firms use symbolic actions holder expectations. That is, investing in social unrelated to social performance to address in- performance activities beyond what the firm’s tense positive feedback from FI stakeholders. loyal and influential FI stakeholders expect con- Symbolic actions unrelated to social perfor- stitutes investments with limited recompense. mance include social media posts emphasizing There is further danger to intense positive so- product quality, annual reports focusing on eco- cial performance, beyond costs. As described nomic trends, or press releases indicating financial
You can also read
