This study investigates how adoption of advisory governance policy encourages firms to become more responsive to their shareholders over time. Although shareholder activism is costly and often viewed as unable to drive meaningful change, we identify increasing shareholder voice as an underlying mechanism to explain how advisory policy adoption ultimately reshapes board–shareholder relations. Drawing on signaling theory and behavioral views of board–shareholder dynamics, we test our predictions following the broad shift in corporate board voting policies from plurality to majority vote (...) standards. While prior research shows that majority vote adoption has little to no direct impact on director elections, empirical results from 2,390 firm-year observations provide support for our hypotheses that adoption of this advisory electoral standard signals a willingness to hear shareholder concerns, leading to increased shareholder activism and, in turn, board responsiveness to shareholder proposals. Overall, our results help explain why some firms continue to fight the purely advisory policy and why an era of shareholder empowerment followed the majority vote campaign. (shrink)

The current research investigates the interplay of board gender diversity, the quality of corporate social responsibility disclosure, and the green innovation performance of a firm. It examines the moderation effect of the CSRD on the relationship between corporate GIP and BGD. The study inculcates 3,736 firm-year observations of A-share listed Chinese firms from 2010 to 2019. Least square dummy variables method, generalized method of moments, and 2SLS are employed for the analysis of the study. The findings foster an affirmative and (...) significant impact of BGD on corporate GIP in terms of green innovation patents. Moreover, the quality of CSRD is also detected for a significant moderating effect on the relationship between BGD and corporate GIP. The quality of CSRD emerges to be an indicator for social resilience and female role congruence under the purview of the social resilience theory and the role congruence theory, respectively. This research would help managers and policymakers of developing nations in formulating environmental innovation strategies for corporate sustainability. (shrink)

Scholars of stakeholder management have long grappled with the question of how to communicate with stakeholders to enhance cooperation and reduce conflict. We build on insights from the literature on stakeholder dialog to highlight the importance of four elements of firm–stakeholder dialog processes: timing, valence, richness, and topicality of firms’ responses to stakeholder engagements. We demonstrate a link between these elements of the firm–stakeholder dialog process and changes in stakeholder cooperation or conflict with the firm, as well as contingent tradeoffs (...) among them. Specifically, we show that the relative importance of these elements is contingent upon stakeholder type and status. Government actors prioritize richness and topicality over timeliness and valence. Economic actors, by contrast, prioritize timeliness and valence. Civil society stakeholders prioritize timeliness, valence, and topicality over richness. Low-status actors across sectors deprioritize topicality and richness while high-status actors demand attentiveness to all four elements. (shrink)

We study behind-the-scenes investor activism promoting environmental, social, and governance improvements by means of a proprietary dataset of a large international, socially responsible activist fund. We examine the activist’s target selection, forms of engagement, impact on ESG performance, drivers of success, and effects on the targets’ operations and value creation. Target firms are typically large and visible, perform well, and have high liquidity and low ESG performance. Engagement induces ESG rating adjustments: firms with poor ex ante ESG ratings experience a (...) ratings increase after complying with the activist’s demands, whereas firms with high ex ante ESG ratings experience a ratings decrease following the revelation of their ESG problems. Activism that is focused on environmental and social issues is more likely to succeed if targets are ESG-sensitive. Successful engagements boost targets’ sales. Risk-adjusted excess stock returns of successful engagements outperform those of unsuccessful engagements by 2.7%. Results are especially strong for firms with low ex ante ESG scores. Specifically, targeted firms in the lowest ex ante ESG quartile outperform matched peers by 7.5% in the year after the end of the engagement. Our results thus suggest that the activism regarding corporate social responsibility generally improves ESG practices and corporate sales and is profitable to the activist. Taken together, we provide direct evidence that ethical investing and strong financial performance, both from the activist’s and the targeted firm’s perspective, can go hand-in-hand together. (shrink)

Shareholder activists increasingly pressure corporations on social policy issues; yet, extant research provides little understanding of who these activists are and how they choose their corporate targets. In this article, we adopt an activist-centered approach and rely on hybrid organizational identity theory to determine, in a two-phase analysis, how shareholder activists define their economic and social identities and whether these identities are associated with specific target characteristics and tactical strategies. Our findings form the premise of a typology of institutional shareholder (...) activists that is empirically derived and takes into account the wide range of hybrid organizational identities that shareholders exhibit. With a sample of 735 social policy shareholder proposals filed by 104 institutional shareholders in the 2009-2010 period, our study presents one of the first empirical tests examining the heterogeneity of identities within the broad stakeholder category of “social shareholder activists.” Our empirical evidence demonstrates that these shareholders’ mix of economic and social identities is systematically related to their targets’ characteristics and tactical strategies. The implications of our new typology for research on shareholder activism and the value of our findings for managers conclude this article. (shrink)

While the notion that CEOs have a general influence over their firms’ stakeholder strategies is well accepted, little attention has been given to how CEOs can actively and performatively manage social activism in and around their firms. I seek to develop an initial understanding of this phenomenon by examining some of the critical consequences of CEOs’ public responses to social activist challenges. Drawing on instrumental stakeholder theory and social movement theory, I recognize the dualistic nature of CEOs’ public responses to (...) social activist challenges; that is, a single response can influence both the direct pressure received from the focal social activists confronting the firm as well as the potential pressure the firm could face in the form of additional challenges. I argue that a CEO’s accommodative public response—seen by social activists as a sign that the CEO and firm are aligned with their beliefs, values, and motivations—will be negatively associated with the focal social activists’ willingness to punish the firm. At the same time, however, a CEO’s accommodative public response sends a broader signal—reflective of the CEO and firm’s relative openness to social activism and social issues—that will be positively associated with the perceived attractiveness of the firm’s corporate opportunity structure for social activism, increasing the potential for the firm to receive additional social activist challenges. I conduct a laboratory experiment based on a real-life case and find support for my arguments. The results yield important implications for research on strategic leadership, stakeholder strategy, and social movements. (shrink)

This study examines whether private information exchange between institutional investors and public companies in engagement dialogs on sustainability issues improves the publicly disclosed measurements of the target company’s financial and non-financial performance and transparency. It uses a unique dataset containing 326 private reports related to environmental, social, and anti-corruption recommendations to address material incidents among publicly traded MSCI World Index portfolio companies of Nordic institutional investors. The results indicate that target companies appear to have similar values with matched companies on (...) sustainability performance and transparency ratings in the 3 years following the initiation of private reporting. Unexpected sustainability incidents are subsequently reflected in the next year’s fall in the market value of target companies relative to MSCI World Index. This paper provides empirical evidence for the legitimacy-based provision of private sustainability information used in a larger disclosure system of public companies. (shrink)

In the management and business ethics literatures, stakeholder engagement has been demonstrated to lead to more ethical management practices. However, there may be limits on the extent to which stakeholder engagement can, as currently conceptualized, resolve some of the more difficult ethical challenges faced by managers. In this paper we argue that stakeholder engagement, when seen as a way of reducing five types of knowledge problems—risk, ambiguity, complexity, equivocality, and a priori irreducible uncertainty—can aid managers in resolving such ethical challenges. (...) Using a practical illustration of the ethical challenges surrounding the development and application of genetic modification technologies, we demonstrate how stakeholder engagement enables managers to better address these knowledge problems, thereby to manage more ethically. In this way, we suggest that stakeholder engagement has an even more crucial role to play in business ethics research and practice. (shrink)

Despite ample research on corporate governance (CG) and corporate social responsibility (CSR), there is a lack of consensus on the nature of the relationship between these two concepts and on how this relationship manifests across institutional contexts. Drawing on the national business systems approach, this article systematically reviews 218 research articles published over a 27-year period to map how CG–CSR research has evolved and progressed theoretically and methodologically across different institutional contexts. To shed light on the full gamut of the (...) CG–CSR relationship, we categorize and explore the nature of this relationship along two strands: (a) CSR as a function of CG and (b) CG as a function of CSR. Through this review, we identify key themes where CG–CSR research has lagged and account for under-explored contexts in this domain. Finally, we put forth a comprehensive agenda for progressing future research in the field. (shrink)

Firms in controversial industries such as tobacco, alcohol, gambling, weapon, and nuclear power suffer organizational legitimacy problems. These firms, therefore, adopt various strategies to acquire legitimacy. Drawing on institutional theory, we conceptualize the top management team gender diversity as a legitimacy-seeking strategy and examines how a firm’s belonging to a controversial sector affects TMT gender diversity. Based on a cross-country sample of 1542 firms operating in controversial industries from 34 countries and control sample with another set of 1542 similar-sized firms (...) from non-controversial industries, the empirical evidence shows that belonging to a controversial industry exerts a positive impact on TMT gender diversity. The effect of industry belonging on TMT gender diversity is positively moderated by institutional gender parity and a low level of corruption. It indicates that institutional factors act as emancipative forces that foster women's empowerment. Taken together, our results for moderating variables highlight the role of institutional characteristics in supporting women empowerment initiatives. (shrink)

Organizations are increasingly expected by their stakeholders to tackle the “wicked” problems of society. These new pressures have created a highly equivocal corporate social responsibility (CSR) environment whereby firms face competing stakeholder perspectives regarding their CSR strategy. To reduce CSR environmental equivocality and determine a CSR strategy, organizations need to effectively and efficiently identify, evaluate, and exploit CSR initiatives to create financial and social value (i.e., shared value). In this paper, we explain how organizations can optimize their shared value creation (...) and promote the construction of intersubjective agreement, which can reduce CSR environmental equivocality. Theory is put forth that explains how the proper alignment of an organization’s level of CSR environmental equivocality, which is comprised of varying amounts of “unknowingness,” corporate entrepreneurship strategy, which promotes experimentation, and stakeholder engagement process, which facilitates information gathering and dissemination, supports the construction of intersubjective agreement. A typology of organizational shared value creation in equivocal CSR environments with four “ideal types” of organizations—Container, Explorer, Embracer, and Manager—is presented and an organization’s choice among and movement between types discussed. (shrink)

We theoretically discuss and empirically show how CEO power based on environmental expertise and formal influence over executives and directors, in the absence and presence of shareholder activism, spurs firms toward greener strategies. Our results support the idea that CEOs with informal power, grounded in expertise, reduce corporate environmental impact and this relationship is amplified when the CEO also enjoys formal power over the board of directors. Additionally, we found that any source of CEO power, whether informal or formal, is (...) a good catalyst for transforming shareholder activism into corporate greening. However, in the absence of such activism, only CEOs’ informal environmental expert power acts as a determinant of firm environmental performance. (shrink)

Previous research on reactivity—defined as changing organizational behaviour to better conform to the criteria of measurement in response to being measured—has found significant variation in company responses toward sustainability metrics. We propose that reactivity is driven by dialogue, motivation, and capacity in a configurational way. Empirically, we use fuzzy set qualitative comparative analysis to analyze company responses to the sustainability index FTSE4Good. We find evidence of complementary and substitute effects between motivation and capacity. Based on these effects, we develop a (...) typology of reactivity to sustainability metrics, which also theorizes the use of metrics as tools for performance feedback and the building of calculative capacity. We show that when reactivity is studied configurationally, we can identify previously underacknowledged types of responses. We discuss the theoretical and practical implications for studying and using sustainability metrics as governance tools for responsible behaviour. (shrink)

The concept of sustainability was developed in response to stakeholder demands. One of the key mechanisms for engaging stakeholders is sustainability disclosure, often in the form of a report. Yet, how reporting is used to engage stakeholders is understudied. Using resource dependence and stakeholder theories, we investigate how companies within the same industry address different dependencies on stakeholders for economic, natural environment, and social resources and thus engage stakeholders accordingly. To achieve this objective, we conducted our research using qualitative research (...) methods. Our findings suggest that the resource dependencies on different stakeholders lead to development of different stakeholder relationships and thus appropriate resources within the company to execute engagement strategies that are informing, responding, or involving. Our research explains why diversity exists in sustainability disclosure by studying how it is used to engage stakeholders. We find that five sustainability reporting characteristics are associated with the company’s stakeholder engagement strategy: directness of communication, clarity of stakeholder identity, deliberateness of collecting feedback, broadness of stakeholder inclusiveness, and utilization of stakeholder engagement for learning. Our study develops the literature by providing insight into companies’ choices of stakeholder engagement strategy thus explaining diversity in sustainability reporting based on the characteristics and relationships with specific stakeholders. (shrink)

Although the possibility that a firm’s stakeholders may take damaging measures against it in response to its activities has been an underlying assumption of stakeholder theory from inception, the conditions that predispose stakeholders to act against firms remain largely unexplored in the literature. Based on work in equity theory, expectancy theory, and resource dependence theory, we present and test hypotheses concerning stakeholders’ propensities to impose sanctions upon—or to support—firms. Using a vignette-based experiment, we found strong confirmation of the criticality of (...) fairness in the firm–stakeholder relationship: stakeholder equity perceptions were unequivocally associated with the proclivity to sanction the firm, or to engage in prosocial behaviours of benefit to it. Stakeholder expectancy perceptions and resource dependence were related to only certain forms of stakeholder action, indicating that researchers should take care to differentiate between types of stakeholder response when investigating questions surrounding stakeholder mobilization. Our results also suggest specific avenues for stakeholder dialogue that could help firms mitigate the likelihood of stakeholders taking damaging action against them. (shrink)

Investors concerned about the social and environmental impact of the companies they invest in are increasingly choosing to use voice over exit as a strategy. This article addresses the question of how and why the voice and exit options (Hirschman 1970) are used in social shareholder engagement (SSE) by religious organisations. Using an inductive case study approach, we examine seven engagements by three religious organisations considered to be at the forefront of SSE. We analyse the full engagement process rather than (...) focusing on particular tools or on outcomes. We map the key stages of the engagement processes and the influences on the decisions made at each stage to develop a model of the dynamics of voice and exit in SSE. This study finds that religious organisations divest for political rather than economic motives using exit as a form of voice. The silent exit option is not used by religious organisations in SSE, exit is not always the consequence of unsatisfactory voice outcomes, and voice can continue after exit. We discuss the implications of these dynamics and influences on decisions for further research in engagement. (shrink)

Climate change is an ethical and moral challenge of a global scale due to its potentially catastrophic implications for human welfare. Understanding forces that drive corporate adaptation to climate change is an important research topic in business ethics. In this paper, we propose that shareholder climate-related proposals could be a catalyst for corporate innovations in technologies mitigating climate change. Our results, based on the analysis of US firms, indicate that corporations respond positively to these proposals by producing more climate-related patents (...) and citations. We also uncover potential casual channels of influence. Further, we find that corporate governance moderates the documented effects. These proposals lead to a more efficient and valuable innovation output, but lower firm performance in the short term. The real effect that shareholder proposals have on innovation gains clarity in the context of climate change, contributing to the discussion of investor “voice.”. (shrink)