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Trade associations operate under the premise of advancing the shared interests of their member firms. How well do they fulfill this role? In this paper, I measure the activity of 148 major industry trade associations over time and relate this activity to the performance of the relevant industries and dominant firms within them. Findings suggest that trade association spending increases when the profitability of the four largest firms in an industry decreases but spending is unrelated to the profitability of the industry overall. This implies that large firms exert control over trade association agendas and may use these communal organizations to advance their own interests rather than the shared interests of the entire industry. Moreover, it points to the need for further development of the currently anemic management literature on the activities of trade associations.
Building on Barnett’s (2007) theoretical argument that a firm’s ability to profit from social responsibility depends upon its stakeholder influence capacity (SIC), we bring together contrasting literatures on the relationship between corporate social performance (CSP) and corporate financial performance (CFP) to hypothesize that the CSP-CFP relationship is U-shaped. Our results support that hypothesis. We find that firms with low CSP have higher CFP than firms with moderate CSP, but firms with high CSP have the highest CFP. This supports the theoretical argument that SIC underlies the ability to transform social responsibility into profit.
We extend theories of self-regulation of physical commons to analyze self-regulation of intangible commons in modern industry. We posit that when the action of one firm can cause "spillover" harm to others, firms share a type of commons. We theorize that the need to protect this commons can motivate the formation of a self-regulatory institution. Using data from the U.S. chemical industry, we find that spillover harm from industrial accidents increased after a major industry crisis and decreased following the formation of a new institution. Additionally, our findings suggest that the institution lessened spillovers from participants to the broader industry.
Real options reasoning assumes timely and effective managerial decision making yet does not address managers' ability to provide it. An attention-based view describes managerial behavior under varying structural conditions. I examine real options reasoning from an attention-based view. I develop several testable propositions regarding the effects of a firm's particular concrete and contextual attention structures on the ways in which its managers notice, champion, acquire, maintain, exercise, and abandon the various real options within its portfolio. I conclude with implications for future empirical research on real options reasoning.
Managers and management researchers tend to assume that learning from strategic events yields benefits. Although some firms have gained competitive advantages from learning, instances are infrequent, and firms that have gained persistent advantages through learning are probably quite unusual. Learning from successes has short-run benefits but eventually makes firms less capable of surviving, whereas learning from failures disappears in clouds of rationalization and defensive behavior. Noisy feedback about results causes people to develop very heterogeneous and often highly erroneous perceptions of firms and their environments, so it should not be surprising that strategizing is harmful as often as it is helpful.
I argue that research on the business case for corporate social responsibility must account for the path-dependent nature of firm-stakeholder relations, and I develop the construct of stakeholder influence capacity to fill this void. This construct helps explain why the effects of corporate social responsibility on corporate financial performance vary across firms and time. I develop a set of propositions to aid future research on the contingencies that produce variable financial returns to investment in corporate social responsibility.
When a firm suffers a major accident, its stock price is likely to become more volatile, but does this accident also increase the volatility of the stocks of rivals? Following a major accident, rivals sometimes unite through their trade association to implement an industry self-regulatory program. Do such collective efforts help to stabilize the stocks of firms in these threatened industries? This paper presents a longitudinal empirical study of the influence of a major accident by a single firm – Union Carbide's deadly poison gas leak in Bhopal, India – on the volatility of the stock prices of other chemical firms, and the influence of this industry's intensive collective efforts to recover from this major accident – the American Chemistry Council's Responsible Care Program – on the stock price volatility of these same firms. Results indicate that the volatility of the stocks of chemical firms increased after Union Carbide's tragic accident and that this volatility decreased for Responsible Care members but not for non-members. These findings suggest that a firm's stock price may be destabilized by the actions of a rival and that through cooperation with rivals, a firm may restabilize its stock price. Thus, this study provides empirical insight about the nature of the interdependent relationship among rivals and the benefits that trade associations and industry self-regulation may provide for participating, and non-participating, firms
Over the last decade, managers have placed increasing emphasis on the creation of tangible measures of intangible organizational properties. Many major corporations now include measures for intellectual capital, knowledge capital, reputational capital, and other such intangible assets on their financial ledgers. Counter to the rubric that "If it doesn't get measured, it doesn't get done", we argue that some intangibles are truly intangible, and attempts to force fit such measures on them creates undue organizational stress and harms the underlying asset. Instead, managers may better foster the growth of intangible assets by placing less emphasis on outcome measurement and more emphasis on the process. Using New York University's Office of Community Service as a case study, we illustrate how a Zen approach can augment tangible measures to create a truly "balanced" organizational strategy. American firms have widely adopted the strict measurement practices of Japanese firms, but have largely not adopted the Eastern practice of Zen. A Zen approach fosters trust and provides flexibility that allows organizations to better achieve success in the long run.
This paper presents a dynamic framework that describes how firms allocate limited resources between improving their competitive position relative to rivals and their communal position shared with rivals. This dynamic framework outlines how organizational field-level dynamics influence industry attractiveness and thereby alter a firm's incentive to engage in communal strategy relative to competitive strategy. Communal strategy, in turn, can influence the institutions governing an organizational field and thereby shape industry attractiveness. Overall, the interplay between factors exogenous and endogenous to an industry cause change in an organizational field and so determine the nature of the communal environment shared by a firm and its rivals over time. Analysis of this interplay provides insight into the micro-level drivers of macro-level change and furthers understanding of the conditions under which rivalrous firms voluntarily contribute to collective betterment of their industry despite collective rationality.
A central and contentious debate in many literatures concerns the relationship between financial and social performance. We advance this debate by measuring the financial–social performance link mutual funds that practice socially responsible investing (SRI). SRI fund managers have an array of social screening strategies from which to choose. Prior studies have not addressed this heterogeneity within SRI funds. Combining modern portfolio and stakeholder theories, we hypothesize that the financial loss borne by an SRI fund due to poor diversification is offset as social screening intensifies because better-managed and more stable firms are selected into its portfolio. We find support for this hypothesis through an empirical test on a panel of 61 SRI funds from 1972 to 2000. The results show that as the number of social screens used by an SRI fund increases, financial returns decline at first, but then rebound as the number of screens reaches a maximum. That is, we find a curvilinear relationship, suggesting that two long-competing viewpoints may be complementary. Furthermore, we find that financial performance varies with the types of social screens used. Community relations screening increased financial performance, but environmental and labor relations screening decreased financial performance. Based on our results, we suggest that literatures addressing the link between financial and social performance move toward in-depth examination of the merits of different social screening strategies, and away from the continuing debate on the financial merits of either being socially responsible or not.
The article reviews the book "The Keystone Advantage: What the New Dynamics of Business Ecosystems Mean for Strategy, Innovation and Sustainability," by Marco Iansiti and Roy Levien.
While interest in the concept of corporate reputation has gained momentum in the last few years, a precise and commonly agreed upon definition is still lacking. This paper reviews the many definitions of corporate reputation present in the recent literature and categorizes these definitions based on their similarities and differences. The purpose of the study is to review, analyze and evaluate prior definitional statements of corporate reputation. The analysis led us to conclude that the cluster of meaning that looks most promising for future definitional work uses the language of assessment and specific terms such as judgment, estimation, evaluation or gauge. Based on this review work and a lexicological analysis of the concept of reputation, we propose a new definitional statement that we think adds theoretical clarity to this area of study. The statement defines corporate reputation more explicitly and narrowly and distinguishes this concept from corporate identity, corporate image and corporate reputation capital. It is our hope that this study and the resulting definition will provoke further scholarship devoted to developing one voice when it comes to corporate reputation as a concept.
Firms pursue competitive advantage through both individual and collective strategic actions. Because of the difficulties of coordinating collective action, industries are characterized by extended periods of individual activity, punctuated by waves of collective activity. Rational and self-interested firms engage in individual activities unless disrupted by a force ample to overcome the collective action problem. At key points in the life of an industry, legitimacy challenges arise, presenting incentives to collectivize. In a legitimacy challenge, mobilized groups of constituents attempt to gain control and change the institutional rules of the game. In order to regain control, firms gradually collectivize in a pattern akin to the resource mobilization perspective of social movement theory. The author builds a model and offers several testable propositions that trace the dynamic working balance between individual and collective activities within an industry during the emergence, maturity and decline stages. Over the life of an industry, these ebbs and flows in collective activity take the form of waves of collectivizing.
For those who are overly enamored of the MBA credential, this book is an overly lengthy but important wakeup call. Mintzberg is right that it is wrong to put a newly minted MBA, without prior management experience, directly into a significant management position. But this is not nearly as common a happenstance nor as large a threat to humanity as Mintzberg's drawn-out attack on it implies. Moreover, the IMPM, and his admittedly biased portrayal of it, serves as a great case study of an alternative means of providing management training to well-experienced managers, but it is neither an effective replacement for the analytical training in the conventional MBA, nor is it salvation for our "society of meanness" (p. 153), wherein we have "antisocial behavior below the surface of public awareness yet above the letter of the law" (p. 152). It is just an exciting but yet unproven way to develop experienced managers from those firms that can afford it, to be provided by those schools that can support it. Let's not read too much more into it just yet.
The strategy literature is increasingly focused on the need to create dynamic capabilities to respond with innovative product offerings in‘hypercompetitive’ environments. The real options approach offers hope for managers facing such threatening environments by highlighting methods to hold options on a variety of possible future states, thereby reducing risk without bearing all the costs. However, extant real options literature, stemming from rational-based financial assumptions, does not consider attention as a limited resource. Real options are valued on the assumption that management can exploit the flexibility inherent in projects, and so require management attention to obtain their full theoretical value. This paper brings attentional constraints to bear on the real options framework and describes a conceptual framework that illustrates the real option value realization process.
A review is presented of the book "The SMS Blackwell Handbook of Organizational Capabilities: Emergence, Development, and Change," edited by Constance E. Helfat.
In March of 2003, the publishers of two books with contrasting perspectives sponsored a public debate about the contents of these books, and the larger issues involved. The lead authors of each of the books participated in the debate: Chad Holliday, Chairman and Chief Executive Officer (CEO) of DuPont, for Walking the Talk: The Business Case for Sustainable Development; and John Cavanagh, Director of the Institute for Policy Studies, for Alternatives to Economic Globalization: A Better World Is Possible. These panelists represented not only their books, but also their organizations: Holliday represented the World Business Council for Sustainable Development (WBCSD), of which he is past chairman, while Cavanagh represented the International Forum on Globalization (IFG), of which he is Vice President and a member of its Board of Directors. A review of these two books and a discussion of the issues involved in the debate follow.
Many organization scholars have a standard refrain of criticizing economists for treating the firm as a black box, never looking inside it. "The Corporation" is a provocative, enlightening, and entertaining film that makes people stop and examine this black box they generally take for granted. It meticulously, often melodramatically, but rarely impartially points out the social and environmental harms that accompany the operation of this black box. The film, through its editing and tone, belittles the well-established economic doctrine of resolving common problems by privatizing them. This doctrine may largely hold true on an individual ownership basis, but the film strongly implies that it does not hold true when the private owner is a corporation. People at least need to convince corporations to be more and more benevolent by demonstrating to them how benevolence can be in their own best interests, and how some of those things that corporations treat as externalities are internalized in the long run.
This paper primarily focuses on Entine's assertion that SRI research is hopelessly flawed. Although SRI researchers have primarily chosen to pluck the low-hanging fruit in this line of inquiry, it is possible to obtain unbiased higher level insight. SRI research best functions as a means of helping firms and investors identify what the market wants. As Entine points out, the definition of what is and is not moral behavior for a firm is a quagmire, and the ability to measure whether socially responsible investors have forced firms to become moral is suspect. The paper also agrees with Waddock that socially responsible investors have caused firms to take certain actions that, without such pressure, they would have taken much later or not at all. However, whether these actions have made firms moral is not a debate that SRI researchers should enter. Certainly, events of late would suggest that although firms, by and large, are now more responsive to a variety of social issues, they are not moral entities, and should not be viewed as such.
The events of September 11, 2001, unified our nation. But how long can this unity last? I examine the dynamics of the national shift between individualism (“me”) and communalism (“we”) on the heels of September 11 through comparison with analogous patterns in interorganizational behavior. Based on these patterns, I conclude that, despite the severity of the crisis, the United States will again return to “business as usual”.
New York University's Zen approach to community service focuses on the principles of mindfulness, awareness, compassion, and engagement in the present moment. It enables a more holistic approach to the measurement of volunteer management objectives.
The 3rd International Conference on Corporate Reputation, Image and Competitiveness brought together academics and practitioners from a variety of fields to discuss many critical issues on the topic of how corporate reputation can contribute to corporate performance. In this paper, several of the presentations are overviewed to draw out common themes from the papers presented at this conference. After identifying common themes, unifying framework is offered to bring together the disparate fields that contribute to one common topic, that of corporate reputation. Creation of a common framework is critical to advancing the study of corporate reputation and its influence on corporate performance.
This paper provided an overview of the literature regarding definitions of corporate reputation before providing a working definition which argued that reputation is reflective and based on preconceptions, social networks and direct experience. They argue that rather than thinking about an aggregated reputation, we should think about organizations having a reputation for something with someone. The paper argued, through analysing the literature on stakeholder theory, social network theory and social capital theory, that different actors and their interactions are critical for creating corporate reputation. A focus of the paper is that labour markets are critical for building reputations within organizations. For instance, within knowledge-based organizations, firms that are able to attract and retain top employees or use former employees as ambassadors have a strategic advantage for bolstering their
reputation. The authors conclude by making the case that professional service firms are a particularly important sector because these organizations are selling a service
rather than a product. As a result, quality is more difficult to assess and therefore arguably stakeholders rely more on a company’s reputation than in other sectors.
This article, which explores how economists model a firm's reputation, elaborates the standard economic framework for investigating the corporate reputation. The firm has a reputation with specific stakeholders regarding specific characteristics. Any theory of reputation has to develop some theory of belief revision, that is, how firm actions revise stakeholders' beliefs, and then explain how these belief revisions influence the stakeholders' treatment of the firm. The reputation framework predicts opportunistic actions around adverse turning points in firms' histories, when firms realise, but stakeholders do not, that the long-run profits from reputation formation are no longer sufficient to support reputation-forming behaviour. It then shows that economics has dealt many possible reputable characteristics and stakeholders. An interesting avenue for future research would be to cover the boundaries of the economic reputation model to include repair, both superficial and substantive, perhaps following the approaches presented.
Firms within an industry often find themselves tarred by the same brush. When accidents occur, stakeholders often punish both the offending firm and the entire industry. In this way, a firm's reputation may be tied to other firms, and so reputation may be a common resource shared by all members of an industry - what we term a reputation commons. As with many shared resources, an industry's reputation may be overexploited. A firm can benefit from the favorable reputation of an industry even as it takes individual actions that may harm this shared reputation. In this chapter, we explore when a reputation commons is likely to occur and discuss how firms individually and collectively respond to the problems associated with it. We propose that firms can solve the reputation commons problem by reducing the sanctioning ability of stakeholders and by privatizing reputation.
Aggregated reputation scores and rankings have been rightly criticized for lacking a theoretical basis by which to weight the individual perceptions that form them. The resulting product can be a score or ranking that fails to represent the perceptions of many or even most stakeholders. Little attention has been paid, however, to the reverse. Rather than focus on how individual perceptions can be represented at an aggregate level, herein we focus on how an aggregated reputation can influence individual perceptions. We hypothesize that ratings have a significant influence on stakeholder perceptions, especially where other information is lacking. Through experiments, we find that exposure to reputation ratings provides stakeholders with an anchor point – information about what others think – and their perceptions of the firm are adjusted relative to this anchor. We suggest future work on reputation delve into the heuristics and biases boundedly rational stakeholders deploy when assessing firms.
Thousands of scholars and millions of dollars are devoted to the study of management. In the last decade, the number of active members of the Academy of Management has increased by more than 50 percent, to 17,607 members. The number of management journals continues to grow as well. These rates of growth suggest that many academics are seeing benefit from management research, but not every study produces as much benefit as it might, and in aggregate, management research has not advanced managerial knowledge as much as many desire. Can we do better? This symposium offers five perspectives on how researchers and their societies can get more value from these significant investments of careers and money. The speakers draw on their extensive experiences – three have served as presidents of the Academy of Management and another is the president-elect – to find opportunities for higher yields of knowledge or societal benefits. In aggregate, they offer a set of actionable ideas that get us beyond bemoaning our current state and put us on a path toward better creation, accumulation, and dissemination of management knowledge.
One of the more interesting counter-intuitive findings in organizational research is that success breeds failure. This counter-intuitive has been described in terms of core rigidities, core incompetencies, and even the Icarus Paradox. The literature on these topics has concluded that success yields overconfidence and myopia in firms and their managers, and this eventually causes failure. We augment this literature by suggesting that success breeds not only internal pathologies that cause firms to misuse their established resources over time, but also external pathologies that cause firms to lose access to new resources. In particular, success influences stakeholders’ perceptions of firms, causing firms to lose the benefits of underdog status and gain the problems of overlord status. We term this notion that success warps images of the successful, leading to their decline over time, the Helios Paradox, and suggest that dominant firms must counter natural tendencies to succumb to both the Icarus and Helios Paradoxes if they are to remain successful over time.
We extend theories of self-regulation of physical commons to analyze self-regulation of intangible commons in modern industry. We posit that when the action of one firm can cause spillover harm to others, firms share a type of commons. We theorize that the need to protect this commons can motivate the formation of a self-regulatory institution. Using data from the US chemical industry, we find that spillover harm from industrial accidents increased after a major industry crisis and decreased following the formation of a new institution. Additionally, our findings suggest that the institution lessened spillovers from participants to the broader industry.
In this paper, I seek to build a theoretical framework that explains how effectively different firms can use different types of corporate social responsibility (CSR)to influence stakeholders perceptions of and reactions to different types of errors. CSR affects the errors stakeholders notice, how they frame them, how they respond to them, and how quickly any punishment wanes. Ex ante and ex post CSR decrease the likelihood that stakeholders will notice some errors, improve the framing of those errors that are noticed, and decrease the magnitude and duration of stakeholder attacks sparked by those errors.
Should corporations serve as agents of social change? For more than 30 years, scholars have attempted to make a "business case" that demonstrates that corporations should because they can earn positive financial returns from social responsibility. However, the business case remains unproven. This paper argues that research on the business case must account for the path dependent nature of firm-stakeholder relations, and develops the construct of stakeholder influence capacity (SIC) to fill this void. SIC helps explain why the effects of corporate social responsibility (CSR) on corporate financial performance (CFP) vary across firms and across time, and so provides a missing link in the study of the business case. This paper distinguishes CSR from related and confounded corporate resource allocations and from corporate social performance (CSP), then incorporates SIC into a conceptual framework that illustrates how acts of CSR are transformed into CFP through stakeholder relationships. This paper also develops a set of propositions to aid future research on the contingencies that produce variable financial returns to investments in CSR.
This paper combines economic, political, and sociological perspectives to present a dynamic framework for understanding how a firm strategically allocates its limited resources between competitive pursuits and industry-wide cooperation. Organizational field dynamics alter a firm's incentive to engage in industry-wide cooperation relative to competition. Periods of intensive industry-wide cooperation, in turn, alter the organizational field and thereby influence the competitive conditions facing a firm and its rivals. Periods of cooperation are unstable, varying in their duration and intensity according to the characteristics of the organizational field, industry, and firm. A set of propositions developed in this paper outlines these characteristics and illustrates how, even in the face of rivalry and the collective action problem, firm-level self-interest aggregates into patterns of industry-level collective action. Moreover, these propositions demonstrate how the interplay between factors exogenous and endogenous to an industry facilitates change within an organizational field and so determines the nature of the competitive environment facing a firm and its rivals over time.
We present a case study—the U.S. death care industry—that largely violates the assumptions of foreign direction investment (FDI) theory. Based on this anomaly, we develop
several questions to help us understand whether this is a unique case, whether other anomalies may also exist, and what this might mean for FDI theory. We hope to generate discussion to help us answer these questions.
I present a study of the US chemical industry's unified efforts to reverse an unfavorable institutional shift triggered by the transgressions of one of its members. I measure changes in the industry's institutional environment from 1980 to 2000. I find that the industry's collective efforts did not directly improve institutional conditions confronting individual firms, but did help buffer firms from financial losses that commonly arise when their rivals suffer crises.
Are financial and social performance negatively associated, positively associated, or are they simply unrelated? Common sense, theory, and a growing body of empirics have supported all of the above contradictory positions. Despite the importance of this body of research and the intensity of study directed at it, in the end, the relationship between social performance and financial performance remains in dispute. In this paper, we attempt to reconcile these divergent views through an empirical study of socially responsible investing (SRI) mutual funds. Many scholars have compared the financial performance of SRI mutual funds to those of funds that do not screen their holdings based on social criteria. The results have been mixed. Rather than comparing socially screened to unscreened mutual funds, we examine differences within socially screened funds. SRI funds vary greatly in the type and intensity of social screens they choose, as well as in the financial performance they achieve. Previous research has not accounted for this heterogeneity within social screening criteria.
Firms pursue competitive advantage through both individual and collective strategic actions. Because of the difficulties of coordinating collective action, industries are characterized by extended periods of individual activity, punctuated by waves of collective activity. Rational and self-interested firms engage in individual activities unless disrupted by a force ample to overcome the collective action problem. At key points in the life of an industry, legitimacy challenges arise, presenting incentive to collectivize. In a legitimacy challenge, mobilized groups of constituents attempt to gain control of and change the institutional rules of the game. In order to regain control, firms gradually collectivize in a pattern akin to the resource mobilization perspective of social movement theory. I build a model and offer several testable propositions that trace the dynamic working balance between individual and collective activities within an industry during the emergence, maturity, and decline stages. Over the life of an industry, these ebbs and flows in collective activity take the form of waves of collectivizing.
It is argued that no simple correlation can be established between corporate social performance and corporate financial performance. The activities that generate CSP do not directly impact the company's financial performance, but instead affect the bottom line via its stock of reputational capital - the financial value of its intangible assets. It is suggested that corporate citizenship programs can be designed to help companies address reputational threats and opportunities to achieve reputational gains while mitigating reputational losses.