Business and Management INK

What’s Better—Broad or Focused Stakeholder Management?

December 20, 2021 3101

Not all corporate social responsibility is created equal, especially for firms focused on implementing it and benefiting from their investment. That’s something Limin Fu, Dirk M. Boehe, and Marc O. Orlitzky have explored in their past scholarship. In this post based on their article, “Broad or Narrow Stakeholder Management? A Signaling Theory Perspective,” published in Business & Society, the trio discuss their current research into determining what is the right mix of good intentions, stakeholder engagement and competitive advantage.

ESG investment is becoming a big deal. ESG stands for environmental, social, and governance practices that improve business ethics. Companies are increasingly incentivized to become socially and environmentally responsible. After several divestments and lawsuits, executives may assume that the more corporate social responsibility (CSR), the better. Indeed, CSR enhances the organization’s reputation, strengthens relations with stakeholders, and may buffer corporate risk (Orlitzky & Benjamin, 2001). The Business Roundtable insists that “every stakeholder is essential. We commit to deliver value to all of them.” Mirroring this statement, Airbnb starts to imagine a “stakeholder world.” This reorientation acknowledges a broad scope of stakeholders being the key to the future success.

But to what extent do investors really appreciate such a broad scope? At least Airbnb’s investors do not seem to embrace this “stakeholder capitalism.” Research also shows that some investors may approach the commitments to a broad scope of stakeholders with skepticism because they treat CSR as a signal that firms have wasteful intentions and capabilities” (DesJardine, Marti, & Durand, 2020, p. 851). Given this headwind, the big question for managers is: How broad/narrow should their investments in CSR be?

Limin Fu, left, Dirk Boehe and Marc Orlitzky

Our findings, based on a large international sample (of 2,042 companies in a panel study over 16 years) indicate that a golden middle way (i.e., moderately broad stakeholder management) may be best from a risk management perspective. Investments in CSR can be considered a signal to stakeholders: The broader it is, the more consistent and credible the company’s signal about CSR. Despite these risk-reducing benefits, attending to a large array of stakeholders incurs accelerating costs. The competitive race for ever larger ESG requires large investments in monitoring, community engagement, and public relations efforts and usually adds a new ESG-related bureaucracy to organizational structures. Many investors may regard this broad stakeholder management as a waste of resources (see also Orlitzky, 2013). The critical test that Airbnb is facing illustrates this well.

However, the other, less costly extreme—narrow or focused stakeholder management—is not ideal, either. Favoring one or few stakeholders over the rest may signal the company’s inconsistent commitments or mere window-dressing (Fu, Boehe, Orlitzky, & Swanson, 2019). If a company only focuses on climate change, green investors may consider such narrow commitment to climate change as appropriate, whereas other investors may criticize the lack of attention to other social or governance issues. The lack of consensus among investors may exacerbate stock price volatility (Orlitzky, 2013).

Consistent with signaling theory, we found a U-shaped relationship between stakeholder management scope and stock price volatility, indicating a goldilocks effect. Furthermore, externally the company’s media environment serves as an amplifier of this signaling effect, elaborated in the paper. Internally, the golden middle way of stakeholder management could be facilitated, for example, through exploiting synergies between R&D capabilities and CSR projects such as eco-innovations (Fu, Boehe, & Orlitzky, 2020).

These findings qualify the contemporary trend toward ever broader CSR because it takes a balanced, cost-benefit view of organizational signaling—at least in terms of stock price volatility. But is the golden middle way also best in terms of other possible organizational and societal outcomes? Overall, executives need to judge with independent, critical minds that pragmatically analyze specific company circumstances rather than follow the crowd.  

Limin Fu is an assistant professor at the Monash Business School, Monash University. Her research investigates paradoxes in corporate social responsibility (CSR/ESG) and her research interests include strategic management, international business, and innovation. Dirk M. Boehe is a professor of Strategic Management at Africa Business School (ABS), Université Mohammed VI Polytechnique (UM6P). His research interests focus on CSR and corporate governance in international strategy. Marc O. Orlitzky (PhD in Business Administration, University of Iowa) is research fellow at the Faculty of Management, University of Warsaw. His research interests focus on corporate performance, sustainability (ESG), epistemology/statistics, and organizational behavior/human resource management.

View all posts by Limin Fu, Dirk Boehe, and Marc Orlitzky

Related Articles

The Role of Place in Sustainability
Business and Management INK
October 28, 2024

The Role of Place in Sustainability

Read Now
Turning to Glitter in Management Studies – Why We Should Take ‘Unserious’ Glitter Serious to Understand New Management Practices
Business and Management INK
October 24, 2024

Turning to Glitter in Management Studies – Why We Should Take ‘Unserious’ Glitter Serious to Understand New Management Practices

Read Now
Utilizing Academic-Practitioner Partnering for Societal Impact
Business and Management INK
September 17, 2024

Utilizing Academic-Practitioner Partnering for Societal Impact

Read Now
Trippin’ Forward: Management Research and the Development of Psychedelics
Business and Management INK
September 9, 2024

Trippin’ Forward: Management Research and the Development of Psychedelics

Read Now
Using Ethnography to Explore Entrepreneurial Extracurricular Activities

Using Ethnography to Explore Entrepreneurial Extracurricular Activities

Co-authors Birgitte Wraae and Nicolai Nybye reflect on the inspiration behind their research article, “Learning to Be “Me,” “the Team,” and “the Company” Through Entrepreneurial Extracurricular Activities: An Ethnographic Approach,” published in Entrepreneurship Education and Pedagogy.

Read Now
The Future of Business is Interdisciplinary 

The Future of Business is Interdisciplinary 

By actively collaborating with industry, developing interdisciplinary programs and investing in hands-on learning opportunities, business schools can equip graduates with the specific skills and experiences that employers are seeking.

Read Now
The Co-Creation Edge in Marketing Education

The Co-Creation Edge in Marketing Education

In this article, co-authors Maria Petrescu, John T. Gironda, Anjala S. Krishen, Adina Dudau, J. Ricky Fergurson, Steven A. Stewart, Philip Kitchen, and Monica Fine reflect on the inspiration behind […]

Read Now
0 0 votes
Article Rating
Subscribe
Notify of
guest

This site uses Akismet to reduce spam. Learn how your comment data is processed.

0 Comments
Newest
Oldest Most Voted
Inline Feedbacks
View all comments