PENTING-BENCH DISERTASI-social Identity - Social Performance

Academy of Management Review
A BEHAVIORAL THEORY OF SOCIAL PERFORMANCE:

SOCIAL IDENTITY AND STAKEHOLDER EXPECTATIONS
Journal: Academy of Management Review
Manuscript ID AMR-2015-0081-Original.R4
Manuscript Type: Original Manuscript
Decision Theory (Behavioral), Stakeholder Theory, Social Issues,

Keywords:
Performance evaluation & management, Social Identity
Firms utilize reference points to evaluate financial performance, frame gain

or loss positions, 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 upon 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 stakeholders provide intense feedback when
Abstract:
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 calibrate responses to social performance feedback
differently than non-social enterprises. Our behavioral theory of social
performance advances knowledge of organizational evaluations and
responses to stakeholder feedback.
Page 1 of 66 Academy of Management Review
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9 A BEHAVIORAL THEORY OF SOCIAL PERFORMANCE:
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SOCIAL IDENTITY AND STAKEHOLDER EXPECTATIONS
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Robert S. Nason
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18 Concordia University
19 robert.nason@concordia.ca
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22 Sophie Bacq
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Northeastern University
25 s.bacq@neu.edu
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28 David Gras
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University of Tennessee
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31 dgras@utk.edu
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40 Acknowledgements. We are completely indebted to our Editor Mike Pfarrer for his thoughtful
41 and careful guidance and three anonymous reviewers for developmental comments that brought
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out the best in our ideas. Big thanks to Ruth Aguilera and all of those who graciously provided
44 precious advice and feedback on previous versions of this manuscript including Marya Besharov,
45 Michael Carney, Greg Fisher, Young-Chul Jeong, and Gideon Markman, as well as participants
46 in the JMSB Research Conversations Brownbag. We are also incredibly grateful to those who
47 inspired and supported us along the way including Elizabeth Eley, Tara Pandya, Gary Weckx,
48 and Hadrien who arrived during the publication process. Special thanks to Lili and Oli for
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50 contributions that fueled the writing process for one author. Usual disclaimers apply.
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Academy of Management Review Page 2 of 66
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A BEHAVIORAL THEORY OF SOCIAL PERFORMANCE:
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5 SOCIAL IDENTITY AND STAKEHOLDER EXPECTATIONS
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8 Abstract
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Firms utilize reference points to evaluate financial performance, frame gain or loss positions, and
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13 guide strategic behavior. However, there is little theoretical underpinning to explain how social
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15 performance is evaluated and integrated into strategic decision-making. We fill this void with
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18 new theory built upon the premise that inherently ambiguous social performance is evaluated and
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20 interpreted differently than largely clear financial performance. We propose that firms seek to
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22 negotiate a shared social performance reference point with stakeholders who identify with the
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25 organization and care about social performance. While incentivized to align with the firm, firm-
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27 identified stakeholders provide intense feedback when there are major discrepancies between
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their expectations and the firm’s actual social performance. Firms frame and respond to feedback
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32 differently depending on the feedback valence: negative feedback will be framed as a legitimacy
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34 threat, and firm responses are likely to be substantive; positive feedback will be framed as an
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37 efficiency threat, and firm responses are likely to be symbolic. However, social enterprises face a
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39 double standard in evaluations and calibrate responses to social performance feedback differently
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41 than non-social enterprises. Our behavioral theory of social performance advances knowledge of
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44 organizational evaluations and responses to stakeholder feedback.
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47 Keywords: behavioral theory; cause identification; double standard; organizational
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50 identification; rightdoing; social enterprise; social identity theory; social performance;
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52 stakeholder expectations; stakeholder feedback
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Firms utilize reference points to evaluate performance and frame gain or loss positions (Cyert
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6 & March, 1963; Shinkle, 2012). The discrepancy between a reference point and the firm’s actual
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8 performance, referred to as performance feedback, is used to guide future strategic behavior
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(Cyert & March, 1963; Shinkle, 2012). A growing performance feedback literature (Gavetti,
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13 Greve, Levinthal, & Ocasio, 2012) evaluates readily quantifiable financial indicators such as
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15 return on assets (ROA; Chrisman & Patel, 2012), Altman’s Z (Iyer & Miller, 2008), and sales
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18 (Greve, 2008), against a firm’s own historical performance (Greve, 1998; Massini, Lewin, &
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20 Greve, 2005) or the performance of industry peers (Mishina, Dykes, Block, & Pollock, 2010).
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22 However, financial performance is not the sole reference point for firms. Firms are
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25 increasingly pushed to engage in societal contributions beyond mere regulatory compliance
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27 (Filatotchev & Nakajima, 2014; Foerstl, Azadegan, Leppelt, & Hartmann, 2015). As a result,
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social performance—voluntary business action(s) with social or third party effects (Schuler &
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32 Cording, 2006)—is now squarely on the strategic agenda of contemporary firms (Waddock,
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34 Bodwel, & Graves, 2002). As Porter and Kramer (2006: 1) claim, “social performance has
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37 emerged as an inescapable priority for business leaders in every country.”
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39 We draw on behavioral theory of the firm and social identity theory to build new theory
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41 capable of explaining how firms form, frame, and respond to social performance reference
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44 points. In doing so, we elucidate key differences between behavioral theory of the firm grounded
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46 in financial performance and our behavioral theory of the firm grounded in social performance.
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48 First, there are differences regarding performance feedback formation. Behavioral theory of the
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51 firm grounded in financial performance tends to assume that firms select their reference point,
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53 composed of a critertion and referent, and directly infer performance feedback. For instance, a
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firm can immediately recognize its position relative to a financial reference point by comparing
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its ROA (the criterion) against the industry average ROA (the referent). In contrast, social
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6 performance lacks clear reference points. There is little consensus about how to measure the
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8 criterion of social performance (Aguinis & Glavas, 2012; Clarkson, 1995; Margolis & Walsh,
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2003), let alone reliable referents to use as benchmarks. Under these ambiguous conditions we
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13 argue that firms tend to rely primarily on the expectations of their firm-identified (FI)
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15 stakeholders—that is, stakeholders who derive their identity from organizational attributes
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18 (Zavyalova, Pfarrer, Reger, & Hubbard, 2016). In particular, we suggest that FI stakeholders
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20 who care about social performance are incentivized to provide social performance feedback since
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22 they derive their self-concept from the organization, and firms have incentives to heed their
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25 feedback because of the power and legitimacy based salience of FI stakeholders. We define
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27 social performance feedback as the visible and active expression of discrepancies between
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stakeholder expectations and the firm’s actual social performance.
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32 Second, there are differences regarding firm framing of social performance feedback.
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34 Traditionally, firms adopt a loss frame to interpret negative feedback, which triggers
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37 problemistic search in order to solve the performance short-falling (Cyert & March, 1963), while
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39 firms adopt a gain frame to interpret positive feedback, which induces strategic conservatism due
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41 to satisficing and unwillingness to fall below the reference point (Greve, 2003). When assessing
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44 social performance, we theorize that a loss frame will manifest as a legitimacy frame and a gain
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46 frame will manifest as an efficiency frame. In a loss position, given the threat of losing crucial FI
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48 stakeholder support, firms will be concerned about falling too far below FI stakeholder
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51 expectations. On the other hand, in a gain position, given the cost and the uncertain financial
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53 benefits of social performance (Walters, Kroll, & Wright, 2010; Wood & Jones, 1995), firms
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will try to avoid undertaking social performance activities too far above FI stakeholder
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expectations. As a result, we differentiate between weak performance feedback that results from
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6 minor discrepancies with FI stakeholder expectations, and intense performance feedback that
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8 flows from major discrepancies. We theorize that firms are likely to respond only to intense
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social performance feedback which involve a critical mass of consistent (negative or positive) FI
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13 stakeholder feedback. As such, whereas behavioral theory of the firm grounded in financial
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15 performance theorizes that strategic responses are most pronounced close to the reference point
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18 (Cyert & March, 1963), we theorize that firms are rather content when close to a social
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20 performance reference point, but utilize more marked responses when far away from it.
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22 Third, there are critical differences in how firms respond to social performance feedback
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25 compared to financial performance feedback. The ambiguous nature of social performance
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27 allows firms to enact a broader range of strategic responses to address a more malleable
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reference point of stakeholder expectations. However, firms vary significantly in the importance
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32 that they place on social performance which is likely to influence how firms are evaluated and
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34 respond to social performance feedback. We theorize that FI stakeholders are likely to hold
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37 social enterprises—firms for which social performance is central to organizational identity—to
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39 higher standards than non-social enterprises that do not have social performance as central to
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41 organizational identity. Since social performance feedback strikes at the core of their self-
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44 concept by generating identity threats and opportunities (Crane & Livesey, 2003), social
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46 enterprises are likely to enact responses that differentiate them from non-social enterprises.
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48 By integrating social performance into behavioral theory of the firm, we advance existing
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51 research in three primary ways. First, we address calls to provide theoretical grounding to
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53 reference point formation (Holmes, Bromiley, Devers, Holcomb, & McGuire, 2011; Shinkle,
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2012), especially under ambiguous conditions (Fang, Kim, & Milliken, 2014). Rather than
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assuming that a reference point is a static benchmark that is selected by the firm and sequentially
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6 adapted from year to year (Chen, 2008; Chrisman & Patel, 2012) or an empirically-driven weight
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8 of referents (Greve, 2003; 2007; 2008), we conceptualize reference point formation as a
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negotiation between FI stakeholder referents and an organization endowed with a broad array of
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13 strategic responses to influence those referents. Second, we explicate the role of identity in social
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15 performance reference point formation, framing, and response. We theorize that FI stakeholder
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18 identification with a firm generates self-continuity incentives to align expectations with the firm
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20 when discrepancies are minor (Cooper & Fazio, 1984; Zavyalova et al., 2016), but identity
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22 considerations of self-protection and self-enhancement induce FI stakeholders to provide
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25 intense—visible and active—feedback when discrepancies are major. Further, our theory not
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27 only contends that identity considerations impact how stakeholders assess social performance
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activities across firms with different organizational identities, but also that organizational identity
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32 affects firm responses to performance feedback (Bundy et al., 2013).
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34 Finally, we extend literature on organizational evaluations by examining firm responses to
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37 positive evaluations. Burgeoning research on “wrongdoing” (e.g., scandals, product recalls,
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39 boycotts) has shed valuable insight into how firms respond to negative social performance
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41 feedback with a robust repertoire of defensive measures (McDonnell & King, 2013; Zavyalova et
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44 al., 2016). Our theory allows us to also examine when firms are above a social performance
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46 reference point and specifies the risks associated with positive social performance feedback,
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48 including social performance investments exceeding financial efficiency (Barnett & Salomon,
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51 2006) and increased likelihood of future violations of stakeholder expectations (Graffin, Bundy,
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53 Porac, Wade, & Quinn, 2013; Mishina, Block, & Mannor, 2012). In doing so, we expound on the
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benefits and costs of “rightdoing.”
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REFERENCE POINT FORMATION
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6 Financial Performance Feedback
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8 Performance feedback plays a key role in firms’ decisions to adapt their strategies (Argote &
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Greve, 2007; Cyert & March, 1963; Greve, 2003) as firms react to the discrepancy between a
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13 reference point and actual performance (Cyert & March, 1963). A reference point is comprised
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15 of a criterion, which is the specific goal or outcome that is evaluated, and a referent, which is the
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18 object of comparison against which the firm is evaluated (Shinkle, 2012).
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20 The vast majority of work examining the role of performance feedback has used financial
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22 performance as the criterion component of the reference point (Gavetti et al., 2012; Shinkle,
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25 2012). Financial performance is generally clear and readily quantifiable. The presentation of
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27 financial performance is institutionalized in annual reports and business plans (Honig &
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Karlsson, 2004). Furthermore, financial performance feedback mechanisms are easily accessible.
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32 Firms can readily review their own historical financial statements, assess their standing within an
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34 industry (Watson, 1993), and public companies can rely on capital markets for real-time
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37 performance appraisals. This clear and relatively quick financial performance feedback allows
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39 firms to adapt strategies accordingly. However, the rise of corporations engaging in social
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41 performance activity (Porter & Kramer, 2011) makes it untenable that financial performance is
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44 the only criterion on which firm performance is evaluated. We explore another salient criterion
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46 of firm performance—social performance—and build important distinctions between behavioral
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48 theory of the firm grounded in financial performance and our behavioral theory of the firm
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51 grounded in social performance. Table 1 provides a summary of these critical differences, each
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53 of which we elaborate on in the following sections.
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[INSERT TABLE 1 ABOUT HERE]
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Social Performance Feedback: An Important Criterion without Referents
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6 Social performance has become an increasingly important and expected performance
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8 criterion of contemporary firms (Porter & Kramer, 2011; Steger, Ionescu-Somers, & Salzmann,
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2007). Today’s managers are pushed to add social value, beyond that required by regulations,
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13 and thus tend to pursue social performance alongside financial goals (Porter & Kramer, 2006).
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15 While social performance constitutes a critical criterion for contemporary firms, evaluation of
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18 social performance remains problematic due to a lack of clear, reliable, and easily accessible
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20 referents (Table 1, row 1). The term “social performance” itself has been subject to great
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22 definitional debate. Clarkson (1995) points to inherent “fuzziness” in the term, while Waddock
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25 and Graves (1997) lament the broad and poor measurement of the construct. Moreover, social
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27 performance activities fall along a wide spectrum from specific issues, such as greenhouse gas
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emission reduction or governance reform (Bundy et al., 2013), to broad appeals to be good
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32 corporate citizens. Thus, while firms may develop specific indicators (e.g., reduced amount of
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34 carbon emissions; more transparent reporting practices; improved union relations; fewer product
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37 recalls), widely-applicable measures and evaluation mechanisms across social performance
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39 initiatives and industry boundaries remain elusive (Ballou, Heitger, & Landes, 2006; Kroeger &
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41 Weber, 2014). In short, firm social performance is difficult to quantify and evaluate (Luo, Wang,
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44 Raithel, & Zheng, 2015). In traditional behavioral theory of the firm terms, firms lack referents
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46 for the increasingly important criterion of social performance. Under these ambiguous
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48 conditions, we propose that stakeholder expectations play an important evaluation role by
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51 serving as social performance referents.
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53 Stakeholder Expectations as a Social Performance Referent
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In behavioral theory of the firm grounded in financial performance, reference points tend to
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be either selected by the firm or imposed on the firm by external forces (Shinkle, 2012).1 In
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6 contrast, we propose that firms have agency in the degree to which they adopt, rebuff, or shape
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8 more malleable social performance reference points (e.g., Suchman, 1995). We view the
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formation of a social performance reference point as the outcome of a negotiation process
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13 between the firm and its stakeholders (Table 1, rows 2 & 3).
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15 In a negotiation process, two parties have their own positions with a set of expectations and
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18 desires (Fisher, Ury, & Patton, 2011), but the full range of expectations is not immediately
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20 known by the other party (Fisher et al., 2011). As a result, social performance reference point
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22 formation starts with an opening stance—the firm exhibits a certain level of social performance.
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25 Stakeholders subsequently assess the firm’s social performance relative to their expectations,
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27 which define “socially accepted and expected structures or behaviors” (Mitchell, Agle, & Wood,
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1997: 866). In this way, stakeholder expectations provide a standard—or referent—against
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32 which the firm may evaluate its actual social performance.
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34 However, since an accurate accounting of stakeholder expectations is not readily available,
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37 firms cannot directly infer social performance feedback as the discrepancy between a reference
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39 point and their actual behavior, as they do in the case of behavioral theory of the firm grounded
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41 in financial performance (cf. Shinkle, 2012). Instead, stakeholders must express visible and
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44 active social performance feedback (Table 1, row 4). The expression of social performance
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46 feedback may take many forms, including direct conversations with managers, social media
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48 communication, letter writing campaigns, or shareholder proposals. Yet, not all stakeholders
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51 provide social performance feedback to firms and not all feedback is addressed by firms
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53 (Waldron, Navis, & Fisher, 2013). We draw on social identity theory to offer stakeholder
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57 A notable exception is the negotiation of financial performance expectations with analysts (Bromiley, 1991; Luo et
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identification with the firm as a theoretical explanation of when and how social performance
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6 feedback is likely to be expressed and addressed (Table 1, row 5).
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8 A SOCIAL IDENTITY EXPLANATION TO SOCIAL PERFORMANCE FEEDBACK
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Social identity theory suggests that one’s self is defined by membership in social categories
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13 or groups, including nationality, sports teams, or religious affiliation (Tajfel & Turner, 1979).
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15 Individuals derive value and emotional significance from their identification by perceiving a
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18 sense of oneness with other members of the in-group (Ashforth & Mael, 1989; Dutton, Dukerich,
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20 & Harquail, 1994). Group identification may best be portrayed as a reciprocal relationship such
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22 that the individual derives meaning, belonging, and positive distinctiveness that define and
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25 enhance the individual’s self-concept (Hogg & Terry, 2014; Whetten & Mackey, 2002), while
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27 individual’s membership supports and strengthens the group (Ashforth & Mael, 1989).
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Social identity has been used to explain the motivation of certain stakeholders to evaluate
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32 firms and provide negative social performance feedback. Rowley and Moldoveanu (2003)
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34 describe how identification with a cause incentivizes stakeholders to mobilize against firms. For
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37 such cause-identified activists, negative social performance feedback against a firm represents an
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39 opportunity to express shared identity centered around the cause, and reinforces their
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41 distinctiveness as an out-group relative to the firm (Ashforth & Mael, 1989). From a social
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44 identity perspective, negative feedback from an out-group is unsurprising (Tajfel & Turner,
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46 1979). In fact, recent research indicates that firms have grown to expect negative feedback from
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48 activists and developed a well codified repertoire of defensive actions in response (McDonnell &
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51 King, 2013). This literature debates the degree to which firms view activists as gadflies
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53 (Falconer, 2004), respond meaningfully to hostile sources (Waldron et al., 2013), or are more
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subtly strategically morphed by cause-identified feedback (McDonnell, King, & Soule, 2015).
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While the dynamics of “cause identification” have seen extensive developments in the growing
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6 social movements literature (Briscoe & Gupta, 2016), we argue that organizational identification
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8 represents an important, unexplored, and fundamentally different force undergirding both
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negative and positive social performance feedback.
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13 Organizational Identification and Social Performance Feedback
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15 Organizational identification provides the means to incorporate a firm’s central, distinctive,
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18 and enduring characteristics into an individual’s self-concept (Albert & Whetten, 1985;
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20 Dukerich, Golden, & Shortell, 2002) in order to satisfy needs for self-definition and meaning
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22 (Whetten & Mackey, 2002). Indeed, organizational identification fosters a sense of belonging
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25 and oneness across the diverse set of stakeholders affiliated with the firm, as stakeholders adopt a
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27 common set of values and beliefs in order to conform to an ideal prototype (Hogg, Terry, &
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White, 1995; Tajfel & Turner, 1979). Such a sense of oneness engenders collective in-group
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32 cohesion and an adherence to the in-group (i.e., the firm) membership norms (Ashforth & Mael,
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34 1989; Dutton et al., 1994; Tajfel & Turner, 1979).
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37 Stakeholders can internalize a firm’s central and distinctive organizational features, such as
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39 prestige (Mael & Ashforth, 1992), quality (Press & Arnould, 2011), innovativeness (Kreiner &
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41 Ashforth, 2004), or social performance (Bhattacharya & Sen, 2004) by affiliating themselves
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44 with the organization and participating in firm-related activities (Whetten & Mackey, 2002). For
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46 instance, consumers can prominently display their purchases (He, Li, & Harris, 2012; Simoes,
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48 Dibb, & Fisk, 2005), employees can participate in voluntary organizational activities outside of
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51 work (Dutton & Dukerich, 1991; Smidts, Pruyn, & Van Riel, 2001), university graduates can
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53 engage with alumni networks (Mael & Ashforth, 1992; Zavyalova et al., 2016), suppliers can
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openly collaborate with buyers (Corsten, Gruen, & Peyinghaus, 2011), financiers can invest in
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organizations that resonate with their values (Bauer & Smeets, 2015), and any stakeholder can
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6 become an organizational ambassador (Del Río, Vazquez, & Iglesias, 2001; Gyrd-Jones &
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8 Kornum, 2013). These markers of identification enable stakeholders to internalize in-group
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characteristics, serve as differentiators from out-groups, and allow organizations to observe, keep
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13 track of, and interact with this salient group of stakeholders. We focus on stakeholders who use
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15 organizational features to define themselves and care about social performance. We refer to these
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18 important constituents as firm-identified (FI) stakeholders (cf. Zavyalova et al., 2016).
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20 For FI stakeholders, the firm’s social performance, positive or negative, spills over into their
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22 identity. As Zavyalova and colleagues (2016: 258) describe highly identified stakeholders, “They
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25 may ‘bask in the reflected glory’ of positive events (Cialdini et al., 1976: 366), and may feel that
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27 their personal identities are threatened following negative events (Harrison, Ashforth, & Corley,
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2009).” For instance, in the context of social performance, there was a negative identity spillover
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32 for Volkswagen FI stakeholders when it was revealed that the German car manufacturer cheated
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34 on emissions tests, and many VW identified customers felt “betrayed” by an organization they
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37 perceived as reliable and environmentally-friendly (see AFP TV, 2015).
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39 Indeed, social performance is of high interest to FI stakeholders (Sen & Bhattacharya, 2001)
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41 as it increasingly affects the decision-making process of employees, consumers, and investors
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44 alike to engage with an organization (Bhattacharya & Sen, 2004). For instance, more than 70%
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46 of college students and 50% of workers are looking for jobs with social impact, and nearly 60%
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48 of students are even willing to take a pay cut in order to work for a company that embodies their
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51 values. More than 50% of consumers would be willing to pay more for goods and services
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53 offered by a company that gives back to society (Net Impact, 2012). Our theory predicts that the
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growing set of FI stakeholders who care about social performance is at the source of meaningful
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6 social performance evaluation and feedback.
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8 As a result of their identity attachment to the firm, FI stakeholders are incentivized to form
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clear expectations and closely monitor the social performance activities of the firm with which
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13 they identify. This stands in marked contrast to stakeholders who are non-identified (i.e., neither
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15 identify with the firm nor a cause). From a social identity perspective, non-identified
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18 stakeholders have little incentive to express social performance feedback since they primarily
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20 derive their identity from other membership groups. Rather, following a negative event, non-
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22 identified stakeholders face low identity barriers to the stakeholder relationship and thus may be
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25 quick to cease their affiliation (Packer, 2008; Zavyalova et al., 2016) or, alternatively, join more
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27 motivated stakeholder groups such as cause-identified activists (Waldron et al., 2013). On the
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other hand, when a firm exhibits high social performance, non-identified stakeholders may
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32 increase their organizational identification (Bhattacharya & Sen, 2004). However, we suggest
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34 that non-identified stakeholders are less likely to independently form codified expectations
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37 regarding the social performance, monitor firm activities, or invest efforts to provide visible and
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39 active feedback to a firm from which they do not derive identity characteristics.
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41 In contrast, FI stakeholders are not only more likely to closely monitor their firm’s social
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44 performance activities, but also to have strong incentives to agree with the firm’s social
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46 performance actions. Individuals seek to preserve congruence in all aspects of their life by
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48 denying inconsistencies, focusing on consistencies, changing expectations, or altering
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51 evaluations (Cooper & Fazio, 1984; Sherman & Gorkin, 1980). We suggest that FI stakeholders
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53 seek to maintain coherency regarding their identity by granting the firm with which they identify
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a relatively wide range of acceptable social performance behaviors. On the one hand, when there
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are minor negative discrepancies between their expectations and the firm’s social performance,
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6 FI stakeholders will tend to avoid identity conflict when judging the firm’s social performance in
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8 order to preserve a sense of oneness with the firm (Ashforth & Mael, 1989). For instance,
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previous research has shown that organizational identification increases resilience by supporting
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13 the firm during times of negative attention (Bhattacharya & Sen, 2004; Zavyalova et al., 2016).
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15 On the other hand, minor positive discrepancies will fall in line with the FI stakeholder’s
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18 perceptions of their firm. FI stakeholders will appreciate the positive attributes derived from their
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20 firm identification and it will reinforce FI stakeholders’ self-concept.
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22 Thus, in order to maintain and reinforce self-continuity in their identity, FI stakeholders are
23
24
25 likely to tolerate and adapt to minor discrepancies by granting a wide range of acceptable social
26
27 performance behaviors to their firm. In other words, FI stakeholders’ organizational
28
29
identification drives convergence between stakeholder expectations and a firm’s actual social
30
31
32 performance, reducing the need to provide visible and active social performance feedback to the
33
34 firm. However, in the face of major discrepancies, our theory contends that FI stakeholders face
35
36
37 other identity incentives to enter a substantial negotiation process with the firm.
38
39 NEGOTIATING A SOCIAL PERFORMANCE REFERENCE POINT
40
41 While we expect FI stakeholders to grant latitude to a firm’s actual social performance when
42
43
44 facing minor discrepancies, when FI stakeholders face a major discrepancy, identity-driven
45
46 motivations incentivize FI stakeholders to provide visible and active social performance
47
48 feedback. On the negative side, there are limits to the level of discrepancy that a stakeholder is
49
50
51 willing to endure (Blomqvist & Posner, 2004; Zavyalova et al., 2016); on the positive side, there
52
53 are benefits to visibly praising an organization with which they identify (Cialdini et al., 1976).
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Major discrepancies reflect a critical disconnect between firm and FI stakeholder views
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60
14
1
2
3
regarding the appropriate level of social performance for the firm. Since FI stakeholders and
4
5
6 firms have agency regarding their responses, we propose that both firms and FI stakeholders
7
8 enter a negotiation process aimed at forming a social performance reference point. This
9
10
11
negotiation process rests on conflict between stakeholders’ desire to maintain a positive self-
12
13 concept and firms’ desire to maintain financial efficiency. As a result, negative feedback
14
15 emanates from stakeholder concerns around a firm’s past social performance activities, and
16
17
18 positive feedback creates firm concerns around its future social performance responsibilities.
19
20 This negotiation may or may not end in a shared social performance reference point.
21
22 From the perspective of FI stakeholders, there is a range of strategies available to express
23
24
25 social performance feedback. Most broadly, FI stakeholders express feedback by providing or
26
27 withholding financial, human, social, or natural resources (Frooman, 1999; Rowley, 1997;
28
29
Rowley & Moldoveanu, 2003). In a direct and conventional fashion, FI stakeholders can write
30
31
32 letters or have offline interactions with firm managers to express their expectations.
33
34 Technological advancements provide contemporary stakeholders with even greater ability to
35
36
37 quickly and clearly communicate directly with firms. As of 2014, 83% of Fortune 500 companies
38
39 are on Facebook, 83% have Twitter accounts, and 97% are on LinkedIn (Barnes & Lascault,
40
41 2015). By utilizing social media, blogs, video platforms, and consumer review websites,
42
43
44 stakeholders can air their praise or grievances in a forum that the public will view and firms will
45
46 monitor (Wang, Wezel, & Forgues, 2016).
47
48 From the perspective of the firm, it has incentives to monitor and respond to FI stakeholder
49
50
51 feedback. Many firms seek to engender identification among their stakeholders and even actively
52
53 create FI stakeholders through initiatives developing brand ambassadors, social media
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55
56
influencers, or highly dedicated employees (Malhotra, Malhotra, & See, 2013). In addition, FI
57
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60
15
1
2
3
stakeholders are often loyal constituents (Mael & Ashforth, 1995), and thus provide important
4
5
6 resources to the firm (Ashforth & Mael, 1989). Employee identification increases job satisfaction
7
8 and tenure (Turban & Greening, 1997). Alumni’s identification with their alma mater increases
9
10
11
the likelihood that they will donate (Zavyalova et al., 2016) and encourage their relatives to
12
13 attend university events (Mael & Ashforth, 1992). As a result, FI stakeholders, as a collective,
14
15 are likely to be recognized by firms and have high salience with the firm due to stakeholder
16
17
18 power and legitimacy (Mitchell et al., 1997; Zavyalova et al., 2016). Power is gained by FI
19
20 stakeholders’ deep engagement with the firm and the material support that would be lost if FI
21
22 stakeholders exited the relationship, in essence giving FI stakeholders a utilitarian power base to
23
24
25 influence the firm (Etzioni, 1964; Mitchell et al., 1997). Legitimacy stems from the notion that
26
27 FI stakeholders comprise a foundation of the firm’s most committed and engaged stakeholders.
28
29
Given this intimate connection, if a firm cannot satisfy the social performance expectations of its
30
31
32 most enthusiastic stakeholders, it will likely not continue in the long run. Together, the power
33
34 and legitimacy accrued by the collective of FI stakeholders gives their social performance
35
36
37 feedback credence with firms. In this way, FI stakeholders take an active stance in the
38
39 stakeholder relationship (Mitchell et al., 1997) and firms are incentivized to monitor FI
40
41 stakeholder social performance feedback (Hall, 2015; Keys, Malnight, & van der Graaf, 2009).
42
43
44 The social performance feedback expressed by FI stakeholders provides an important
45
46 benchmark for firm social performance activities. However, firms have agency in responding to
47
48 stakeholder feedback (Berman, Wicks, Kotha, & Jones, 1999) and a broad array of strategies that
49
50
51 can be utilized in their negotiation of the reference point. This repertoire of tools can be broadly
52
53 categorized into two types—substantive and symbolic (Bundy et al., 2013; Westphal & Zajac,
54
55
56
57
58
59
60
16
1
2
3
1998). Table 2 provides an overview of each category of substantive and symbolic strategic
4
5
6 responses, including definitions, precedent in the literature, and select examples.
7
8 [INSERT TABLE 2 ABOUT HERE]
9
10
11
Substantive actions alter the firm’s actual social performance levels. That is, firms undertake
12
13 large-scale strategic changes that directly increase or decrease social performance activities.
14
15 Since measuring social performance is ambiguous, there is flexibility in how aggregate levels of
16
17
18 social performance are altered. Substantive actions may be technical, which we use to refer to
19
20 social performance changes to existing operations that address the root cause of the feedback
21
22 (Zavylova et al., 2012). For instance, a clothing company facing criticism for poor labor
23
24
25 practices in their manufacturing facilities may move the location of their manufacturing
26
27 operations to a more worker-friendly location. Alternatively, substantive actions may be additive,
28
29
which we define as creating new social performance initiatives that do not address the root cause.
30
31
32 For instance, the same clothing company may launch a new line of environmentally-friendly
33
34 clothes from recycled materials, without changing the location or conditions of their
35
36
37 manufacturing facility. Both substantive-technical and substantive-additive actions are intended
38
39 to more closely align the firm with FI stakeholder expectations by increasing the aggregate level
40
41 of firm social performance.
42
43
44 In contrast, symbolic actions are intended to alter stakeholder social performance
45
46 expectations (Carroll, 1979; Davis & Blomstrom, 1966; Mahon & Wartick, 2003) without
47
48 changing the actual level of the firm’s social performance (cf. Oliver, 1991). Symbolic tactics
49
50
51 include public relations and bargaining approaches to manage or manipulate FI stakeholder
52
53 social performance expectations. Symbolic actions may be related to social performance, such as
54
55
56
57
58
59
60
17
1
2
3
drawing attention to employee safety initiatives in a CSR report, or unrelated to social
4
5
6 performance, such as drawing attention to a product quality award with a new press release.
7
8 Substantive and symbolic responses expand the traditional reactions to performance feedback
9
10
11
in behavioral theory of the firm. Behavioral theory of the firm grounded in financial performance
12
13 largely predicts changes in search behavior—stimulating problemistic search below the reference
14
15 point and reducing search above the reference point (Cyert & March, 1963; Greve, 2003). We
16
17
18 suggest that the ambiguous nature of social performance allows for a different pattern of firm
19
20 strategic responses than those predicted by extant behavioral theory. First, behavioral theory of
21
22 the firm grounded in financial performance predicts that pronounced strategic responses will
23
24
25 occur close to the reference point since firms are most sensitive to feedback when they are just
26
27 above or just below their reference point (Cyert & March, 1963). When it concerns social
28
29
performance, we suggest that strategic responses will be more pronounced far away from the
30
31
32 reference point. That is, firms will tolerate relatively weak feedback and only be induced to make
33
34 meaningful responses when there are major discrepancies and thus intense social performance
35
36
37 feedback (Table 1, row 6).
38
39 Second, firms may directly increase or decrease social performance (substantive actions) in a
40
41 manner that is not possible with financial performance. Indeed, while there is certainty in
42
43
44 quantifying financial performance, there is little certainty regarding strategies implemented to
45
46 improve financial performance and thus financial performance must be adjusted through indirect
47
48 search behaviors (Gavetti et al., 2012). In contrast, ambiguity in measuring and aggregating
49
50
51 social performance actually allows firms to directly adapt it since more recent initiatives may
52
53 overshadow past behaviors (Levinthal & March 1993; Wagner, Lutz, & Weitz, 2009) and
54
55
56
quickly change stakeholder perceptions.
57
58
59
60
18
1
2
3
Third, social performance also allows firms to alter reference points themselves in a manner
4
5
6 that is not possible with more fixed financial performance benchmarks. While firms may select
7
8 different referents when underperforming financially to cast themselves in a more positive light
9
10
11
(Jordan & Audia, 2012), firms have little to no ability to change a referent itself. Firms cannot
12
13 substantively change last year’s ROA or industry average ROA (Shinkle, 2012). In contrast,
14
15 stakeholder expectations are malleable (Coombs & Holladay, 2004; Finkelstein & Hambrick,
16
17
18 1988), and thus may be altered by symbolic actions that do not involve changing the underlying
19
20 social performance level. For these reasons, in contrast to traditional behavioral theory of the
21
22 firm where a financial performance reference point is selected and feedback is inferred, we
23
24
25 suggest that a shared social performance reference point is actively negotiated between FI
26
27 stakeholders and the firm (Table 1, rows 1-4).
28
29
30
SOCIAL PERFORMANCE FEEDBACK AND STRATEGIC RESPONSES
31
32 There are two possible outcomes of the initial negotiation stance: actual social performance
33
34 is below FI stakeholder expectations (i.e., negative feedback) or actual social performance is
35
36
37 above FI stakeholder expectations (i.e., positive feedback). Negative or positive performance
38
39 feedback is a foundational basis in behavioral theory of the firm; however, we argue that social
40
41 performance feedback dynamics will also depend on whether or not social performance is central
42
43
44 to organizational identity (i.e., whether the firm is a social enterprise or not). While stakeholder
45
46 identification with the firm motivates feedback, FI stakeholder perceptions of acceptable social
47
48 performance will be different when stakeholders identify with the firm because of its social
49
50
51 performance, as in the case of social enterprises. In addition, given that social performance is at
52
53 the core of their organizational identity, social enterprises have identity-driven incentives to
54
55
56
respond to FI stakeholder social performance feedback and to distinguish their actions from non-
57
58
59
60
19
1
2
3
social enterprises (Table 1, row 5). Figure 1 illustrates the underlying logic and possible initial
4
5
6 outcomes of the negotiation process depending on feedback valence (negative or positive) and
7
8 organizational identity (non-social vs. social enterprise). Below we unpack this model by
9
10
11
describing why and how FI stakeholders and firms negotiate acceptable levels of social
12
13 performance in each of these four scenarios.
14
15 [INSERT FIGURE 1 ABOUT HERE]
16
17
18 Non-Social Enterprise Social Performance below FI Stakeholder Expectations
19
20 Expressing intense negative social performance feedback. When FI stakeholders discover
21
22 that the firm does not perform as well as expected in terms of, for example, recycling and
23
24
25 sustainable sourcing, stakeholders may rationalize the behavior. Thoughts of the nature: “that is
26
27 probably standard for the industry” or “limiting environmental initiatives allows the company to
28
29
provide reasonable prices to consumers or benefits to employees,” essentially dismiss and avoid
30
31
32 recognition of discrepancies between expectations and actual firm social performance. However,
33
34 if the same stakeholders discover that the firm runs sweatshops using child labor, it may create
35
36
37 an insurmountable discrepancy with their expectations. For instance, Zavyalova and colleagues
38
39 (2016) found that, despite initial support, highly identified stakeholders eventually withdraw
40
41 support from reputable organizations as the level of negative attention to the organization
42
43
44 increases.
45
46 Because individuals seek to view themselves in a positive light (Tajfel & Turner, 1979), FI
47
48 stakeholders will be concerned with the negative implications of such low social performance on
49
50
51 personal self-concept. This will trigger an identity-driven reaction of self-protection. Self-
52
53 protection is the desire to shelter or defend one’s positive self-views in one’s own eyes or in the
54
55
56
eyes of others (Alicke & Sedikides, 2009; Sedikides, 2009). We propose that self-protection will
57
58
59
60
20
1
2
3
drive FI stakeholders to provide intense negative social performance feedback, i.e., visible and
4
5
6 active criticism of the firm. Stakeholders may withhold or provide critical resources (Frooman,
7
8 1999; Pfeffer & Salancik, 1978) or seek to compel change (James & Wooten, 2006; Morrison,
9
10
11
1991). For instance, FI employees may directly express concerns to managers of the firm
12
13 (O’Connell, Stephens, Betz, Shepard, & Hendry, 2005), decrease productivity (Kristof-Brown,
14
15 Zimmerman, & Johnson, 2005), and threaten to quit (Turban & Greening, 1997). FI consumers
16
17
18 may vocalize concerns through the media, decrease consumption, or demand change (Sen &
19
20 Bhattacharya, 2001). FI suppliers may reduce the exchange of valuable tacit knowledge and
21
22 explicit information (Dyer & Nobeoka, 2000) or decrease asset-specific investments (Dyer,
23
24
25 1997). The case of Market Basket provides a compelling example of how FI stakeholders across
26
27 diverse types can band together to express intense negative social performance feedback.
28
29
Suppliers, employees, customers, and community members organized visible and active protests
30
31
32 online and in person, even boycotting the New England grocery store chain they cherished, to
33
34 provoke change after new leadership gained power, forced out the beloved CEO, and violated FI
35
36
37 stakeholder expectations by cutting the firm’s longstanding commitment to community social
38
39 performance (Newbert & Craig, 2015).
40
41 We contend that this intense negative feedback fulfills two self-protection identity purposes
42
43
44 for FI stakeholders. First, it protects current stakeholder identity by differentiating the FI
45
46 stakeholders from negative identity spillover. Individuals protect their identity by distancing
47
48 themselves from unfavorable events, and attempting to cast themselves in a positive light (Hogg
49
50
51 & Terry, 2014). When the discrepancy between FI stakeholder expectations and firm social
52
53 performance is too significant to adapt expectations, intense negative social performance
54
55
56
feedback is the mechanism that reconciles the identity threat. Intense negative feedback serves to
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58
59
60
21
1
2
3
differentiate the FI stakeholders’ firm membership from the firm’s lower social performance
4
5
6 activities. Second, intense negative feedback seeks to preserve FI stakeholder identity by
7
8 compelling the firm to realign with FI stakeholders’ higher social performance expectations.
9
10
11
While exiting the relationship with a firm that falls far below social performance
12
13 expectations is an option for non-FI stakeholders, it is not the case for FI stakeholders. FI
14
15 stakeholders are deeply associated with the firm to the extent that they derive their self-concept
16
17
18 from it. As a result, exiting the relationship means undertaking a challenging, uncomfortable,
19
20 time consuming, and costly process of identity change to dis-identify from the firm. External
21
22 recognition of group membership means that organizational features become entrenched in how
23
24
25 FI stakeholders are perceived and categorized by others (Turner & Onorato, 1999). Other groups
26
27 are unlikely to be willing to accept new and stigmatized members to their own in-group under
28
29
unfavorable conditions. In addition, the internal fulfillment of identity from group membership
30
31
32 means that removing something from one’s identity involves questioning one’s beliefs,
33
34 remodeling mental schemas, and redefining who one is (Burke, 2006). As described above, there
35
36
37 are strong self-continuity incentives not to undergo dramatic identity changes. Since
38
39 disentangling identity once highly identified is very difficult, FI stakeholders are likely to view
40
41 dis-identifying and rebuilding identity through other groups as a tactic of last resort (Burke,
42
43
44 2006). However, FI stakeholders’ dissent (i.e., attempts to challenge group behavior) can
45
46 actually signal their loyalty to the firm while showing a willingness to improve the group
47
48 (Packer, 2008). For these reasons, we suggest that FI stakeholders have strong incentives to
49
50
51 provide intense negative feedback that brings about changes in social performance activities to
52
53 restore the firm and corresponding stakeholder self-identity to a positive light.
54
55
56
57
58
59
60
22
1
2
3
Strategic framing and response to negative social performance feedback. In the context of
4
5
6 social performance, we contend that the traditional behavioral theory of the firm’s loss frame—
7
8 which captures concern regarding previous financial performance below the reference point—
9
10
11
will manifest as a legitimacy concern. That is, we propose that non-social enterprises filter
12
13 intense negative social performance feedback from FI stakeholders through a strategic frame of
14
15 legitimacy. When firm social performance falls below FI stakeholder expectations, the firm will
16
17
18 question whether it adheres to stakeholders’ values and norms of acceptable behavior (Suchman,
19
20 1995). Since FI stakeholders are salient stakeholders, violating their expectations has material
21
22 influence on firm resources (Cragg & Greenbaum, 2002; Pajunen, 2006). If left unchecked, a
23
24
25 loss of legitimacy may destabilize operations and even threaten the very survival of the firm
26
27 (Dowling & Pfeffer, 1975; Suchman, 1995). Furthermore, if FI stakeholders deem firm behaviors
28
29
to be illegitimate, they can not only withdraw legitimacy endowments, but also stimulate
30
31
32 legitimacy loss from other stakeholders. In-group FI stakeholders may utilize their power to
33
34 mobilize non-identified stakeholders or add credibility to the claims of out-group activist
35
36
37 stakeholders (Waldron et al., 2013). Indeed, if loyal stakeholders are unsatisfied with social
38
39 performance levels, the firm is unlikely to find support from other stakeholder groups. Thus,
40
41 firms must take FI stakeholders’ grievances seriously.
42
43
44 Firms have several options regarding how to respond to this intense negative social
45
46 performance feedback. First, firms could ignore the negative feedback. While some firms may
47
48 come out relatively unscathed when ignoring cause-identified activists (Waldron et al., 2013), FI
49
50
51 stakeholders provide far more support and ultimately confer legitimacy. Thus, we argue, FI
52
53 stakeholders hold greater bargaining power in the reference point negotiation with the firm than
54
55
56
activists, and will demand a response. While a firm may consider leaving the negotiation and
57
58
59
60
23
1
2
3
engendering identification in an alternative set of stakeholders (who can then provide them with
4
5
6 legitimacy), this is not likely to be feasible in the midst of intense negative scrutiny.
7
8 Second, firms may respond with symbolic actions that seek to appease FI stakeholders and
9
10
11
manipulate their expectations. Again, symbolic actions may be an effective tactic when facing
12
13 activist criticisms as it can mollify outrage and mitigate the spread of negative attention to other
14
15 more salient stakeholders (McDonnell & King, 2013; Waldron et al., 2013). However, since FI
16
17
18 stakeholders share identity attributes with the firm, they are likely to see through the veil of
19
20 symbolic actions intended to move stakeholder expectations without changing actual social
21
22 performance. In fact, attempts to “greenwash” or enact other less meaningful initiatives when
23
24
25 facing intense negative social performance feedback may actually exacerbate negative
26
27 impressions (Zavyalova, Pfarrer, Reger, & Shapiro, 2012) and stimulate further backlash against
28
29
the firm’s perceived insincere response to intense identity-driven feedback. As a result, we
30
31
32 theorize that firms receiving intense negative feedback from FI stakeholders will move beyond a
33
34 mere concern with keeping up appearances (cf. McDonnell & King, 2013). Connelly and
35
36
37 colleagues (2010) make analogous arguments about substantive actions by firms with dedicated
38
39 instutional investors who have higher ownership concentrations, and we suggest are likely to
40
41 hold stronger identification with their investments, compared to more transient investors. These
42
43
44 authors find that firms with dedicated institutional investors are more likely to enact tangible
45
46 strategic competitive actions compared to potentially reversible tactical actions. In the case of
47
48 social performance, we propose that firms will respond to intense negative FI stakeholder
49
50
51 feedback with substantive responses that increase actual levels of social performance rather than
52
53 more superficial symbolic actions. However, since social performance is ambiguous, its level can
54
55
56
57
58
59
60
24
1
2
3
be directly increased either by launching new social performance initiatives (substantive-
4
5
6 additive) or by addressing the root cause of the negative attention (substantive-technical).
7
8 We suggest that firms for which social performance is not central to organizational identity
9
10
11
are likely to enact substantive-additive responses to intense negative performance feedback.
12
13 Substantive-additive responses are tangible and meaningful social performance actions, but do
14
15 not involve the same level of cost and risk as altering core operational activities. In this way,
16
17
18 substantive-additive strategies allow firms to create new social performance activities without
19
20 making dramatic changes to existing operations. However, the new social initiatives serve the
21
22 purpose of restoring FI stakeholder alignment with the firm since overall levels of social
23
24
25 performance activity increase. Thus in this scenario, substantive-additive responses of social
26
27 performance represent the most viable means to realign expectations and thus restore legitimacy.
28
29
The recent Volkswagen “dieselgate” emissions scandal exemplifies the dynamics of negative
30
31
32 social performance feedback. VW is generally known for safety, quality, and reliability and thus
33
34 stakeholders are likely to identify with these central organizational characteristics. When it was
35
36
37 revealed that VW cheated by artificially reducing emissions levels during testing compared to
38
39 real world driving, Volkswagen’s FI stakeholders who cared about social performance were
40
41 motivated to protect their own identity by voicing intense negative social performance feedback.
42
43
44 CNN profiled FI Volkswagen drivers who described identity harm caused by being deceived by
45
46 a car they really believed in (Garcia, 2015). The intense identity reactions of FI stakeholders
47
48 even became the subject a popular parody featuring FI VW owners expressing their feelings of
49
50
51 betrayal to their cars (Funny or Die, 2015). Consumer reports created a guide to the emissions
52
53 scandal that concludes with a “How do I voice my concerns” section, encouraging stakeholders
54
55
56
to visibly and actively vocalize feedback across outlets such as commenting on their stories,
57
58
59
60
25
1
2
3
contacting the company, or contacting the environmental protection agency (Barlett & Naranjo,
4
5
6 2016). In response, VW announced a new major social performance initiative: an aggressive
7
8 strategic plan targeted on electric cars with no less than 30 new electric vehicles across its brands
9
10
11
by 2025 (Geuss, 2016). This additive approach introduces a new and more legitimately eco-
12
13 friendly product to its existing line of reliable and high performance cars. This practical evidence
14
15 exemplifies our more formal proposition:
16
17
18 Proposition 1: Non-social enterprises are likely to respond to intense negative social
19 performance feedback from FI stakeholders with new social performance initiatives
20 (substantive-additive).
21
22
23
24 Non-Social Enterprise Social Performance above FI Stakeholder Expectations
25
26 Expressing intense positive social performance feedback. On the positive side of the
27
28 reference point, when an FI stakeholder realizes that their firm sponsors a local little league
29
30
31 baseball team, they may align expectations with performance through thoughts such as “of
32
33 course it does things like this, it’s a good corporate citizen” or “that is normal for modern
34
35 corporations.” However, if the same stakeholder discovers that the firm unexpectedly donated
36
37
38 $10 million to a local homeless shelter, it is likely to trigger a more intense response that is
39
40 driven by self-enhancement identity considerations. Self-enhancement refers to the desire to
41
42
43
amplify the positive aspects of the self in one’s own eyes or in the eyes of others (Shore,
44
45 Cleveland, & Goldberg, 2003). This need for high self-esteem will induce FI stakeholders to
46
47 further associate their self with the firm.
48
49
50 Self-enhancement will drive FI stakeholders to provide intense positive social performance
51
52 feedback, that is, visible and active praise for their firm. Visible and active praise allows
53
54 attractive firm attributes to reflect on and be incorporated into identity (Ashforth & Mael, 1989;
55
56
57 Cialdini et al., 1976). In the case of social performance above FI stakeholder expectations,
58
59
60
26
1
2
3
intense positive feedback allows FI stakeholders to reap the positive benefits of firm affiliation.
4
5
6 In doing so, FI stakeholders incorporate the higher levels of social performance into their self-
7
8 concept, which also raises their future expectations of social performance.
9
10
11
Stakeholders have a broad range of means to communicate visible and active praise to a firm.
12
13 Stakeholders may increase their direct contact with the firm through writing letters of
14
15 appreciation, “@”ing the firm on social media with praise, and producing more favorable
16
17
18 reviews (Bhattacharya & Sen, 2004). They may also seek to engage other stakeholder groups in
19
20 recognition of the firm by mobilizing social media campaigns or garnering more traditional
21
22 media attention. Employees may increase organizational citizenship and extra-role behaviors
23
24
25 (Dutton et al., 1994). In sum, we suggest that FI stakeholders express the major positive
26
27 discrepancy between expectations and firm social performance by providing intense positive
28
29
social performance feedback in order to enhance their own self-concept.
30
31
32 Strategic framing and response to positive social performance feedback. In the context of
33
34 social performance, we suggest that the traditional behavioral theory of the firm’s gain frame—
35
36
37 which captures the perspective regarding previous financial performance above the reference
38
39 point—will be manifest as an efficiency concern. Intense positive social performance feedback
40
41 signals to a firm that it is investing in social performance activities that were not demanded or
42
43
44 expected. Engaging in social performance activities is costly (Walters et al., 2010; Williamson,
45
46 Lynch-Wood, & Ramsay, 2006) and their financial returns are not always clear (Ullmann, 1985;
47
48 Wood & Jones, 1995). As such, the benefits of social performance beyond FI stakeholder
49
50
51 expectations are likely to be lower than the costs. In fact, Barnett and Salomon (2006) propose
52
53 that the relationship between social performance and financial performance takes an inverse U-
54
55
56
shape, indicating that an overabundance of social performance will ultimately conflict with
57
58
59
60
27
1
2
3
financial performance. We follow this logic and argue that the turning point at which social
4
5
6 performance activities exhibit diminishing returns is at the level of FI stakeholder expectations.
7
8 That is, investing in social performance activities beyond what the firm’s loyal and influential FI
9
10
11
stakeholders expect constitutes investments with limited recompense.
12
13 There is further danger to intense positive social performance beyond costs. As described
14
15 earlier, when positive attributes of higher social performance are incorporated into an FI
16
17
18 stakeholder’s self-concept, it raises their future expectations of firm social performance. In this
19
20 way, firms may face a type of social performance “Red Queen effect” (Derfus, Maggitti, Grimm,
21
22 & Smith, 2008; van Valen, 1977) such that the more social a firm becomes, the more social
23
24
25 performance FI stakeholders will expect. This can create an escalating cycle whereby firms must
26
27 engage in an increasing level of social performance to satisfy stakeholder demands which in turn
28
29
causes firms to endure increasing expenditures and risk future legitimacy loss.
30
31
32 As a result, firms for which social performance is not central to organizational identity will
33
34 take action to mitigate rising social performance expectations. However, managing future
35
36
37 expectations under conditions of positive social performance feedback from FI stakeholders is a
38
39 delicate issue. Whereas leaning into the positive acclaim makes firms vulnerable to violating
40
41 rising expectations and experiencing intense negative social performance feedback in the future,
42
43
44 rejecting positive social performance feedback risks alienating FI stakeholders who welcome the
45
46 reputational benefits conferred by higher levels of firm social performance than expected.
47
48 We propose that firms address this conundrum by resorting to symbolic actions that attempt
49
50
51 to alter stakeholder expectations without changing the actual level of firm social performance.
52
53 Past research has examined how firms utilize symbolic actions related to social performance to
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56
address negative feedback from activists (McDonnell & King, 2013; Oliver, 1991; Suchman,
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60
28
1
2
3
1995), including the use of CSR reports (Feldner & Berg, 2014), social media activity touting
4
5
6 philanthropic programs (Gershbein, 2015), or press releases related to social performance awards
7
8 (Zavyalova et al., 2012). However, when facing intense positive social performance feedback,
9
10
11
we argue that symbolic actions related to social performance may serve to “pile on” social
12
13 accolades that are likely to exacerbate already rising expectations. In contrast to extant literature,
14
15 we thus contend that firms utilize symbolic actions unrelated to social performance to address
16
17
18 intense positive feedback from FI stakeholders.
19
20 Symbolic actions unrelated to social performance include social media posts emphasizing
21
22 product quality, annual reports focused on economic trends, or press releases indicating financial
23
24
25 performance successes. For instance, a firm facing intense positive feedback for introducing
26
27 sustainable materials into their manufacturing process may respond by featuring a recent product
28
29
quality award on their Facebook page or issuing a press release to report on recent strong
30
31
32 financial performance. These strategies seek to deflect the positive social performance feedback
33
34 by drawing attention to alternative positive characteristics of the firm (Ashforth & Gibbs, 1990)
35
36
37 that are not related to social performance. Such actions will leverage some of the positive
38
39 attention that the firm is receiving, but seek to channel it into building FI stakeholders’
40
41 perceptions of the firm in a way that does not increase their social performance expectations.
42
43
44 Proposition 2: Non-social enterprises are likely to respond to intense positive social
45 performance feedback from FI stakeholders with symbolic actions that are unrelated to
46 social performance.
47
48
49
50 Social Enterprises’ Double Standard
51
52 Behavioral theory of the firm grounded in financial performance generally does not consider
53
54 significant differences across how firms form, frame, and respond to reference points because
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2
3
financial performance is considered central to all firms’ existence. However, firms vary in the
4
5
6 centrality of social performance to their organizational identity. In particular, social enterprises
7
8 view social performance as primary and central (Bacq & Janssen, 2011) and directly integrate
9
10
11
social causes into their firm identity. As examples, the cause of Grameen Bank is poverty
12
13 alleviation through financial inclusion, the cause of Aravind Eye Care Systems is to improve
14
15 universal access to visual health by means of pay-what-you-can surgeries, and the cause of
16
17
18 Method is environmental sustainability through eco-friendly and non-toxic household products.
19
20 The distinct identity of social enterprises has two major implications for a behavioral theory
21
22 of social performance. First, FI stakeholders of a social enterprise identify de facto with its social
23
24
25 performance activities—or cause—as they form the core of the social enterprise’s organizational
26
27 identity. As a result, stakeholders who identify with a social enterprise are likely to evaluate the
28
29
criterion of social performance differently than stakeholders who identify with a non-social
30
31
32 enterprise. Second, social performance feedback strikes at the identity core of social enterprises
33
34 and identity considerations are important drivers of their strategic decision-making process
35
36
37 (Fauchart & Gruber, 2011; Wry & York, 2015). Thus, we elaborate below on the social
38
39 performance feedback consequences of having both firm-specific and cause-specific factors
40
41 embedded in the firm identity (Wry & York, 2015). We propose that, compared to non-social
42
43
44 enterprises, social enterprises face different social performance evaluation processes and enact
45
46 different firm strategic responses to FI stakeholder social performance feedback.
47
48 The “double identification” with both the firm itself and its social performance activities
49
50
51 leads FI stakeholders to evaluate and provide feedback to social enterprises differently than non-
52
53 social enterprises. First, stakeholders who identify with a social enterprise derive part of their
54
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56
own identity from the firm’s social performance activities. Drawing on social performance helps
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30
1
2
3
these stakeholders not only enhance their self-concept but also increase distinctiveness by
4
5
6 differentiating themselves from FI stakeholders of non-social enterprises (Ashforth & Mael,
7
8 1989). For instance, highly identified employees at a microfinance institution see themselves as
9
10
11
different from traditional bank employees since they view their work as a means to advance
12
13 social causes of financial inclusion and poverty alleviation (Battilana & Dorado, 2010).
14
15 Second, since FI stakeholders of social enterprises also integrate social causes into their self-
16
17
18 concept, we argue that they are more likely to draw on higher-level social performance standards
19
20 to form their social performance expectations. Indeed, cause-identified stakeholders view social
21
22 performance shortfallings as an opportunity to advance their social cause (Rowley &
23
24
25 Moldoveanu, 2003). Since their expectations are not firm specific, we suggest that the
26
27 expectations of social enterprises’ FI stakeholders will be more rigid than rather malleable firm-
28
29
specific social performance expectations. For instance, there is evidence that activists attempt to
30
31
32 hold companies to industry-leading social performance practices (Christmann, 2004; Zadek,
33
34 2004). For many firms, this high standard of social performance is unrealistic and may not be
35
36
37 particularly relevant since FI stakeholders are unlikely to expect such high levels of social
38
39 performance. However, in the case of social enterprises, who center organizational identity
40
41 around a cause, we suggest that FI stakeholders do expect high levels of social performance in
42
43
44 line with the kind of industry-leading standards promoted by activists. This creates a higher level
45
46 of social performance expectations for social enterprises, relative to non-social enterprises. Since
47
48 FI stakeholders of a social enterprise deem the same level of social performance to be
49
50
51 unacceptable for the social enterprise they identify with, but acceptable for a non-social
52
53 enterprise, we refer to this as the “social enterprise double standard.”
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2
3
TOMS Shoes provides an example of the social enterprise double standard. When TOMS
4
5
6 pioneered the “buy-one give-one” business model in 2006 by donating a pair of shoes to a child
7
8 in need for every pair purchased from the company, this appealing social business model drove
9
10
11
its stakeholders to identify with the firm and its core cause. Indeed, FI stakeholders deepened
12
13 their affiliation with TOMS by becoming brand ambassadors on college campuses and
14
15 volunteers in their “shoe drops.” This stakeholder identification allowed TOMS to spend
16
17
18 significantly less money than competitors on marketing and operations (Pride & Ferrell, 2015).
19
20 By 2011, TOMS shoes were carried by hundreds of retailers, and the company had achieved
21
22 widespread success (Mycoskie, 2011). However, in 2013, after the revelation that TOMS was
23
24
25 producing a significant portion of its shoes in Chinese factories, the same identity attachment to
26
27 TOMS led its FI stakeholders to lambaste the company. Manufacturing in China is seen as
28
29
standard operating procedure for many globalized firms (even preferable to emerging lower-
30
31
32 wage manufacturing hubs of Bangladesh, Cambodia, and Vietnam; Bradsher, 2013), but for a
33
34 social enterprise like TOMS, it was deemed as a strategy that conflicted with its core identity and
35
36
37 was arguably hurting the interests of TOMS’ core impoverished beneficiaries (Parmar, 2013;
38
39 Short, 2013). We suggest that while the centrality of social performance to organizational
40
41 identity influences stakeholder evaluations, it is also likely to affect how social enterprises frame
42
43
44 and respond to social performance feedback.
45
46 Social Enterprises’ Framing and Response to Negative Social Performance Feedback
47
48 Since their core identity is grounded in social performance, social enterprises experience
49
50
51 identity spillover from the social performance feedback expressed by FI stakeholders. As a
52
53 result, social enterprises interpret social performance feedback through identity frames that do
54
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56
not apply to non-social enterprises and which may congrue or conflict with the strategic frames
57
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60
32
1
2
3
of legitimacy and efficiency. When facing intense negative social performance feedback, social
4
5
6 enterprises will perceive it as an identity threat (e.g., Dutton & Dukerich, 1991), which will
7
8 trigger self-protection behaviors. Self-protection will cause the firm to want to fundamentally
9
10
11
reduce damage and restore their core identity. Indeed, for social enterprises, faltering on social
12
13 performance undermines their very raison d’être. We have theorized that FI stakeholders protect
14
15 their identity by providing negative feedback in order to distinguish themselves from the firm
16
17
18 with which they identify. Similarly, we suggest that social enterprises protect their identity by
19
20 taking social performance actions that differentiate them from non-social enterprises.
21
22 We suggest that this self-protection identity frame is consistent with the strategic frame of
23
24
25 legitimacy. In fact, since the legitimacy frame revolves around losing FI stakeholder support, we
26
27 suggest that identity self-protection considerations will intensify legitimacy concerns. As a
28
29
result, social enterprises will be highly motivated to make fundamental social performance
30
31
32 changes that non-social enterprises would be unwilling to make. Specifically, social enterprises
33
34 will make substantive changes to increase social performance through technical actions—i.e.,
35
36
37 social performance changes to existing operations that address the root cause of the feedback.
38
39 This stands in contrast to non-social enterprises that take substantive actions to restore legitimacy
40
41 by increasing social performance through new social performance initiatives, without necessarily
42
43
44 addressing the root cause. Social enterprises will recognize that their FI stakeholders draw on
45
46 industry-leading social performance standards and that new social performance initiatives will
47
48 not cover up social performance shortfallings in their existing operations.
49
50
51 For example, we can see how TOMS (a social enterprise) and Nike (a non-social enterprise)
52
53 reacted differently to intense negative social performance feedback regarding their
54
55
56
manufacturing operations. On the one hand, TOMS decided to relocate one third of its
57
58
59
60
33
1
2
3
manufacturing facilities to a country where they could have a greater social impact (Haiti) in
4
5
6 response to backlash against their manufacturing in China. On the other hand, Nike addressed
7
8 public outrage regarding abusive labor practices in their facilities by increasing monitoring,
9
10
11
pledging to conform to stricter regulations (Nisen, 2013), and venturing into “green” eco-friendly
12
13 products (Andersen, 2015; Jana, 2009). But as human rights activists revealed, such monitoring
14
15 failed to comprehensively address problems, and Nike has been forced to acknowledge
16
17
18 widespread issues in its factories, even after claiming to have substantively addressed these root
19
20 causes in their operations (Nisen, 2013). Compared to TOMS, Nike’s responses were more
21
22 substantive-additive than TOMS’ substantive-technical actions of closing problematic factories
23
24
25 and relocating to a more “worker-friendly” location. We suggest that it is a self-protection
26
27 identity frame coupled with a legitimacy frame that differentiates social enterprises from non-
28
29
social enterprises, and drives social enterprises to make substantive-technical social performance
30
31
32 changes to their existing operations in response to intense negative social performance feedback.
33
34 Stated more formally:
35
36
37 Proposition 3: Social enterprises are likely to respond to intense negative social performance
38 feedback from FI stakeholders with social performance changes to existing operations
39 (substantive-technical).
40
41
42
43
Social Enterprises’ Framing and Response to Positive Social Performance Feedback
44
45 In contrast to non-social enterprises, social enterprises facing intense positive social
46
47 performance feedback will perceive the situation as an identity opportunity (e.g., Dutton &
48
49
50 Dukerich, 1991), which will trigger a self-enhancement identity frame. Social enterprises will
51
52 garner identity benefits from intense positive social performance feedback and, as a result, will
53
54 desire to quickly incorporate it into their identity. Such desirable social performance feedback
55
56
57 resonates with firm identity and presents a strategic opportunity for a social enterprise to
58
59
60
34
1
2
3
differentiate itself from other non-social enterprises by reinforcing its distinctive status (Ashforth
4
5
6 & Mael, 1989; Rowley & Moldoveanu, 2003). Thus, rather than seek to deflect the positive
7
8 attention, social enterprises will likely want to relish it and use the momentum to further achieve
9
10
11
their social mission. At the same time, social enterprises also face trade-offs between financial
12
13 and social performance (Battilana, Sengul, Pache, & Model, 2015; Zhao & Grimes, 2016).
14
15 Strategically, social enterprises must also view positive social performance feedback through the
16
17
18 same efficiency frame as non-social enterprises. As such, social enterprises face real constraints
19
20 to the upper limits of their social performance, as social performance above FI stakeholder
21
22 expectations may indicate that they are reaching levels that exceed fiscal sustainability.
23
24
25 Thus, when facing intense positive social performance feedback, social enterprises’ identity
26
27 frame of self-enhancement which desires to incorporate positive feedback into firm identity, will
28
29
conflict with the strategic frame of efficiency that wants to mitigate rising expectations.
30
31
32 Substantive increases in social performance would enhance their self-concept, but also
33
34 dramatically raise future FI stakeholder expectations. On the other hand, symbolic unrelated
35
36
37 actions (the response of non-social enterprises) would mitigate rising FI stakeholder
38
39 expectations, but would not provide desired firm identity benefits. Therefore, we suggest that
40
41 social enterprises will compromise by engaging in symbolic activity that is related to social
42
43
44 performance. For instance, a social enterprise experiencing intense positive social performance
45
46 feedback for its new industry-advancing approach to using recycled products may respond by
47
48 issuing a press-release touting the contributions of its worker volunteer program or the
49
50
51 effectiveness of its philanthropic efforts. In contrast to symbolic actions unrelated to social
52
53 performance, symbolic actions related to social performance will not temper FI stakeholders
54
55
56
expectations, but in fact will moderately raise them. However, this response will reinforce firm
57
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60
35
1
2
3
identity by enhancing the social enterprise’s own self-concept and further differentiating it from
4
5
6 non-social enterprises without making substantive changes that would increase FI stakeholder
7
8 expectations too dramatically. Stated more formally:
9
10
11
Proposition 4: Social enterprises are likely to respond to intense positive social performance
12 feedback from FI stakeholders with symbolic actions related to social performance.
13
14 DISCUSSION
15
16
Social performance is a pervasive topic of public discourse and social import (Sherer &
17
18
19 Palazzo, 2007), but how firms approach social performance is hotly debated (Luo &
20
21 Bhattacharya, 2009; Matten & Moon, 2008; McWilliams, & Siegel, 2001). We suggest that firms
22
23
24
neither blindly and selflessly pursue social performance nor coldly and calculatedly avoid it.
25
26 Rather, firms follow behavioral responses that involve framing effects and identity
27
28 considerations.
29
30
31 However, we argue that a behavioral theory of social performance must be fundamentally
32
33 different than its traditional financial counterpart. The negotiation process that we propose
34
35 addresses calls to build theory regarding the formation of reference points, especially under
36
37
38 ambiguous conditions (Fang et al., 2014; Jordan & Audia, 2012; Shinkle, 2012). In this
39
40 negotiation, we extend research on strategic frames by theorizing that loss or gain strategic
41
42
43
frames manifest, respectively, as legitimacy and efficiency frames in the context of social
44
45 performance. Since there are risks to being far below or far above expectations, FI stakeholder
46
47 social performance expectations mark a critical calibration point that may serve as an optimal
48
49
50 level of social performance for firms.
51
52 Our predictions of firm responses to social performance feedback provide an exploration into
53
54 tactics used to shape this critical point of (potential) social performance reference point
55
56
57 agreement. Thus, whereas behavioral theory of the firm grounded in financial performance
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60
36
1
2
3
contends that a firm’s ideal position vis-à-vis a reference point is above it rather than below it
4
5
6 (Cyert & March, 1963), we contend that a firm’s ideal position is close to a social performance
7
8 reference point (i.e., either just above or just below). In this way, a firm’s position relative to a
9
10
11
social performance reference point may be evaluated more in terms of feedback intensity (i.e.,
12
13 minor vs. major discrepancy) than valence (positive vs. negative). While weak feedback can be
14
15 tolerated and managed more easily, it is intense feedback in either valence that induces firm
16
17
18 responses (Table 1, row 6). Further, our theory expands the strategic repertoire of firm responses
19
20 beyond the problemistic search of behavioral theory of the firm grounded in financial
21
22 performance (Gavetti et al., 2012) and common predictions in the activist literature (Briscoe &
23
24
25 Gupta, 2016). We theorize that firms use substantive responses to increase social performance,
26
27 and symbolic responses to mitigate rising FI stakeholder expectations. In addition, since social
28
29
performance varies in importance across firms, in contrast to behavioral theory of the firm
30
31
32 grounded in financial performance, we contend that organizational identity plays an important
33
34 role by motivating more distinctive responses for social enterprises relative to non-social
35
36
37 enterprises (Table 1, row 5).
38
39 Our behavioral theory of social performance also complements and extends a growing body
40
41 of literature on “wrongdoing.” Research on stakeholder concerns (Bundy et al., 2013), scandal
42
43
44 (Graffin et al., 2013), university infractions (Zavyalova et al., 2016), illegal activity (Mishina et
45
46 al., 2010), product recalls (Rhee & Haunschild, 2006; Zavyalova et al., 2012), boycotts
47
48 (McDonnell & King, 2013), and crisis (Bundy & Pfarrer, 2015; Coombs & Holladay, 2004), has
49
50
51 shed valuable insight into how firms respond to negative evaluations with a robust repertoire of
52
53 defensive strategies (McDonnell & King, 2013). We extend this literature by examining negative
54
55
56
feedback from another group of salient and highly prevalent stakeholders—FI stakeholders.
57
58
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60
37
1
2
3
Compared to the relatively frequently studied case of cause identification (i.e., activism; Briscoe
4
5
6 & Gupta, 2016), we suggest that organizational identification creates a more intimate
7
8 relationship between the firm and its FI stakeholders, which in turn incentivizes the former to act
9
10
11
on the expectations of the latter. Extant research has debated the degree to which firms take
12
13 seriously and respond to negative social performance feedback (McDonnell et al., 2015; Waldron
14
15 et al., 2013). Indeed, ignoring or taking symbolic actions may be viable responses to intense
16
17
18 negative social performance feedback stemming from activists or less salient stakeholders
19
20 (McDonnell & King, 2013). However, we suggest that the salience and close relationship with FI
21
22 stakeholders requires firms to provide substantive responses to intense negative social
23
24
25 performance feedback. While the nature of the substantive responses differs between non-social
26
27 enterprises (i.e., additive) and social enterprises (i.e., technical), each represents actions that
28
29
increase the aggregate level of firm social performance. As such, our theory specifies a condition
30
31
32 whereby firms meaningfully respond to intense negative social performance feedback (Waldron
33
34 et al., 2013)—that is, when the source is FI stakeholders.
35
36
37 Finally, in contrast to the dominant body of work in firm evaluations focused on wrongdoing,
38
39 we examine “rightdoing.” We theorize that while positive social performance feedback confers
40
41 benefits, there are also risks associated with exceeding FI stakeholder expectations. Social
42
43
44 performance investments above FI stakeholder expectations are unlikely to be cost effective.
45
46 Since positive attributes are quickly integrated into FI stakeholders’ self-concept, firms risk
47
48 violating the raised standards of FI stakeholder expectations in the future. As a result, rather than
49
50
51 resorting to symbolic actions to mollify critics when facing negative social performance
52
53 feedback (McDonnell & King, 2013), we suggest that non-social enterprises use symbolic
54
55
56
actions unrelated to social performance to temper rising FI stakeholder expectations when facing
57
58
59
60
38
1
2
3
positive social performance feedback. However, social enterprises embrace positive feedback
4
5
6 with symbolic actions related to social performance; a decision that our theory suggests may be
7
8 unsustainable in the long term unless they are able to resolve conflicts with financial
9
10
11
performance. Our theory also contends that social enterprises face unique social performance
12
13 feedback dynamics. The centrality of social performance to organizational identity and the
14
15 identified nature of stakeholders create a double standard regarding acceptable social
16
17
18 performance levels relative to non-social enterprises. As a consequence, social enterprises face
19
20 asymmetrical social performance feedback, such that they are more likely to receive intense
21
22 negative feedback than intense positive feedback. The unique feedback dynamics of social
23
24
25 performance deserves further research attention and the concept of performance feedback
26
27 asymmetry may be useful in other domains of behavioral strategy research.
28
29
30
Empirical Testing
31
32 Beyond theoretical advancements, our model is conducive to exciting means of empirical
33
34 testing. Much of the research at the intersection of social performance and evaluations has
35
36
37 utilized content analysis of annual reports, press releases, news articles and other media reports
38
39 to capture stakeholder evaluations and firm responses (Krippendorff, 2012; McKenny, Short, &
40
41 Payne, 2012; Short & Palmer, 2007). By culling indicators of organizational identification, these
42
43
44 same sources can be utilized to focus on social performance-related evaluations and firm
45
46 responses to them. In addition, the rising corporate use of online platforms and social media
47
48 (Barnes & Lascault, 2015) opens novel means to test our model with a more refined focus on FI
49
50
51 stakeholders. While revealing social performance expectations themselves may require dedicated
52
53 interviews or surveys, stakeholders regularly give visible and active feedback to firms through
54
55
56
social media, blogs, video platforms, and consumer review websites. For instance, Wang and
57
58
59
60
39
1
2
3
colleagues (2016) analyze London hoteliers’ responses to consumer devaluations on
4
5
6 TripAdvisor. Similar stakeholder interactions are constantly playing out on company Twitter
7
8 accounts and Facebook pages. Content analysis of these public interactions can capture the
9
10
11
prevalence of social performance issues as well as the valence (positive or negative) and
12
13 intensity (weak or strong) of social performance feedback. The direct nature of interactions
14
15 allows researchers to match firm strategic response to specific social performance feedback. The
16
17
18 authenticity of these online responses could also be compared to data in annual reports or CSR
19
20 reports announcing both technical and additive substantive firm actions.
21
22 Further, information on social media profile backgrounds and past postings is likely to
23
24
25 provide a rich set of content that can be used to both distinguish between social and non-social
26
27 enterprises and classify stakeholders’ organizational identification. For instance, social
28
29
enterprises may join or “like” cause-specific groups or form membership affiliations with other
30
31
32 social enterprises online. Individual stakeholders who “like” a firm on Facebook may be
33
34 considered firm-identified and the frequency of liking posts or favoriting tweets can provide an
35
36
37 indication of their level of identification. Other means to specify organizational identification
38
39 include survey scales (Bergami & Bagozzi, 2000; Dukerich et al., 2002), alumni status (Mael &
40
41 Ashforth, 1992; Zavyalova et al., 2016) or consumer involvement (Traylor, 1981).
42
43
44 Boundary Conditions and Future Research
45
46 In order to provide focus and depth to our theoretical development, we have necessarily
47
48 made restricting assumptions that place boundaries on our theory. Relaxing these boundary
49
50
51 conditions goes beyond the scope of the current theory, but may serve as fertile ground for future
52
53 theoretical development. First, we have isolated the role of FI stakeholders who care about social
54
55
56
performance because of their particular salience in expressing social performance feedback, but
57
58
59
60
40
1
2
3
in doing so, have excluded other relevant stakeholders. FI stakeholders who do not care about
4
5
6 social performance may also face identity-specific considerations that motivate them to provide
7
8 feedback. As discussed, other non-FI stakeholder groups also provide social performance
9
10
11
feedback and some have been addressed extensively in extant social activism literature (Briscoe
12
13 & Gupta, 2016). In addition, government regulators, analysts (Luo et al., 2015), social
14
15 movements (McCarthy & Zald, 1977; Pacheco, York, & Hargrave, 2014), and infomediaries
16
17
18 (Zavyalova et al., 2012) all play roles in coordinating stakeholder feedback to social issues
19
20 (Schuler & Cording, 2006). We have suggested that FI stakeholders may seek to engage or
21
22 mobilize other stakeholder groups (Waldron et al., 2013), but further investigation of the way in
23
24
25 which the broader audience and environment influences stakeholders’ social performance
26
27 engagement with firms is warranted. In addition, the firms and FI stakeholders who actively
28
29
embrace negative social performance provide a unique context to examine potentially deviant
30
31
32 social performance feedback dynamics. In any case, exploring social performance feedback
33
34 dynamics in other stakeholder groups and types of firm would produce a more comprehensive
35
36
37 understanding of both our proposed framework and broader behavioral theory.
38
39 Second, we have argued and assumed that FI stakeholders have relatively homogeneous
40
41 expectations regarding aggregate levels of firm social performance. While our theory does imply
42
43
44 that social performance expectations may vary depending on the level of identification of the
45
46 stakeholder, exploring potential antecedents and consequences of differing social performance
47
48 expectations amongst FI stakeholders and across other stakeholder groups is likely to be a rich
49
50
51 avenue for future inquiry. Social performance expectations may vary over time, across cultural
52
53 environments (Donthu & Yoo, 1998), between industries (Dowell, Hart & Yeung, 2000), and
54
55
56
amongst stakeholder groups (Mitchell et al., 1997). How firms deal with heterogeneous and
57
58
59
60
41
1
2
3
potentially conflicting stakeholder social performance feedback provides fruitful future research
4
5
6 avenues that lie at the intersection of stakeholder theory and behavioral theory. Stakeholder
7
8 theory has explored the question of “who and what matters?” but we lack a full understanding of
9
10
11
what firms do and/or should do when multiple individuals or groups that “matter” provide
12
13 conflicting feedback. This is likely a daily struggle in large firms with elaborate networks of
14
15 stakeholders, and elucidating the processes and consequences under such circumstances may
16
17
18 better equip managers to maintain and strengthen stakeholder relations. Conflicting social
19
20 performance expectations may also stem from diverse demands on particular issues (Bundy et
21
22 al., 2013). We isolate social performance as a single broad criterion; however, future research
23
24
25 may apply a more fine-grained examination of specific social performance issues and the
26
27 potential cross-pollination or spillover across issues.
28
29
Third, we assume that managers receive and accurately assess social performance feedback.
30
31
32 However, managers may fail to receive feedback, misinterpret feedback, or even actively distort
33
34 performance information (Fang et al., 2014). This interesting consequence of ambiguous
35
36
37 performance feedback (Jordan & Audia, 2012) remains fertile territory for extending our
38
39 theoretical development and integrating theories of managerial cognition (Porac, Thomas, &
40
41 Baden-Fuller, 1989; Porac & Thomas, 1990).
42
43
44 Fourth, our theory takes the premise that social performance is ambiguous and lacks clear
45
46 benchmarks. However, this is likely to change as social performance becomes institutionalized
47
48 and reliable benchmarks are developed. While government regulations certainly may provide a
49
50
51 baseline, there are also a growing number of efforts to measure and quantify social performance
52
53 more explicitly (Delmas, Etzion, & Nairn-Birch, 2013). As these indicators become adopted and
54
55
56
utilized by firms, they may serve as useful additional social performance referents. At the early
57
58
59
60
42
1
2
3
stages of this institutionalization, valuable questions include whether industry average and
4
5
6 historical social performance reference points align with stakeholder feedback, how firms
7
8 selectively pay attention to multiple sources of social performance feedback, and how firms
9
10
11
calibrate responses to a new and emerging benchmark. A related and practically useful stream of
12
13 research would focus on how to calculate and disseminate such reliable and clear benchmarks.
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15 Recent work has been directed at the related issue of quantifying social value creation (Kroeger
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18 & Weber, 2014; Lingane & Olsen, 2004), yet the research is still in its infancy. Should scholars
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20 succeed in creating a reliable and clear social performance metric that reflects stakeholder
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22 expectations, it would greatly aid practitioners in making social investments and decisions.
23
24
25 Fifth, we isolate social performance as a reference point criterion and essentially focus on the
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27 treatment of multiple referents (firm actual performance and FI stakeholder expectations);
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however, firms also calibrate decision-making across multiple goals (Cyert & March, 1963;
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31
32 Ethiraj & Levinthal, 2009). We embed logic of attention to financial goals in firm concerns with
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34 legitimacy and efficiency, but further exploration of how firms manage social performance goals
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37 alongside multiple financial and survival goals is likely to be generative for future theorizing
38
39 (Arora & Dharwadkar, 2011; Greve, 2008; March & Shapira, 1992). This is likely to be
40
41 particularly valuable for social enterprises given that they are, by definition, focused on both
42
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44 social and financial goals, which may conflict or be mutually reinforcing. In fact, all enterprises
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46 vary in the relative weight they place on social compared to financial goals and future research
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48 would benefit from exploring a more comprehensive continuum of socially-oriented enterprises.
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51 Indeed, managers of all firms would be aided by a fuller accounting of strategies to manage
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53 financial and social tensions or exploit potential synergies.
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3
Finally, we develop a framework based on one round of negotiations between FI stakeholder
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6 and the organization. However, it is important to realize that this model is iterative in nature
7
8 whereby FI stakeholder social performance expectations may undergo large changes and have
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little temporal stability. Firm responses to social performance feedback are likely to become
12
13 dynamic inputs that update FI stakeholder expectations or the level of firm social performance.
14
15 This contrasts with the relatively stable and incremental annual adaptation of historical and
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18 industry peer financial reference points in most empirical testing (Shinkle, 2012). However,
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20 further theorizing is necessary regarding the effectiveness of firm responses and longer-term
21
22 adaptation of social performance reference points.
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25 In conclusion, while social performance is increasingly important, how firms integrate it into
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27 strategic decision-making is not well understood. We theorize that firms attempt to negotiate a
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social performance reference point with their highly identified stakeholders and we explicate
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32 responses to social performance feedback through the use of strategic and identity frames. In
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34 doing so, we wish to open new avenues of theoretical development regarding how social
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36
37 performance is incorporated into the strategic behavior of contemporary firms.
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39
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8 Proceedings (OMT).
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TABLE 1
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5 Contrasting Behavioral Theory Grounded in Financial versus Social Performance
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7 Financial Performance Social Performance
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(1) Reference Point Criterion Clear Ambiguous
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12 (2) Reference Point Referent Fixed Malleable
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14 (3) Reference Point Formation Selected or Imposed Negotiated
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17 (4) Performance Feedback Inferred Expressed
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19 (5) Role of Social Identity Low High
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(6) Strategic Responses Occur close to reference point Occur far from reference point
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5 TABLE 2
6 Examples of Strategic Responses to Social Performance Feedback
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8 Strategic Definition Precedent in the Select Examples
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Response Literature (if any) from Text
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11 Substantive Actions directed at moving Westphal & Zajac (1998);
12 actions actual social performance Zavyalova et al. (2012)
13 closer to expectations
14 Substantive- Social performance changes to Godfrey, Merrill, & Hansen Moving
15
16
Technical existing operations (2009); Zavyalova et al. manufacturing
17 (Addresses the root cause of the (2012) location to more
18 feedback) worker-friendly
19 location
20 Substantive- New social performance Developed in this paper Launching a new
21
Additive initiatives line of eco-
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23 (Does not address the root friendly products
24 cause of feedback)
25 Symbolic Actions attempting to influence Ashforth & Gibbs (1990);
26 actions stakeholder expectations Westphal & Zajac (1998);
27 without changing actual social Zavyalova et al. (2012)
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29 performance
30 Symbolic Symbolic actions that are Developed in this paper Press release or
31 Related related to social performance social media
32 posting about
33 volunteer
34
35
activities,
36 philanthropic
37 work or social
38 performance
39 award
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41
Symbolic Symbolic actions that are Developed in this paper Press release or
42 Unrelated unrelated to social performance social media
43 posting about
44 product quality
45 award or strong
46 financial
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48 performance
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64
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3
FIGURE 1
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5 Strategic Responses to Social Performance Feedback
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7
8 FEEDBACK VALENCE
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10
11 NEGATIVE POSITIVE
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13
NON-SOCIAL ENTERPRISE
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15
16
17 LEGITIMACY FRAME EFFICIENCY FRAME
18
19
20
ORGANIZATIONAL IDENTITY
21 SUBSTANTIVE- SYMBOLIC-
22 ADDITIVE RESPONSES UNRELATED RESPONSES
23 (P1) (P2)
24
25
26
27
28
29
SOCIAL ENTERPRISE
30
31 LEGITIMACY + EFFICIENCY +
32 SELF-PROTECTION FRAMES SELF-ENHANCEMENT FRAMES
33
34
35
36 SUBSTANTIVE- SYMBOLIC-
37 TECHNICAL RESPONSES RELATED RESPONSES
38 (P3) (P4)
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6 Robert S. Nason (robert.nason@concordia.ca) is the Concordia University Research Chair in
7 Entrepreneurship and Society (New Scholar) and assistant professor in management at the John
8 Molson School of Business in Montréal. He received his Ph.D. in Entrepreneurship from
9 Syracuse University. His broad research interests examine the role of entrepreneurship in society.
10
11
12
13 Sophie Bacq (s.bacq@northeastern.edu) is an assistant professor of entrepreneurship and
14 innovation at D’Amore-McKim School of Business at Northeastern University in Boston. She
15 received her Ph.D. from the Université catholique de Louvain (Belgium). Her research focuses
16
17
on social entrepreneurship, impact scaling, organizational social performance, and the
18 governance of multiple organizational goals.
19
20
21 David Gras (dgras@utk.edu) is an assistant professor of entrepreneurship and strategy in the
22 Haslam College of Business, University of Tennessee. He received his Ph.D. from Syracuse
23
24 University. His research focuses on entrepreneurship, strategy, and social responsibility.
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A BEHAVIORAL THEORY OF SOCIAL PERFORMANCE:

Journal: Academy of Management Review

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Decision Theory (Behavioral), Stakeholder Theory, Social Issues,

Firms utilize reference points to evaluate financial performance, frame gain

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