Abstract
Purpose
Firms are advocating for social change to a growing extent, but the performance implications of corporate activism are not clearly understood. This study aims to introduce social nonmarket strategy (SNMS) as a goal-directed form of corporate activism, explore whether such strategy harms corporate financial performance (CFP), and assess the buffering potential of effective market-based strategy and good standing with stakeholders.
Design/methodology/approach
A reflective measurement model and all hypothesized relationships were tested using consistent partial least squares structural equation modeling on a data set of 202 US-based small, medium, and large manufacturing and service firms.
Findings
SNMS is positively related to good standing with stakeholders but negatively related to CFP. By contrast, a higher market strategy (MS) is positively associated with both stakeholder performance and CFP. MS and stakeholder performance buffer but do not fully neutralize the adverse financial effect of SNMS.
Practical implications
Firms undertaking SNMS face serious risks. However, effective MS and higher levels of stakeholder performance can buffer but not fully neutralize the adverse financial effect of SNMS.
Originality/value
This research introduces SNMS as a goal-directed form of corporate activism, establishes the conflicting performance effects of such strategy and estimates the buffering potential of MS and stakeholder performance.
Keywords
Citation
Doyle, J.D. and Parnell, J.A. (2024), "Buffering the adverse effects of social nonmarket strategy on corporate financial performance", Journal of Ethics in Entrepreneurship and Technology, Vol. 4 No. 1, pp. 7-25. https://doi.org/10.1108/JEET-04-2024-0008
Publisher
:Emerald Publishing Limited
Copyright © 2024, James D. Doyle and John A. Parnell.
License
Published in Journal of Ethics in Entrepreneurship and Technology. Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode
1. Introduction
Notwithstanding meta-analytic evidence suggesting a positive bivariate relationship between corporate social performance and corporate financial performance (CFP; Orlitzky et al., 2003), concern has been raised that firm-level investment in societal change is unproductive and unethical. Such concern has a lengthy history (Friedman, 1970; Hillman and Keim, 2001), but the activism of firms such as Anheuser-Busch InBev SA/NV, Target Brands, Inc., and The Walt Disney Company suggests the matter is not resolved (Eilert and Nappier Cherup, 2020). Currently, it is not known whether corporate activism constitutes viable strategy (Chisam et al., 2022; Rumstadt and Kanbach, 2022). In this study, we explore the strategic viability of corporate activism and the potential of market-based strategy and stakeholder-based performance outcomes to buffer any adverse effect of corporate activism on CFP.
Corporate activism is:
[…] a company’s willingness to take a stand on social, political, economic, and environmental issues to create societal change by influencing the attitudes and behaviors of actors in its institutional environment (Eilert and Nappier Cherup, 2020, p. 463).
Although corporate activism explicitly engages the firm in the broad institutional context of commerce, thus aligning it with nonmarket strategy, corporate activism constitutes nonmarket strategy only to the extent the firm uses it to pursue higher overall performance (Baron, 1995). In this study, we refer to such goal-directed corporate activism as social nonmarket strategy (SNMS). As conceptualized, SNMS cannot be effective without creating value for the firm; societal change is necessary but not sufficient.
This performance qualification also applies to strategies directed toward and deployed within the market environment (i.e. market strategy; Baron, 1995). For example, decades of research have shown that market strategy (MS) cannot be effective if it does not produce downstream relationships characterized by trust, commitment, and cooperation (Dyer and Singh, 1998; Morgan and Hunt, 1994; Palmatier et al., 2006). However, MS represents viable strategy only to the extent it contributes to CFP. To this end, meta-analyses have shown positive relationships between business performance and market orientation (Chang et al., 2014; Kirca et al., 2005), marketing intensity (Song et al., 2008), market-focused “outside-in orientation” (Saeed et al., 2015) and marketing capabilities (Krasnikov and Jayachandran, 2008), as well as how marketing asset investments and tactical marketing expenditures benefit firm valuation and business performance (Edeling and Fischer, 2016; Otto et al., 2020). By contrast, research examining the business performance implications of firm-level social activity (e.g. corporate social responsibility) reports modest and heterogenous positive bivariate relationships (Santini et al., 2021; Vishwanathan et al., 2020).
In this study, we explore whether SNMS constitutes viable standalone strategy and, if it does not, whether an effective market-based strategy and good stakeholder standing potentially buffer its adverse financial effects (Brulhart et al., 2019; Chisam et al., 2022). Our conceptual model is provided in Figure 1. The rest of this document is structured as follows. First, we apply the emerging stakeholder resource-based view of the firm and its antecedents (Barney, 1991, 2018; Freeman, 1984; Freeman et al., 2021) to derive hypotheses for testing. Second, we explain our approach to hypothesis testing using data collected from middle- and upper-level managers of 202 US-based small, medium, and large manufacturing and service firms. Third, we provide the results of hypothesis testing and discuss the managerial implications of the findings. Finally, we point to intriguing opportunities for future research.
2. Theory and hypotheses
2.1 Theoretical basis
The theoretical basis of this study is formed from the resource-based view of the firm, stakeholder theory and the stakeholder resource-based theory of the firm (Barney, 1991, 2018; Freeman, 1984; Freeman et al., 2021). According to the resource-based view of the firm, the ability of the firm to deploy a value-creating strategy and to achieve and protect competitive advantage stems from its access to and dynamic management of resources that are valuable, rare, inimitable and nonsubstitutable (Barney, 1991; Eisenhardt and Martin, 2000; Peteraf, 1993; Teece et al., 1997; Wernerfelt, 1984). According to this view, the primary responsibility of the firm and its management is to shareholders; by contrast, stakeholder theory casts a much wider net (Freeman, 1984; Freeman et al., 2021). As Phillips et al. (2003) assert:
Managing for stakeholders involves attention to more than simply maximizing shareholder wealth. Attention to the interests and well-being of those who can assist or hinder the achievement of the organization's objectives is the central admonition of the theory (p. 481).
Thus, stakeholder theory is effectively concerned with those market or nonmarket entities that are or could be affected by the decision-making of the firm or that affect or could affect outcomes of decision-making by the firm (Freeman, 1984; Hillman and Keim, 2001; Mellahi et al., 2016; Mitchell et al., 1997). The stakeholder resource-based theory of the firm extends this vital feature, conceptualizing the firm as a nexus of stakeholder-based contracts and relationships (Barney, 2018; Freeman et al., 2021; Harjoto et al., 2022; McGahan, 2021; Stoelhorst, 2023). For the firm that manages stakeholder relationships effectively, it can consequently access valuable relational resources such as trust-based acting, favorable reputation, and extensive external linkages (Bosse et al., 2009; Brulhart et al., 2019; Freeman, 1984; Harrison et al., 2010; Mitchell et al., 1997; Teece et al., 1997).
2.2 Hypothesis development
2.2.1 Social nonmarket strategy.
Corporate activism that seeks greater overall performance is referred to as SNMS. By targeting the attitudes and behaviors of institutional actors that constitute barriers to societal change, corporate activism implies that the firm is not only resisting institutional pressure but is attempting to positively deviate from it (Chatterji and Toffel, 2018; Eilert and Nappier Cherup, 2020; Rumstadt and Kanbach, 2022). Firms have used an array of persuasive and disruptive means to make this attempt, including forging promotional relationships with advocates for societal change, marketing products comprised of features symbolic of societal change and speaking out against government policy that threatens societal change. On targeted issues, corporate activism is effective when a barrier preventing societal change is eliminated, circumvented or lessened to a manageable level. For example, corporate activism that moves a community from denial to even vague awareness about a social problem would be considered effective, even though additional progress would be required to fully solve the problem (see the community readiness model; Edwards et al., 2000).
2.2.1.1 Performance outcomes of social nonmarket strategy.
As explained, SNMS is effective when it achieves a firm-designated societal objective and enhances overall firm-level performance. Overall firm-level performance is inherently multi-faceted, comprised of both symbolic and substantive outcomes (Baron, 1995; Heugens and Lander, 2009). In symbolic terms, stakeholder performance speaks to the extent to which the firm achieves legitimacy and status within the relevant stakeholder community (Heugens and Lander, 2009). Although SNMS appears to attract controversy, we nonetheless expect higher SNMS to correlate with higher stakeholder performance; such criticism may only be directed toward legitimate targets. Additionally, such criticism may misrepresent more pervasive stakeholder sentiment: a recent survey showed that the percentage of respondents who said they would want to support a company that was facing criticism for supporting people in the LGBTQ community was nearly twice that of those who said they would like to support those who are criticizing the company (GLAAD, 2023). Evidently, part of the criticism Anheuser-Busch InBev SA/NV and Target Brands, Inc. have received around their support for the LGBTQ community has been attributed to their decisions to scale back that support (Ellis, 2023; Lavoie and Selsky, 2023).
Accordingly, we expect higher SNMS to correlate with higher stakeholder performance. Compared to firms using lower SNMS, we expect that firms using higher SNMS are not only more engaged with stakeholders but also credited with facilitating valuable functional and psychosocial outcomes for stakeholders (Bhattacharya et al., 2009; Brulhart et al., 2019). By engaging stakeholders and facilitating these outcomes, the firm stands to benefit from cooperative and mutually oriented stakeholder interactions (Brulhart et al., 2019). Controlling for MS, we specifically hypothesize that SNMS is positively associated with stakeholder performance (H1).
Even with its stakeholder performance benefits, it is not clear that SNMS necessarily translates to superior CFP (Hillman and Keim, 2001; Orlitzky et al., 2003; Yang and Basile, 2022). Although there is a sense that the CFP effect of corporate social responsibility is generally positive (Greiner and Sun, 2021), that relationship may be weak (Vishwanathan et al., 2020) and associated with high heterogeneity (i.e. Cochran's Q; Santini et al., 2021). In light of the differences between SNMS and corporate social responsibility (Du et al., 2022; Eilert and Nappier Cherup, 2020), we suggest the threat to CFP from SNMS is even greater. For example, although SNMS may imply a similar relatively high-cost structure (McWilliams and Siegel, 2001), SNMS is more likely than CSR to trigger a social response requiring costly active management. For example, Anheuser-Busch InBev SA/NV paid bonuses to delivery drivers, sales representatives and independent distributors to compensate them for losses and difficulties sustained due to the controversy (Maloney, 2023).
Perhaps more fundamental is concern around the basic business model. Walker (2018) states:
After studying scores of instances of CEO activism, I’ve noticed one overarching trend: most business leaders who have spoken out have adopted the moral language of activism. They rarely, if ever, lay out a thorough business case for the positions they’ve taken.
As a practical matter, there is little guarantee a firm that successfully advocates for societal change will see a preferential allocation of the economic outcome of that change. Conceivably, such benefit can be absorbed by spending on competing products, spending in unrelated product categories and increased savings activity. Controlling for MS as well as stakeholder performance, we specifically hypothesize that SNMS is negatively associated with CFP (H2).
2.2.2 Market strategy.
Market strategy refers to the “… concerted pattern of actions taken [by the firm] in the market environment” (Baron, 1995, p. 47). To create customer value, firms develop strategies grounded in market orientation (Kohli and Jaworski, 1990; Narver and Slater, 1990), deploy market-focused or “outside-in” capabilities such as market sensing, customer linking and channel bonding (Day, 1994, 2014; Morgan et al., 2009), and emphasize key aspects of customer experience such as engagement and value co-creation (van Doorn et al., 2010).
2.2.2.1 Relationship to social nonmarket strategy.
We expect a positive relationship between SNMS and MS. Certainly, a stakeholder perspective is influential within the practice and study of marketing (Gundlach and Wilkie, 2009; Hillebrand et al., 2015; Hult et al., 2011; Laczniak and Murphy, 2012; Sheth and Uslay, 2007; Slater and Narver, 1994). To a large extent, such movement is intuitive: market environments are embedded in larger social environments (Zhang and Watson, 2020), and to create value in either environment, the firm must effectively generate, disseminate, and respond to relevant information concerning unmet needs and competitive shortcomings (Kiessling et al., 2016). Additionally, market orientation and stakeholder orientation often coincide (i.e. stakeholder marketing; Ferrell et al., 2010), and innovative firms exercising outside-in capabilities are noted for committing greater resources to corporate philanthropy (Saeed et al., 2015). Accordingly, we hypothesize that SNMS is positively associated with MS (H3).
2.2.2.2 Performance outcomes of market strategy.
MS cannot be effective absent the superior creation of customer value (Slater and Narver, 1994). Controlling for SNMS, we expect that higher MS will correlate with higher stakeholder performance, at least at the customer level. However, marketing embraces value creation for many stakeholders (Ferrell et al., 2010; Hillebrand et al., 2015; Hult et al., 2011). For example, firms with higher market orientation tend to perform better with their “internal” customers; as Kirca et al. (2005) found in their meta-analysis, market orientation is positively related to job satisfaction (corrected mean r = 0.61), organizational commitment (corrected mean r = 0.71), and other employee outcomes. Indeed, the extent to which a firm performs well with its external customers depends heavily on its performance with internal customers (Heskett et al., 2008). However, this stakeholder focus does extend beyond employees, customers, and distributors. Accordingly, firms using market-based strategies recognize that value is co-created with and alongside multiple stakeholders and that, while customers remain an important stakeholder group, engaging all stakeholders is critical for success (Hillebrand et al., 2015). Controlling for SNMS, we specifically hypothesize that MS is positively associated with stakeholder performance (H4).
Controlling for SNMS and stakeholder performance, we expect that higher MS will correlate with higher CFP. As noted above, meta-analyses have established that market orientation is associated with a variety of CFP and related outcomes (e.g. market share, profit, overall business performance; Kirca et al., 2005). With its focus on creating customer value, even proactively, market orientation forms the foundation of a wide array of firm-level activities that can contribute to sustainable competitive advantage and resulting CFP (Slater and Narver, 1994). For example, firms with higher market orientation are more innovative and less bureaucratic than those with lower market orientation, and firms with higher proactive market orientation see higher new-product success than firms with lower proactive market orientation (Narver et al., 2004). Accordingly, we hypothesize that MS is positively associated with CFP (H5).
2.3 Stakeholder performance and corporate financial performance
Controlling for SNMS and MS, we expect that higher stakeholder performance is positively associated with higher CFP. Indeed, such is the essential focus of the strategic management of stakeholder relationships (Berman et al., 1999). High-quality stakeholder relationships convey a variety of benefits with critical financial implications, including cooperation around the achievement of mutual goals, higher levels of relationship continuity, positive word-of-mouth communication, loyalty, knowledge exchange, joining of complementary resources or capabilities, and relatively low transaction costs (Dyer and Singh, 1998; Palmatier et al., 2006). Accordingly, we hypothesize that stakeholder performance is positively associated with CFP (H6).
3. Methods
3.1 Recruitment method and data collection
Our deductive approach to recruitment and data collection was informed by the overarching aim of this research: achieving better understanding of the performance implications of SNMS and the buffering potential of MS and stakeholder performance. The sampling frame was a multi-industry cross-section of firms conducting business in the Southeastern USA. Our data set comprised a total non-random sample of 202 small, medium and large manufacturing and service firms. Please see Table 1. We restricted informants to middle management and above, as the visibility of strategy in both market and nonmarket contexts as well as performance in both symbolic and substantive forms was required (Bhupendra and Sangle, 2022; Dash and Mohanty, 2023). To assure respondents of anonymity, and because the sampling frame was not limited to firms that are obliged to publish their financial statements, data were collected through a self-administered questionnaire, cross-sectional and perception-based. Although subjective measurement can overstate effect size relative to objective measurement (Kirca et al., 2005; Rodriguez Cano et al., 2004; Wang et al., 2016), we adopted a streamlined measurement approach that would apply across all industry sectors and firm sizes (Jaakkola et al., 2016). Subjective measures and objective measures do tend to correlate strongly (Wall et al., 2004) and accessible (i.e. jargon-free) questionnaire items can serve as a potential protection against common method bias (Podsakoff et al., 2003).
3.2 Measurement
Constructs were measured on positively worded five-point scales derived from existing research. SNMS, MS, stakeholder performance and CFP were modeled reflectively using multi-item scales (Diamantopoulos and Siguaw, 2006; Dijkstra and Henseler, 2015). SNMS was assessed using four items (e.g. taking positions on social issues that can advance our reputation and favorability with governments and other advocacy groups, taking action to improve society where governments are unwilling or unable to do so; Deng et al., 2010). MS was assessed on three items (e.g. emphasis on marketing, innovation in marketing and advertising; Nayyar, 1993; Parnell, 2018). We assessed stakeholder performance by concentrating on relationships with stakeholders (e.g. customer satisfaction and loyalty, employee satisfaction and loyalty). Finally, CFP was assessed on four items (e.g. revenue growth, growth in stock prices and returns to investors) derived from multiple sources (e.g. Kaplan and Norton, 1996, 2001). CFP was assessed subjectively, which is characteristic of studies of the CSR literature (Oduro et al., 2022). Finally, we added a single-item measure of firm size to control for its potential effect.
4. Findings
We used partial least squares structural equation modeling (PLS-SEM; SmartPLS, version 3; Ringle et al., 2015) for all aspects of hypothesis testing. Path coefficients were estimated by using the consistent PLS algorithm in conjunction with (bias-corrected) percentile-based bootstrap confidence intervals (Dijkstra and Henseler, 2015; Ringle et al., 2015).
4.1 Measurement model
Our assessment of the measurement model (see Table 2) started with item-level loadings. All item-level loadings exceeded the 0.70 rule-of-thumb, suggesting the construct explains more than one-half of the variance in each item (Hair et al., 2019). Internal consistency was evaluated by examining composite reliability, Cronbach’s alpha and ρA. All composite reliability values fell into the satisfactory-to-good range except for MS, and no value was so high as to suggest item-level redundancy or undesirable response patterns (Hair et al., 2019). Cronbach’s alpha exceeded 0.70 for all scales (Nunnally, 1978). We found a similar outcome in ρA (Dijkstra and Henseler, 2015). To check convergent validity, we inspected construct-level average variance explained (AVE) scores. All AVE scores exceeded 0.50 except for MS (Fornell and Larcker, 1981; Hair et al., 2019). However, our measures of MS featured good face validity, were parsimonious and produced an acceptable level of internal consistency. Following Doe et al. (2022), we sought evidence of discriminant validity using Fornell–Larcker and heterotrait–monotrait (HTMT) criteria. The Fornell–Larcker and HTMT output shown in Table 3 provides evidence of discriminant validity. Discriminant validity is established when the HTMT values are less than 0.85 (Kline, 2011) or 0.90 for conceptually similar constructs (Hair et al., 2019; Henseler et al., 2015).
4.2 Structural model
As a starting point, the threat of collinearity was assessed by inspecting variance inflation factor (VIF) values (Hair et al., 2021; Hair et al., 2019). VIF values were acceptable, below 4.0 for all but three items (Hair et al., 2021). Additionally, we found further assurance because no path coefficient exceeded 1.0 in absolute value (Hair et al., 2021). Then, the predictive power of the model was assessed by calculating the R2 and Q2 values provided in Table 4. Across the three endogenous constructs (MS, stakeholder performance and CFP), R2 values were 0.040, 0.275 and 0.327, respectively. Accordingly, the structural model trends toward moderate explanatory power (Hair et al., 2019). Q2 values were calculated with a blindfolding test with seven iterations. Q2 values over 0 indicate the variable has predictive relevance (Sarstedt et al., 2014). Q2 shows that the PLS-path model has adequate predictive relevance, especially regarding stakeholder performance and CFP (Hair et al., 2019). Finally, the Bayesian information criteria for the composite, proposed model (59.873) was smaller than that for the saturated model (81.240), lending relative support for the specific configuration of paths contained in the full proposed model (Hair et al., 2021).
4.2.1 Hypothesis testing.
Results of hypothesis testing are summarized in Table 4. A bootstrapping resampling method involving 10,000 replications (size: 202 observations) was used in this process (Hair et al., 2021).
Controlling for MS, H1 predicted a positive relationship between SNMS and stakeholder performance. H1 was supported by our analysis (|t| = 2.118, p = 0.034); when SNMS is increased by one standard deviation unit, our findings indicate that stakeholder performance will improve by 0.182 standard deviation units. Controlling for firm-level MS, H2 predicted a negative relationship between SNMS and CFP. H2 was supported by our analysis (|t|= 4.383, p = 0.000); when SNMS is increased by one standard deviation unit, the evidence suggests that CFP will decrease by −0.313 standard deviation units. H3 predicted a positive relationship between SNMS and MS. H3 was supported by our analysis (|t| = 2.217, p = 0.027); when SNMS is increased by one standard deviation unit, these results imply that MS will increase by 0.201 standard deviation units.
Controlling for SNMS, H4 predicted a positive relationship between MS and stakeholder performance. H4 was supported by our analysis (|t| = 6.161, p = 0.000); when MS increases by one standard deviation unit, our findings indicate that stakeholder performance will improve by 0.453 standard deviation units. Controlling for firm-level SNMS, H5 predicted a positive relationship between higher levels of firm-level MS and higher levels of firm-level CFP. H5 was supported by our analysis, such that higher levels of firm-level MS were found to have a positive relationship with firm-level CFP (|t| = 3.851, p = 0.000); when MS increases by one standard deviation unit, the evidence suggests that CFP will increase by 0.409 standard deviation units. Finally, controlling for firm-level SNMS and MS, H6 predicted a positive relationship between higher levels of firm-level stakeholder performance and higher levels of firm-level CFP. H6 was supported by our analysis, such that firm-level stakeholder performance was found to have a positive relationship with firm-level CFP (|t| = 3.431, p = 0.001); when stakeholder performance increases by one standard deviation unit, CFP will increase by 0.340 standard deviation units.
Additionally, evidence points to partial mediation of the relationship between firm-level SNMS and firm-level stakeholder performance by MS (|t| = 2.038, p = 0.042); when SNMS increases by one standard deviation unit, stakeholder performance increases by 0.182 + (0.201 × 0.453) = 0.273 standard deviation units. Partial mediation also applies to the relationship between firm-level MS and firm-level CFP by firm-level stakeholder performance (|t| = 2.462, p = 0.014); when MS increases by one standard deviation unit, CFP increases by 0.409 + (0.453 × 0.340) = 0.563 standard deviation units. These partial mediating relationships are complementary (Hair et al., 2021). By contrast, firm-level SNMS relates to firm-level CFP via the competitive partial mediating effects of firm-level MS and stakeholder performance (Hair et al., 2021); although these indirect effects are minimally significant (|tMS| = 1.680, p = 0.093; |tstakeholder performance| = 1.807, p = 0.071), it shows a specific buffering effect of MS and stakeholder performance on the negative relationship between firm-level SNMS and firm-level CFP; when SNMS increases by one standard deviation unit, CFP will change by −0.313 + [(0.182 × 0.340) + (0.201 × 0.409)] = −0.169 standard deviation units.
5. Discussion
For the reasons we have explained, our primary interest in conducting this research was to clarify the processes and outcomes of corporate activism undertaken as nonmarket strategy (Chisam et al., 2022). Specifically, we sought to determine whether SNMS constitutes viable standalone strategy and, if not, whether any strategic complement or symbolic outcome buffers its direct or indirect detriment to CFP (Brulhart et al., 2019; Heugens and Lander, 2009). A SNMS must enable the firm to improve overall performance to be viable (Baron, 1995). However, the overall performance of the firm cannot be understood without first developing an understanding of its market and nonmarket antecedents (Kingsley et al., 2012; Singer, 2013).
In this study, we establish a positive relationship between stakeholder performance and CFP, controlling for SNMS, MS and firm size. In other words, beyond the immediate effects of strategy, firms derive financial benefit from stakeholder relationships characterized by relational governance and emphasizing reciprocity, solidarity, flexibility, cooperation and information exchange instead of contract or the threat of third-party enforcement (Dyer and Singh, 1998; Poppo and Zenger, 2002). Within such relationships, firms enjoy relatively unencumbered access to relational assets such as trust-based acting, favorable reputation and extensive external linkages (Bosse et al., 2009; Brulhart et al., 2019; Freeman, 1984; Harrison et al., 2010; Mitchell et al., 1997; Srivastava et al., 2001; Teece et al., 1997).
Although the negative relationship between SNMS and CFP was not unexpected (Friedman, 1970; Hillman and Keim, 2001; Jensen, 2002; Yang and Basile, 2022), it is nonetheless a key finding given the growing regularity with which many firms seek to disrupt the societal status quo (Eilert and Nappier Cherup, 2020). Concerns that corporate activism can spark costly controversy, impose market-related opportunity costs on the firm, and function as a negative investor signal have merit. As we find, higher stakeholder performance in concert with higher SNMS buffers the negative CFP effects of SNMS. However, the size of the buffering effect of stakeholder performance on the negative relationship between SNMS and CFP (−0.313) is small (0.182 × 0.340 = 0.062). In part, this weak indirect effect can be attributed to the relatively modest positive relationship between SNMS and stakeholder performance (ƒ2 SNMS = 0.043) versus the relatively strong relationship between MS and stakeholder performance (ƒ2 MS = 0.269). Indeed, the 95% confidence interval for the bootstrapped relationship between SNMS and stakeholder performance does approach zero at the low end (0.034), which is not the case for the same relationship between MS and stakeholder performance (0.231, 0.444). This finding aligns with the general movement within exchange relationships away from anonymity and coercion, as well as the possibility that customer satisfaction is not the only relevant relational metric to evaluate (Ferrell et al., 2010; Laczniak and Shultz, 2021; Laczniak and Murphy, 2012). Still, the stakeholder scope of MS is relatively narrow, focusing primarily on upstream and downstream supply chain partners, so firms must still address the broader stakeholder community as they make decisions of potential interest to the broader stakeholder community.
Echoing the results of studies examining the performance effects of market orientation (e.g. Kirca et al., 2005; Rodriguez Cano et al., 2004; Shoham et al., 2005), we find that MS facilitates higher levels of stakeholder performance and CFP. We also find that MS is positively related to SNMS. Thus, MS may play a vital role for the firm, not only for its direct performance effects but also for buffering the adverse CFP effects of SNMS. However, this indirect effect is minimally significant; by itself, the buffering effect of MS on the negative relationship between SNMS and CFP (−0.313) is small (0.201 × 0.409 = 0.082). Still, value-creating activity by the firm in one strategic domain may directly or indirectly deliver benefits in the other domain. For example, exchange partners benefiting from product and process innovations that demand fewer cognitive, emotional, physical, financial and time-based resources could redirect those benefits to the pursuit of adaptive societal change (e.g. motivation–opportunity–ability framework; Parkinson et al., 2016). In the opposite direction, a firm that invests in social pursuits may seek means to translate the societal-level benefits of SNMS into valuable customer-level benefits. For example, a recognizable social investment may yield image-related psychological benefits for customers who have elected to incorporate brand identity into their understanding of self (e.g. self-brand connection; Escalas and Bettman, 2005).
Together, MS and stakeholder performance buffer slightly more than one-half the negative CFP effect of SNMS (−0.313). After accounting for MS and stakeholder performance, our results show that when SNMS increases by one standard deviation unit, CFP will change by −0.169 standard deviation units. Given the strength of the positive relationship between MS and CFP relative to that between stakeholder performance and CFP (f 2 MS = 0.212 versus f 2 stakeholder performance = 0.142), the firm that can further align its SNMS and MS strategies may find increased investments in SNMS to be relatively “low cost.” Indeed, our results show that SNMS and MS are complementary, suggesting no paradox or inherent contradiction between them. To achieve alignment between SNMS and MS, the firm may find it advantageous to seek strategy-related synergies and resource efficiencies, consolidate relationships with the overall strategy in mind, bridge relationships across exchange partners and relevant stakeholders, incorporate brand equity as an explicit decision-making criterion, manage products with the underlying social problem in mind and incorporate societal change as an aspect of brand identity as appropriate.
Alternatively, the firm may distance its SNMS and MS strategies from each other if SNMS is likely to frustrate MS beyond a manageable and temporary level. As the experiences of Anheuser-Busch Companies, LLC, Target Brands, Inc., The Walt Disney Company and Southwest Airlines Co. illustrate, corporate activism outside the market domain can have market-related consequences. Indeed, social action can alienate stakeholders and distract the firm from its core business (Chatterji and Toffel, 2010; Nalick et al., 2016). In such instances, decoupling the strategies might be a preferable, albeit arguably inefficient, method of managing the matter. For example, the firm could turn to corporate political activity (e.g. lobbying) instead of embedding the cause in product designs and branded communications.
6. Limitations and future directions
We acknowledge the following research limitations and opportunities. As non-random sampling was used, the results of this study are not ready for broader generalization. Although our approach to data collection facilitated anonymity for respondents (McGahan and Porter, 1997), we recognize that perception-based data collected from a single informant at a single moment in time introduces the possibility of common method bias (Chang et al., 2010; Lindell and Whitney, 2001; Podsakoff et al., 2003). Additionally, we understand that the reported size of a particular effect may be larger when the effect is measured subjectively than when it is measured objectively (Kirca et al., 2005; Rodriguez Cano et al., 2004; Wang et al., 2016). Together, these are concerns faced in related research (corporate social responsibility) more broadly in which it has been observed that cross-sectional studies far outnumber longitudinal ones and subjective measurement approaches outnumber objective ones (Oduro et al., 2022). Neither objective stakeholder performance nor objective CFP data were possible to obtain for the present study. Prior research supports a positive relationship between subjective and objective performance measurement (e.g. Dawes, 1999; Wall et al., 2004), but the correlation between them is less than “perfect.” Objective measurement of stakeholder performance faces obstacles stemming from its diffuse nature. Objective SNMS measurement could be helpful for mitigating the threat of social desirability bias as well as any firm-level leaning toward “greenwashing” or its SNMS equivalent (Jia et al., 2023; Torelli et al., 2020). However, any attempt to objectively measure SNMS should be accompanied by an inductive, grounded effort to fully map its domain (Cepa and Schildt, 2023; Corbin and Strauss, 1990).
Collectively, SNMS, MS and stakeholder performance account for less than 50% of the variance in CFP. In this study, we find a relatively large buffering effect of MS and a relatively small buffering effect of stakeholder performance on the relationship between SNMS and SNMS. In this study, we also find a relatively small relationship between SNMS and stakeholder performance relative to the MS-stakeholder performance relationship. Future research should seek to further explore these dynamics. By specifying more innocuous implementations of SNMS or identifying conditions that strengthen the buffering effects of MS and stakeholder performance, firms seeking societal change can do so without facing such serious performance threats. In terms of SNMS itself, future research could explore whether the sought societal change is relevant to its stakeholder performance and financial performance effects (Rumstadt and Kanbach, 2022). It would also be useful to know whether firms engaging their supply chain or perhaps even adopting a co-opetition-based approach in implementing SNMS find more favorable performance outcomes than those suggested in this study. Further, studies of these topics across theoretically relevant industry, economic and cultural contexts would be beneficial, particularly if it were found that in certain contexts SNMS can even facilitate better CFP (LaGore et al., 2020; Rumstadt and Kanbach, 2022). In a comparable way, introduction of a time lag could help to explore whether the performance effects of SNMS are consistent over time or if what appears to be a relatively unproductive strategic approach is really only so over the short run.
Figures
Figure 1.
Conceptual model
Note: SNMS = social nonmarket strategy; MS = market strategy
Sample demographics
| n = 202 | % | |
|---|---|---|
| Gender | ||
| Male | 99 | 49.0 |
| Female | 103 | 51.0 |
| Management level | ||
| Middle | 107 | 53.0 |
| Upper | 95 | 47.0 |
| Functional background | ||
| Accounting/finance | 32 | 15.8 |
| General management/HR | 52 | 25.7 |
| Law | 11 | 5.4 |
| Marketing/sales | 30 | 14.9 |
| Production/engineering | 64 | 31.7 |
| Health care | 12 | 5.9 |
| Other | 1 | 0.5 |
| Industry | ||
| Manufacturing | 55 | 27.2 |
| Hospitality | 16 | 7.9 |
| Health care | 37 | 18.3 |
| Other services | 90 | 44.6 |
| Other | 4 | 2.0 |
| Firm size | ||
| Small (11–50 employees) | 31 | 15.3 |
| Medium (51–250 employees) | 46 | 22.8 |
| Large (251+ employees) | 125 | 61.9 |
Author's own work
Measurement model results: factor loadings and collinearity statistics; scale properties
| SNMS (CR = 0.908; Cronbach’s α = 0.909; ρA = 0.928; AVE = 0.671) | Loading | |
| SNMS1 | Taking positions on social issues that can advance our reputation and favorability with governments and other advocacy groups | 0.877 |
| SNMS2 | Taking action to improve society where governments are unwilling or unable to do so | 0.878 |
| SNMS3 | Taking action to generate stakeholder support that can influence the success of our firm | 0.744 |
| SNMS4 | Engaging in philanthropy to enhance our status with governments and other stakeholders | 0.905 |
| SNMS5 | Taking action to minimize negative publicity from non-governmental organizations or other groups | 0.869 |
| MS (CR = 0.666; Cronbach’s α = 0.727; ρA = 0.752; AVE = 0.432) | ||
| MS1 | Innovation in marketing and advertising | 0.732 |
| MS2 | Advertising expenditures | 0.777 |
| MS3 | Emphasis on marketing | 0.868 |
| Stakeholder performance (CR = 0.900; Cronbach’s α = 0.903; ρA = 0.925; AVE = 0.557) | ||
| SP1 | Development of capabilities critical to firm success | 0.834 |
| SP2 | Customer satisfaction and loyalty | 0.848 |
| SP3 | Employee satisfaction and loyalty | 0.840 |
| CFP (CR = 0.786; Cronbach’s α = 0.796; ρA = 0.811; AVE = 0.698) | ||
| CFP1 | Market share growth | 0.899 |
| CFP2 | Revenue growth | 0.854 |
| CFP3 | Return on assets | 0.871 |
| CFP4 | Growth in stock prices and returns to investors | 0.893 |
SNMS = social nonmarket strategy; MS = market strategy; CFP = corporate financial performance
Source:Author's own work
Measurement model results: Fornell–Larcker and HTMT tests of discriminant validity
| Construct | Fornell–Larcker | HTMT ratios | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| SNMS | MS | Stakeholder performance | CFP | Firm size (revenues) | SNMS | MS | Stakeholder performance | CFP | Firm size (revenues) | |
| SNMS | 0.819 | ----- | ||||||||
| MS | 0.200 | 0.657 | 0.190 | ----- | ||||||
| Stakeholder performance | 0.286 | 0.482 | 0.746 | 0.279 | 0.429 | ----- | ||||
| CFP | −0.105 | 0.499 | 0.453 | 0.836 | 0.129 | 0.448 | 0.451 | ----- | ||
| Firm size (Rev.) | −0.153 | 0.078 | −0.069 | −0.106 | N/A | 0.153 | 0.088 | 0.069 | 0.101 | ----- |
SNMS = social nonmarket strategy; MS = market strategy; CFP = corporate financial performance; Values on the Fornell–Larcker diagonal are square roots of construct-level AVE
Source:Author's own work
Structural model results – parameter results; R2 and Q2
| Stakeholder performance | CFP | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| H | Orig. Est. | Boot. mean | Boot. SD | |T| | 95% ci | f2 | p-value | H | Orig. Est. | Boot. mean | Boot. SD | |T| | 95% ci | f2 | p-value | |
| Firm size (rev.) | --- | −0.076 | −0.081 | 0.070 | 1.095 | −0.177, 0.064 | 0.008 | 0.274 | --- | −0.161 | −0.164 | 0.072 | 2.237 | −0.301, −0.026 | 0.042 | 0.025 |
| SNMS (H1–H3) | 1 | 0.182 | 0.179 | 0.086 | 2.118 | 0.034, 0.308 | 0.043 | 0.034 | 2 | −0.313 | −0.315 | 0.071 | 4.383 | −0.332, −0.056 | 0.149 | 0.000 |
| MS (H4 and H5) | 4 | 0.453 | 0.465 | 0.074 | 6.161 | 0.231, 0.444 | 0.269 | 0.000 | 5 | 0.409 | 0.424 | 0.106 | 3.851 | 0.335, 0.562 | 0.212 | 0.000 |
| Stake. Perf. (H6) | --- | 6 | 0.340 | 0.332 | 0.099 | 3.431 | 0.142 | 0.001 | ||||||||
| R2 value | 0.277 | 0.411 | ||||||||||||||
| Q2 value | 0.111 | 0.164 | ||||||||||||||
SNMS = social nonmarket strategy; MS = market strategy; Stake Perf. = stakeholder performance; CFP = corporate financial performance
1; |t| is to be interpreted as an indication of magnitude only.
2. 95% CIs are percentile based, with bias correction, based on the accelerated bootstrap method.
3. H3 is not reported here in the interest of parsimony
Source:Author's own work
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