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Turning Corporate Social Responsibility into Opportunity: A
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presented by
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5108 K‘lProlecd-PrelelRCIDateDue indd

TURNING CORPORATE SOCIAL RESPONSIBILITY INTO OPPORTUNITY:
A STUDY OF STAKEHOLDER ORIENTATION AND MARKETING

BY

TRACY L. GONZALEZ-PADRON

DISSERTATION

To be submitted to
Michigan State University
in partial ﬁilﬁllment of the requirements
for the degree of

DOCTOR OF PHILOSOPHY

Department of Marketing and Supply Chain Management _

2007

ABSTRACT

TURNING CORPORATE SOCIAL RESPONSIBILITY INTO OPPORTUNITY: A
STUDY OF STAKEHOLDER ORIENTATION AND MARKETING

By
Tracy L. Gonzalez-Padron

Marketers adopting the stakeholder concept shift the ﬁrm’s focus to a broader set
of stakeholders than just customers —— including suppliers, employees, regulators,
shareholders, and the local community. This research examines the incorporation of
stakeholder issues in corporate marketing strategy to explain ﬁrm performance.
Grounded in stakeholder theory, the study provides a conceptualization of stakeholder
orientation based on cultural values that is distinctive from stakeholder responsiveness
and examines the relationship of stakeholder responsiveness to ﬁrm performance. The
study determines the mediating role of marketing outcomes on the impact of stakeholder
responsiveness on ﬁrm performance. Inclusion of a measure for “globalness” provides for
an understanding of the moderating effects of global operations on the ability for a ﬁrm
to respond to multiple stakeholders. Multiple regression analysis tests hypotheses using a
data set consisting of qualitative data obtained from corporate documents and quantitative
data from respected secondary sources.

The results of this research have implications to managers seeking to balance
multiple stakeholders in the current global environment. The results show that ﬁrms
focusing attention on more than two stakeholder groups exhibit greater corporate social
responsibly behaviors and marketing outcomes. However, there is a slight decrease in
outcomes as ﬁrms spread attention among ﬁve or more stakeholder groups, indicating the

need to prioritize stakeholder groups. Consistent with market orientation, ﬁrms focusing

on customers are less likely to behave irresponsibly towards the community and other
stakeholder groups. Therefore, ﬁrms should continue to include customers as a primary
stakeholder.

Global operations inﬂuence the ability for ﬁrms to respond to multiple
stakeholders. Findings show that a customer orientation leads to greater responsiveness
when the number of countries is higher. However, implementing programs and policies in
response to employees and. shareholders is more difﬁcult when the percent of
international sales and dependence on offshore suppliers increases.

This research provides insights in the relationship between stakeholder
responsiveness on customer satisfaction, innovation, and reputation beyond that of prior
studies. This study shows that harmful activities have a greater effect of lowering
customer satisfaction than social responsiveness has on increasing customer satisfaction.
Results from this study also suggest that market-based performance is affected by lower
customer satisfaction from negative responsiveness. This research shows that positive
social responsiveness increases ﬁrm performance through enhanced reputation, but
negative reputational activities without positive actions reduce both reputation and
ﬁnancial performance. Firms able to respond to multiple stakeholders through socially
responsive actions experience greater innovation. Results show that responsiveness to
customers, employees, and the community can increase innovation, while attention to

regulatory agencies can decrease innovation, through increased costs and restrictions.

Copyright by
TRACY L. GONZALEZ-PADRON
2007

DEDICATION

This dissertation is dedicated to spouse Tony Gonzalez-Padron,
children Melissa and Dominic, and parents Bruce and Shirley Briggs.

ACKNOWLEDGEMENTS

I want to thank those who assisted me throughout the dissertation process. This
project has utilized the time, support, expertise, and contributions of many. Speciﬁcally, I
owe my heartfelt appreciation to my dissertation chair, Tomas Hult, for allowing me to
pursue this project. From the start of my Ph.D. studies, Tomas Hult encouraged and
motivated while guiding me to conceptualize, prepare, write and edit a high quality
dissertation study.

All of the members of my dissertation committee contributed to the success of
this project. I am thankful for the advice and support provided by Tamer Cavusgil, Robert
Nason for challenging me to consider other theoretical perspectives (and for dissertation
completion grant), O.C. Ferrell for the inspiration to examine stakeholder orientation and
continued encouragement throughout the process, and Patrick Murphy for sharing views
on marketing ethics.

A special thanks is required for the four students acting as independent coders,
Luke Hendee, Mary Dudley, Glenn Gagnon, and Ashley Tillman. They gave many
months of their summer to develop a data set of quotations not only for this project, but
for future studies as well. This project could not have been possible without the support
of the MSU-CIBER through grants, computer support, and staff assistance.

My inspiration for this dissertation comes from my husband, Tony, and children
Melissa and Dominic. They have provided encouragement and take pride in my endeavor

to earn a Ph.D., although it has meant many sacriﬁces.

vi

TABLE OF CONTENTS

 

 

 

LIST OF TABLES VIII
LIST OF FIGURES - - X
CHAPTER I
INTRODUCTION .......................................................................................................... 1
CHAPTER II
LITERATURE REVIEW ............................................................................................... 7
Corporate Social Responsibility ................................................................................. 7
Stakeholder Approach to Corporate Social Responsibility ...................................... 27
Stakeholder Theory and Global Marketing .............................................................. 34
CHAPTER III
CONCEPTUAL FRAMEWORK AND HYPOTHESIS DEVELOPMENT ............... 39
Conceptual Framework ............................................................................................ 39
Hypothesis Development ........................................................................................... 42
CHAPTER IV
RESEARCH DESIGN & METHOD ............................................................................ 61
Sample Achieved ....................................................................................................... 63
Data Collection Process ........................................................................................... 65
CHAPTER V
ANALYSIS AND RESULTS ....................................................................................... 91
CHAPTER VI
DISCUSSION AND CONCLUSION ........................................................................ 1 16
Discussion of the Research Questions .................................................................... 1 18
Recommendations for Managers ............................................................................ 1 3 8
Limitations and future research .............................................................................. 1 4 4
APPENDICES ..... 146
REFERENCES 163

 

vii

LIST OF TABLES

TABLE 4.1 DATA SOURCES ................................................................................................ 62
TABLE 4.2 COMPARISON OF MEANS FOR SAMPLE .............................................................. 64
TABLE 4.3 SAMPLE OF CSR RESEARCH ARTICLES USING CONTENT ANALYSIS ................ 67
TABLE 4.4 KAPPA COEFFICIENT FOR SAMPLE DOCUMENTS ............................................... 72
TABLE 4.5 SUMMARY STATISTICS FOR STAKEHOLDER ORIENTATION ............................. 74
TABLE 4.6 STAKEHOLDER RESPONSIVENESS MEASURES .................................................. 81
TABLE 4.7 FIRM PERFORMANCE MEASURES ..................................................................... 88
TABLE 5.1 CORRELATIONS MATRIX ................................................................................... 92
TABLE 5.2 SUMMARY OF RESEARCH HYPOTHESES ........................................................... 94
TABLE 5.3 RELATIONSHIP OF STAKEHOLDER ORIENTATION AND RESPONSIVENESS ......... 97
TABLE 5.4 MODERATOR EFFECT OF INTERNATIONAL SALES .......................................... 101
TABLE 5.5 MODERATOR EFFECT OF NUMBER OF INTERNATIONAL COUNTRIES .............. 102
TABLE 5.6 MODERATOR EFFECT OF DEPENDENCE ON OFFSHORE SUPPLIERS ................. 103
TABLE 5.7 MODERATOR EFFECT OF GLOBALNESS .......................................................... 105

TABLE 5.8 RELATIONSHIP OF STAKEHOLDER RESPONSIVENESS AND MARKETING
OUTCOMES ............................................................................................... 108

TABLE 5.10. RELATIONSHIP OF STAKEHOLDER RESPONSIVENESS AND FIRM

PERFORMANCE ......................................................................................... 11 1
TABLE 5.11 SUMMARY OF RESULTS OF MEDIATION TESTS ............................................. 111
TABLE 5.12 MEDIATINO ANALYSIS ON TOBIN’S Q .......................................................... 1 12
TABLE 5.13 MEDIATING ANALYSIS ON ALTMAN’S Z ...................................................... 113
TABLE 5.14 MEDIATING ANALYSIS ON RETURN ON ASSETS ........................................... 115
TABLE 6.1 SUMMARY OF HYPOTHESIS TESTS ................................................................. 1 17
TABLE 6.2 STAKEHOLDER ORIENTATION PRIORITY BY INDUSTRY .................................. 121

viii

TABLE 6.3 STAKEHOLDER RESPONSIVENESS BY INDUSTRY ............................................ 123

TABLE 6.4 RELATIONSHIP OF GLOBALNESS AND STAKEHOLDER RESPONSIVENESS ......... 126

ix

LIST OF FIGURES

FIGURE 1: CONCEPTUAL FRAMEWORK ............................................................................... 41
FIGURE 6.1 CURVILINEAR RELATIONSHIPS OF INTERNATIONAL SALES ............................ 128
FIGURE 6.2 CURVILINEAR RELATIONSHIPS OF NUMBER OF COUNTRIES .......................... 129
FIGURE 6.3 CURVILINEAR RELATIONSHIPS OF INTERNATIONAL SUPPLY .......................... 130

Chapter I

INTRODUCTION

The marketing concept redeﬁned an assumed managerial Obligation to
stockholders, creating a following among scholars and practitioners to embrace a
marketing orientation to focus on customers (e.g., Deshpande, Farley, and Webster 1993;
Kohli, J aworski, and Kumar 1993). Over time, marketing scholars broadened their
perspective beyond current customers and competitors to include future consumer and
societal needs (e. g., Day 1994; Narver, Slater, and MacLachlan 2000). In parallel, the
management discipline reﬁned a stakeholder concept that redeﬁned organizations as a
grouping of stakeholders and stresses that the purpose of the organization is to manage
their interests (Friedman and Miles 2006). There is a connection between these evolved
marketing and stakeholder concepts, as both position the company obligations beyond
Shareholders and include customers as one of the primary stakeholders (Lusch and
Laczniak 1987). Marketers adopting the stakeholder concept Shift the ﬁrm’s focus to a
broader set of stakeholders — including suppliers, employees, regulators, shareholders,
and the local community (Greenley and Foxall 1997; Maignan and Ferrell 2004).

Some scholars advocate a stakeholder relationship model of marketing that
focuses on the process of creating and maintaining strong relationships with multiple
stakeholders (Payne 2004; Payne, Ballantyne, and Christopher 2005). Firms
incorporating customer, competitive, and employee perspectives in strategic planning
experience greater marketing capabilities and superior competitive advantage (Greenley

and Foxall 1998; Greenley et al. 2004). For example, the communications company

Vodacom exploits a new market opportunity of less-developed markets by offering
extremely cheap mobile phone handsets in ﬁve African countries ("Business: Calling an
End to Poverty; Mobile Phones and Development" 2005).

Likewise, the business press calls for inclusion of multiple stakeholders in
strategic planning. A recent survey of executives identiﬁes the role of stakeholder
engagement and marketing strategies in addressing social trends effectively (Bonini,
Mendonca, and Oppenheim 2006). However, while a call for more attention to social
issues is prevalent, companies continue to struggle with tactics for addressing multiple
social issues effectively. For example, Toyota markets the hybrid vehicle Prius, the
recognized ﬁrst vehicle to provide a serious alternative to the internal combustion engine
(Taylor 2006), while continuing to market vehicles with lower fuel efﬁciency. Global
supply-chain advantages can be overcome by pressures from governments, NGOS, and
activist groups to contribute to the economic development, as well as improve the quality
of life, of the workforce and community (Bachman 2000). Even Starbucks, known for
quality product and good corporate citizenship, is experiencing scrutiny regarding their
supplier relations with Ethiopian coffee growers ("Business: Storm in a Coffee Cup;

Starbucks Vs. Ethiopia" 2006).

Statement of the Problem
The perception that social responsibility affords an opportunity may motivate the
organization to adapt a stakeholder orientation (Porter and Kramer 2006). Stakeholder
theory is a theoretical perspective in corporate social responsibility research which
incorporates the organization’s cultural orientation towards multiple stakeholders (e. g.,

Maignan, Ferrell, and Ferrell 2005; Munilla and Miles 2005). Proponents of stakeholder

theory argue that managers must satisfy various constituents (e. g., customers, employees,
suppliers, local community organizations) that would withdraw support for the ﬁrm if
important social responsibilities were unmet (Freeman 1984). Stakeholder orientation
refers to the extent to which a ﬁrm understands and addresses stakeholder demands in
daily operations and strategic planning. Adoption of a stakeholder orientation provides
ﬁrms an opportunity to understand its impact on stakeholders, anticipate changing
societal expectations and use its capacity for innovation to create additional business
value from superior social and environmental performance (Laszlo et al. 2005).

Although empirical research supports a positive relationship between corporate
social performance and ﬁnancial performance (e.g., Margolis and Walsh 2003; Orlitzky,
Schmidt, and Rynes 2003), the nature and boundaries inﬂuencing how a stakeholder
orientation affects ﬁrm ﬁnancial performance remains unclear. Stakeholder
responsiveness refers to the extent that the organization implements policies and
programs to address the needs of Stakeholder groups and may require a diverse range of
activities. The positive relationship with ﬁnancial performance does not hold across all
stakeholders or corporate response activities (Berman et al. 1999; Seifert, Morris, and
Bartkus 2004). Questions include how much investment in stakeholder responses is
enough, and which stakeholders the ﬁrms should address.

This research seeks to understand how valuing each stakeholder group affects
ﬁrm performance through stakeholder responsiveness and marketing outcomes, as well as
the inﬂuence of global business operations on stakeholder responsiveness through four
speciﬁc research questions.

1. How does attention to speciﬁc stakeholders drive implementation Of programs
and policies responding to stakeholders?

2. What is the inﬂuence of international sales, number of countries, and sourcing on
a ﬁrm’s responsiveness to stakeholders?

3. Do actions (responding to stakeholders) inﬂuence customer satisfaction,
innovation, and reputation?

4. How does a stakeholder orientation affect ﬁrm performance?

Research Objectives

Further conceptual or empirical examination on the relative impact of various
stakeholders on marketing activities is needed (e.g., Laczniak and Murphy 2006).
Marketing activities which relate to product production, introduction, and promotion can
unintentionally harm consumers, society, or other stakeholders (Fry and Polonsky 2004),
requiring marketers to address ethical issues in activities such as branding (Polonsky and
Jevons 2006), market segmentation with youth as consumers (Horgan 2005), and global
sales ethics (Ferrell, Ingram, and LaForge 2000). Even so, limited agreement exists
surrounding the prioritization of stakeholders, conceptualization of stakeholder
orientation, and the impact of stakeholder relations on marketing in a global environment.

Therefore, the overall goal of this research is to examine how the incorporation of
stakeholder issues in corporate marketing strategy can explain ﬁrm performance by
achieving the following objectives:

1. Explain how the incorporation of stakeholder issues in corporate marketing
strategy affects ﬁrm performance through marketing outcomes.

2. Gain insight on ﬁrm performance outcomes of responding to multiple
stakeholders over a Single stakeholder group.

3. Understand how global operations inﬂuence the ability for a ﬁrm to respond to
multiple stakeholders.

Research Overview

Instrumental stakeholder theory provides a theoretical basis for predicting the
nature of the relationship between the ﬁrm’s stakeholder orientation and its ﬁnancial
performance (e. g., Barnett and Salomon 2006; Margolis and Walsh 2003). Grounded in
stakeholder theory, the study provides a conceptualization of stakeholder orientation
based on cultural values that is distinctive from stakeholder responsiveness and examines
the relationship of stakeholder orientation to ﬁrm performance. The study determines the
mediating role of stakeholder responsiveness and marketing outcomes (customer
satisfaction, reputation, innovation) on the impact of stakeholder orientation on ﬁrm
performance. Inclusion of a measure for “globalness” (the degree of international sales,
manufacturing or supply) provides for an understanding of the moderating effects of
global Operations on the ability for a ﬁrm to respond to multiple stakeholders.

Following a framework that culture drives actions resulting in outcomes, there are
ﬁve general constructs to answer the research questions. Stakeholder orientation,
referring to the values and beliefs about customers, employees, suppliers, regulators
community, and stockholders, relates to the cultural orientation of the subject ﬁrm.
Actions are described in stakeholder responsiveness, referring to implementation Of
policies and programs addressing stakeholders. Outcomes include marketing outcomes
(innovation, reputation, customer satisfaction), and ﬁrm performance (market-based,
ﬁnancial-based, accounting—based). To examine boundary conditions, globalness (i.e., the

degree of international operations) is included as a moderator.

Organization of dissertation

The remainder of the dissertation includes chapters that position the research
within existing knowledge, provide arguments for proposed relationships between
constructs based on theory, describe the chosen research design, present the analytical
results, and discuss the implications. Chapter 11 presents the theoretical perspectives of
corporate social responsibility, the stakeholder approach, and the empirical stakeholder
research in global marketing through a detailed literature review. Chapter III introduces
the conceptual framework depicting how a stakeholder orientation adds value through
marketing outcomes, followed by the arguments for a series of hypotheses. Chapter IV
describes the research design and methodology for empirically testing the hypotheses
advanced in Chapter 111, including the unit of analysis, data collection, and statistical
techniques. Results are provided in Chapter V, with a discussion of research implications,

managerial insights, and directions for future research in Chapter VI.

Chapter [1

LITERATURE REVIEW

The concept Of corporate social responsibility evolved formally during the past 50
years with various interpretations, theoretical perspectives, and empirical methods
(Carroll 1999). Scholars worldwide from several academic disciplines examine the
strategic implications of corporate social responsibility, including management,
marketing, accounting, economics and political science (McWilliams, Siegel, and Wright
2006). This chapter reviews the theoretical perspectives of corporate social responsibility,

the stakeholder approach, and the empirical stakeholder research in global marketing.

Corporate Social Responsibility

Consensus on a single deﬁnition of corporate social responsibility continues to
elude scholars. Carroll (1999) provides an overview of the evolution of the corporate
social responsibility concept from initially focusing on individual manager responsibility
for social consequences of actions in the 19505 to the ﬁrrn’s responsibility to multiple
stakeholders in the 19905. Subsequent reviews in the literature focus on trends in the
management and business ethics ﬁelds, including the challenges of corporate social
responsibility in a global context (McWilliams, Siegel, and Wright 2006; Waddock
2004). Theoretical perspectives include differences in the domain Of corporate social
responsibility, and the relationship with similar concepts such as corporate social

performance, social responsiveness, and corporate citizenship.

Domain of Corporate Social Responsibility

Early social responsibility writings focus on the ethical duty of business
executives to accept responsibility for the consequences of their actions beyond ﬁnancial
performance. Scholars directed attention to individual manager’s decisions and actions,
rather than the ﬁrm as an entity. Concern for social responsibility in the business
literature developed from Bowen’s (1953) book Social Responsibilities of the
Businessman, where social responsibility is described as “the Obligation of businessmen
to pursue those policies, to make those decisions, or to follow those lines of action which
are desirable in terms of the objectives and values of our society” (p. 6). Frederick
(1960) incorporated the notion that business managers oversee “the Operation of an
economic system that fulﬁlls the expectations of the public” in ensuring that economic
and human resources are used for meeting broad social goals (p. 60). A focus on the
thinking of the time was that businesses might lose prized autonomy and economic
freedom if not responding to social pressure — termed “negative duty” (Swanson 1995).
Linking social responsibility and business power, Davis (1960) proposes an “Iron Law of
Responsibility” that if the business abuses its power, society may revoke it by increasing
regulation.

Many of the initial deﬁnitions for social responsibility focus on “positive duty,”
representing manager responsibilities to society beyond economic, technical or legal
obligations (Davis 1960; McGuire 1963). Examples of positive duty include providing
satisfying and meaningful work careers, ensuring product value and safety, and
protecting the ecological system (Halal 1977). This idea persists in the corporate social

responsibility literature forty years later. For example, McWilliams and Siegel (2001)

deﬁne corporate social responsibility as “actions that appear to further some social good,
beyond the interests of the ﬁrm and that which is required by law” (p. 117).

As focus shifted to the corporation, various deﬁnitions for corporate social
responsibility sought to establish boundaries of socially responsible behavior. Many
scholars continued to distinguish between legal obligations and social obligations based
on motivation or voluntarism. For example, Walton (1967) describes corporate social
responsibility as relationships between the corporation and society. He identiﬁed three
elements of corporate social responsibility: a degree of voluntarism, indirect linkage with
other voluntary organizations, and willingness to incur unrecoverable costs. Likewise,
Manne and Wallich (1972) argue that a socially responsible corporate action must also
meet three criteria to qualify: marginal return, purely voluntary, and not for “conduit for
individual largesse” (pp. 4-6). While a requirement that an action be voluntary remains in
many current views of corporate social responsibility, the determination of motive is
difﬁcult to judge (Carroll 1999).

Corporate social responsibility can encompass a variety of different activities that
can be described as “good neighborliness” (Eilbert and Parket 1973). Socially responsive
ﬁrms actively seek to do no harm, for example provide a safe working environment or
adopt clean production processes. Corporate social responsibility also includes taking a
voluntary role in solving broad social problems such as urban decay, substance abuse,
and poverty.

Continuing with the view of social responsibilities as duty-based obligations,
Carroll (1979) provides a classiﬁcation scheme for corporate social responsibility that is

widely employed by later research (e. g., Aupperle, Carroll, and Hatﬁeld 1985; Tuzzolino

and Armandi 1981; Wartick and Cochran 1985). He views social responsibility of
business as the Obligations to meet economic, legal, ethical and discretionary
expectations that society has of an organization. Unlike earlier views that social
responsibility is beyond economic and legal requirements, the inclusion of an economic
component is justiﬁed by the societal expectation that a business produces goods and
services at a proﬁt while obeying laws. The ethical component refers to the behaviors and
norms that a society expects. The discretionary component encompasses voluntary and
philanthropic activities that are not as clear-cut as ethical expectations. Examples are
drug abuse programs, day care, and welfare to work programs. Carroll (1999) later
referred to the discretionary component of corporate social responsibility as being
“socially supportive” with contributions of money, time and talent to reﬂect voluntarism
and/or philanthropy.

Other views also recognize that economic and legal obligations are an inherent
part of corporate responsibility. Frederick (1987) refers to a “trade-Off problem” that
exists when costs of compliance with social pressures and accepting positive duty to
society conﬂict with corporate economic goals of proﬁtability. Johnson (1971) describes
social responsibility in business as “the pursuit of socioeconomic goals through the
elaboration of social norms in prescribed business roles” (p. 51). He elaborates by
providing four views of corporate social responsibility. The ﬁrst view is a stakeholder
approach for meeting a “multiplicity of interests” based on a socio—cultural system of
norms and expectations (p. 50). The second view, long-run proﬁt maximization, relates to
the economic obligations of the ﬁrm to perform social programs to add proﬁts to the

organization (p. 54). Third, a utility maximization perspective refers to the organization

10

striving to achieve multiple goals in the interest of other members of the enterprise and
fellow citizens. The ﬁnal view is termed “lexographic,” recognizing that ﬁrms engaging
in socially responsible behavior are more likely to be motivated strongly by proﬁt. This
perspective argues that corporations rank goals in order of importance and only upon
reaching their proﬁt target is social responsibility foremost.

Clearly, a major point of disagreement is whether a corporation achieving
economic gain for socially responsible actions is truly embracing the concept of corporate
social responsibility. Swanson (1995) refers to this as the “moral justiﬁcation problem”
that occurs when it appears that social control and positive duty serve corporate economic
goals. Preston and Post (1975) argue that businesses are not responsible for solving all
social problems. Rather, businesses are responsible for solving problems that they have
caused, and for helping to solve problems and social issues related to their business
interests (Wood 1991). In order to differentiate their view ﬁom that of social
responsibility deﬁnitions of the time, Preston and Post (1975) coin the phrase “public
responsibility” as “the scope of managerial responsibility deﬁned in terms of primary
and secondary involvement areas” (p. 95). Drucker (1984) goes so far as to argue that the
business ought to convert its social responsibilities into business opportunities. He
presents social responsibility of business as taming the dragon by turning “a social
problem into economic opportunity and economic beneﬁt, into productive capacity, into

human competence, into well-paid jobs and into wealth” (p. 62).

Relationship of Corporate Social Responsibility and Corporate Social Performance

The concept of corporate social responsibility resides within a broader context Of

corporate social performance. An early conceptualization of corporate social performance

11

includes three dimensions: social Obligation, social responsibility, and social
responsiveness (Sethi 1975). Social obligation refers to corporate behavior in response to
market forces or legal restraints. Social responsibility includes behavior meeting social
norms, values and expectations. Social responsiveness refers to the adaptation of
corporate behavior to social needs.

Corporate social responsiveness in the social performance framework receives the
attention of scholars interested in the implementation Of corporate social responsibility
(Wood 1991). A socially responsive ﬁrm monitors and assesses environmental
conditions, attends to stakeholder demands, and designs policies to respond to changing
conditions (Ackerman 1975). However, corporate social responsiveness does not replace
responsibility. Companies can be very responsive to environmental conditions or social
pressures, but without reﬂection or responsibility, they may act irresponsibly or
unethically. Arguing that responsibility drives responsiveness, Carroll (1979) proposes
three phases of corporate social performance — responsibility, responsiveness, and social
issues.

Wartick and Cochran’s (1985) model of corporate social performance advanced
thinking about business and society. Their model integrates Carroll’s (1979) three phases
of corporate social performance into a framework of principles, processes, and policies.
As such, Wartick and Cochran’s interpretation places corporate social responsibility as
the ethical component residing in principles (Carroll 1999).

Wood (1991) reformulates the corporate social performance model to integrate
principles, processes, and outcomes. The framework focuses on actions, expanding on

Wartick and Cochran’s (1985) model to deﬁne corporate social responsibility as: “a

12

business organization’s conﬁguration of principles of social responsibility, processes of
social responsiveness, and policies, programs, and observable outcomes as they relate to
the ﬁrm’s societal relationships” (p. 693). There are three principles of corporate social
responsibility in the model: institutional, based on legitimacy; organizational, based on
public responsibility; and individual, based on managerial discretion. The processes of
corporate social responsiveness include environmental assessment, stakeholder
management, and issues management. Classiﬁcations of outcomes of corporate behavior
are social impacts, programs, and policies. Wood’s model of corporate social
performance became a useful template for organizing research.

Arguing that Wood’s (1991) model ignores the duty-aligned perspective of
corporate social responsibility, Swanson (1995) reorients the corporate social
performance model to address the moral justiﬁcation problem of why corporations should
perform socially responsibly. The conceptual framework includes negative duty, positive
duty, and three value processes in decision-making: economizing, ecologizing, and power
seeking. Economizing refers to the ability to convert inputs and outputs efﬁciently
through competitive behavior. Ecologizing refers to cooperative, collaborative behavior
to sustain life. Power seeking refers to self-centered behavior that seeks to acquire and
use coercive power through hierarchical arrangements. Four components of the model
interact: 1) macro principles of corporate social responsibility (institutional and
organizational), 2) micro principle of corporate social responsibility (executive decision-
making), 3) corporate culture (managerial and employee decision making, personal
values, corporate social responsiveness, social programs and policies), and 4) social

impacts (increases or decreases in corporate value processes).

13

To address the corporate social responsibilities of global companies, a theory and
process of global business citizenship emerged from social responsibility literature
(Logsdon 2004; Logsdon and Wood 2005). Logsdon and Wood (2005) assert that global
corporate citizenship requires:

(1) A set Of fundamental values embedded in the corporate code of
conduct and in corporate policies that reﬂect universal ethical standards;

(2) Implementation throughout the organization with thoughtﬁil awareness
of where the code and policies ﬁt well and where they might not ﬁt with
stakeholder expectations;

(3) Analysis and experimentation to deal with problem cases; and

(4) Systematic learning processes to communicate the results of
implementation and experiments internally and externally.

Mai gnan and Ferrell (2004) provide a comprehensive managerial framework of
corporate social responsibility from a stakeholder perspective. They deﬁne corporate
social responsibility as “the duty (motivated by both instrumental and moral arguments)
to meet or exceed stakeholder norms dictating desirable organizational behaviors” (p. 5).
Organizations acting in a socially responsible manner align behaviors with norms and
demands of their key stakeholders. The conceptual framework identiﬁes organizational
and stakeholder norms as antecedents to corporate social responsibility initiatives, as well
as explain how corporate social responsibility can foster increased stakeholder support.
Stakeholders group around communities who interact with one another and share
common norms. Pulling from the resource-dependency theory, the ability of stakeholder
communities to withdraw resources gives them power over the organization. Maignan
and Ferrell deﬁne stakeholder orientation as “the degree to which a ﬁrm understands and

addresses stakeholder demands” (p. 10). They conceptualize stakeholder orientation as

14

three sets of behaviors following Kohli and J aworski’s (1990) market orientation
construct. These include generation Of stakeholder intelligence, dissemination of
stakeholder intelligence, and responsiveness to stakeholder intelligence.

Stakeholder value and norms are further explored by Mai gnan, Ferrell, and Ferrell
(2005), describing interactions between organizational and stakeholder values and norms.
Stakeholders in the model include non-government organizations, customers, government
regulatory agencies, environmental groups, trade associations, employees, mass media,
shareholders, suppliers, and competitors. Organizational values and norms facilitate
corporate social responsibility decisions when stakeholder demands conﬂict with
business goals or among other stakeholder groups. The authors provide a model of
stakeholder management incorporating seven steps for marketing decisions to implement
corporate social responsible initiatives driven by organizational values and norms.
Focusing primarily on applications in marketing, their ﬁ'amework has initiated further

research using a stakeholder approach to corporate social responsibility.

Theoretical Perspectives on Corporate Social Responsibility

Research of corporate social responsibility embraces several theories, creating
various dialogues. Early research focusing on the managerial role in addressing social
issues debates agency and stewardship theories. Alternative perspectives of corporate
social responsiveness and performance include social issue life cycle theory, legitimacy
theory, and stakeholder theory (Nasi et al. 1997). Recent research examining the link
between corporate social responsibility and ﬁrm competitive advantage encompasses a

resource-based view. The following section describes each of the theoretical perspectives.

15

 

Agency Theory

The underlying assumption of agency theory is that a rational actor seeks to
receive as much possible utility with the least possible expenditure (Jensen and Meckling
1976). Agency theory focuses on the agency relationship in which one actor or group (the
agent) has obligations to fulﬁll for another actor or group (the principal). An essential
concern is resolving problems that can occur in agency relationships under conditions of
incomplete information and uncertainty (Eisenhardt 1989). The ﬁrst is the agency
problem that arises when goals of the principal and agent conﬂict and it is difﬁcult or
expensive for the principle to verify that the agent has behaved appropriately. The second
is the problem of risk Sharing that arises when the principal and agent have different
attitudes towards risk that encourages different courses of action. The principal-agent
problems exist in most employer/employee relationships, for example, when stockholders
contract with top executives to manage corporations. To protect shareholder interests,
agency theorists prescribe various mechanisms such as ﬁnancial incentive schemes and
proper management oversight through independent audits (Davis, Schoorman, and
Donaldson 1997).

Applications of the agency theory to explain corporate social responsibility Often
focuses on the actions of corporate management and effect on shareholder value. For
example, the agency theory can explain the unethical practices of Enron’s top
management in the accounting and ﬁnancial areas (Culpan and Trussel 2005). The Enron
case demonstrates that the top executives failed to perform their expected duties in
protecting the interests of principals when appropriate control mechanisms to deal with

the agency problem were absent.

l6

According to some authors, an agency theory perspective implies that corporate
social activities signal an agency problem in the ﬁrm whereby managers advance their
careers or other personal agendas (McWilliams, Siegel, and Wright 2006). These views
are a dominant theme in the popular business press suggesting that corporate
philanthropy is giving away someone else’s money and destroys shareholder value
("Leaders: The Good Company - the Good Company; Capitalism and Ethics" 2005;
"Survey: The Good Company" 2006). Corporate governance mechanisms such as
forming a charitable foundation and limiting top executive management direct
involvement may mitigate certain agency conﬂicts in the discretionary area of corporate
giving or reduce public perceptions of this conﬂict. One study ﬁnds that CEO's interests,
as reﬂected by afﬁliations with non-proﬁt organizations, were signiﬁcantly related with
the direction of foundation charitable activities for those causes, unless the company's
industry seemed to have institutionalized the practice of donating to particular causes
(Werbel and Carter 2002).

Stewardship Theory

Refuting the agency theory, some researchers support the moral imperative
perspective stemming from stewardship theory that suggests that managers Should “do
the right thing” without regard to the affect on ﬁnancial performance (McWilliams,
Siegel, and Wright 2006). Donaldson and Davis (1991) argue for the alternative
theoretical approach of stewardship theory, where the crucial factor inﬂuencing
organizational performance and shareholder returns is the design of the organizational
structure so that managers can take effective action by empowering executives.

Stewardship theory suggests that managers are likely to act in the best interests of the

17

company and argues that greater manager discretion is likely to beneﬁt the company even
under issues of potential conﬂicting interest (Davis, Schoorman, and Donaldson 1997).

From a corporate social responsibility viewpoint, management will attempt to
garner support from others in the community that best serves the company. Contrary to
the agency perspective that managers give opportunistically, the stewardship theory
views top management as having a very high level of interest in ﬁrm survival and would
select funding recipients that would strategically increase the chances for ﬁrm survival
(Werbel and Carter 2002). According to this perspective, it would be inappropriate to
reduce the management discretion in selecting funding recipients.
Social Issue Life Cycle Theory

An alternative perspective of corporate social responsiveness focuses on aspects
of the socio-political environment that demand corporate responses. A research stream in
business has dealt with social issues management, referring to corporations’ attempt to
actively manage issues in the social and political arenas (Mahon and Waddock 1992).
Issues such as privacy, Obesity, off shoring, and pharmaceutical product safety challenge
organizations to adapt to changing ground rules that can impact ﬁnancial and reputation
performance (Bonini, Mendonca, and Oppenheim 2006). However, not all social
problems escalate to an issue requiring managerial attention. Social issues obtain
meaning through the interpretation of the public and other interested parties such as
individuals, organizations, associations, governments, and governmental agencies.
Managerial attention is warranted when stakeholders capable of inﬂuencing
governmental action or company policies deﬁne social issues as problematic to society,

Often as a result of a triggering event (Mahon and Waddock 1992). Popular business

18

press highlights the power of activist groups in escalating a social issue for corporate and
regulatory attention. The AFL-CIO and a nonproﬁt umbrella group, the Center for
Community & Corporate Ethics, hopes to get Wal-Mart to alter its employment policies
by driving away some business (Bernstein 2005). Student activist demonstrations against
Coca-Cola’s worker conditions in Colombia cost the beverage company millions of
dollars in college contracts (Foust, Smith, and Woyke 2006). Health and wellness trends
and concerns of obesity pressured snack and fast food companies such as Pepsi,
McDonald’s and KFC to change their product offering and marketing strategies
("Business: The Blog in the Corporate Machine; Corporate Reputations" 2006).

Social issue life cycle theory asserts that issues change over time, as does
corporate attentiveness and responsiveness to issues. Ackerrnan (1975) maintains that
corporate responsiveness to social issues progresses through three phases labeled policy,
learning, and commitment. Likewise, social issues follow a path from a period in which
the issue was unthinkable, to a period of increasing awareness and expectations for
action, and then to a period where dealing with the issue becomes ingrained in the normal
functioning of the company (Zyglidopoulos 2003). Different life cycle patterns of social
issues inﬂuence the corporate response. A content analysis of shareholder resolutions
during 1988-1998 shows that some issues like human rights and energy endure at a
consistent level; while environmental and diversity issues follow an interrupted pattern as
interests rise and fall (Graves, Waddock, and Rehbein 2001). Social issue life cycle
models help organizations to identify emerging social issues, to respond quickly, and to

inﬂuence legislative or regulatory action (Bonini, Mendonca, and Oppenheim 2006).

19

The attitudes of consumers are being shaped by an array of advocacy
organizations that campaign on various social and political causes, increasing demand
that corporations act in a socially responsible way. Nongovernmental organizations
(NGOS) are powerful with consumers because they are signiﬁcantly more trusted overall
than business (Deri 2003). Multinational corporations (MNCS) are the frequent target of
NGOS in their advocacy efforts, possibly skewing corporate social responsibility
practices by the multinational corporation (Schepers 2006). Questions arise about
whether the concerns of Northern NGOS, and the responses of the companies they target,
are always appropriate. For example, initial responses to campaigns on child labor in the
sports-goods industry in Pakistan led to many children losing their jobs and working in
more hazardous or abusive industries (Bendell 2005).

Institutional and Legitimacy Theory

Institutional and legitimacy theories view corporate social responsiveness outside
of the ﬁrm boundary and in the context of societal expectations. From the institutional
perspective, ﬁrms operate within a social framework of norms, values, and assumptions
about what constitutes acceptable behavior (DiMaggio and Powell 1983). Conformity to
social constraints of ﬁrm behavior encourages homogeneity, or institutional
isomorphism. A fundamental consequence of institutional isomorphism is organizational
legitimacy, the acceptance of an organization by its external environment. Organizations
that conform to the strategies used by other organizations are recognized by regulators
and the general public as being more legitimate than those that deviate from normal
behavior (Deephouse 1996). Corporations require legitimacy to maintain functional,

long-term relationships with the various communities on which they depend (Nasi et al.

20

1997). Legitimacy is a measure of the attitude of society toward a corporation and its
activities, based on cultural norms for corporate behavior. The term legitimacy most
commonly refers to the right to exist and perform an activity in a certain way, referred in
practice as the “license to operate.” Acutt, Medina-Ross and O’Riordan (2004) provide
an example from a comparative analysis of multinational chemical ﬁrms:

In South Africa, export oriented chemical multinationals were motivated

to adopt Responsible Care primarily by market factors: to meet the

expectations of trade associations and peer networks to improve the

industry’s image. As one environmental manager commented:

‘Responsible Care is basically an industry requirement, it’s our license to

operate’ (p. 310).

An institutional theory framework provides a lens to understand social marketing
strategies, such as cause-related and enviropeneurial marketing (Handelman and Arnold
1999). Managers' choices of appropriate strategies depend on the perceptions of the
particular managers involved. Different managers likely have different ideas about what
society expects and whether community members perceive the organization as complying
with these expectations. Legitimacy theory relies upon the notion of a social contract and
on the maintained assumption that managers will adopt strategies that Show society that
the organization is attempting to comply with society's expectations (Deegan, Rankin,
and Tobin 2002). For example, Portuguese banks seeking to improve their corporate
image publish social responsibility disclosures in annual reports and media releases
(Branco and Rodrigues 2006).

From an institutional perspective, three determinants of organizational
responsiveness include the content of institutional demands, the nature of institutional

control, and an organization’s environmental context (Goodstein 1994). Resistance is

more likely when institutional demands conﬂict with organizational goals or constrain the

21

ability of an organization to reach its goals. Conformity is more likely when demands are
from powerful institutional actors or when norms and expectations have been voluntarily
adopted and diffused among organizations within a given ﬁeld or sector. Acceptance is
also likely in turbulent environments to reduce uncertainty, as well as when the diffusion
of institutional norms and demands is widespread due to high interconnectivity.
Goodstein (1994) explores organizational responsiveness to institutional pressures related
to two primary areas of employer involvement in work-family issues: (1) the adoption of
child care beneﬁts and (2) the adoption of beneﬁts that enhance workplace ﬂexibility. He
ﬁnds that organizations are more likely to acquiesce to institutional pressures depending
on the strength of the demands primarily from female employees, the prevailing practices
in geographically proximal industries, and whether the adoption would beneﬁt the
company without overwhelming costs.

The legitimacy perspective highlights two characteristics of corporate social
responsibility. First, the demands placed on corporations change over time, as well as
acceptable responses. For example, a study of the evolving conceptions of environmental
management shows that while range of available options is limited to that deﬁned as
acceptable, as the environmental management ﬁeld develops, so does the range of options
(Hoffman 1999). Second, different communities often have different ideas about what
constitutes legitimate corporate behavior. This is particularly evident to organizations
operating in multiple countries. Research of multinational chemical companies ﬁnds that
a Shift of societal expectations resulted in economic and legal responsibilities
increasingly required in most countries, while the degree of ethical responsibilities and

philanthropic responsibilities varied over time and country (Pinkston and Carroll 1996).

22

The institutional and legitimacy theories can explain variances in the social
responsiveness of multinational corporations. Companies operating in multiple countries
experience institutional differences in expectation and returns (Doh and Guay 2006).
These present challenges in socially responsible operations, especially in developing
countries. Reed (2002) argues that two sets of factors increase the responsibilities of
corporations active in developing countries to a full range of stakeholder groups: 1) the
different (economic, political, and sociocultural) circumstances under which corporations
have to operate in developing countries, and 2) several key normative principles, which
typically do not come into play in the context of developed countries. A study Of
chemical companies in Mexico and South Africa highlights several challenges for the
chemical industry in moving forward on CSR: credibility, stakeholder engagement,
value-chain accountability, disclosure and transparency (Acutt, Medina-Ross, and
O'Riordan 2004). A study in Poland identiﬁes the main obstacles of CSR as the negative
image of business, a dysfunctional legal background, corruption, difﬁcult economic
situation of many companies, the lack of an ethics and ethical standards, and difﬁcult
situation on the job market (Lewicka-Strzalecka 2006).

Resource-based—view

One way of examining strategic corporate social responsibility is through a
resource-based-view (RBV) perspective (e. g. Coff 1999; Idris et al. 2003; Litz 1996).
RBV proposes that organizational performance depends on organization-speciﬁc
resources and capabilities (Barney 1991; Wemerfelt 1984). A basic assumption of RBV
is that ﬁrms are fundamentally heterogeneous in resources and capabilities, and when

resources are not perfectly mobile across ﬁrms, heterogeneity can be long lasting (Barney

23

1991). Resources include all assets, capabilities, organizational processes, ﬁrm attributes,
information, and knowledge controlled by a ﬁrm. To provide a competitive advantage,
resources must be: a) valuable (exploit opportunities or neutralize threats), b) rare (not
possessed by large numbers of competitors), c) inimitable (competitors cannot obtain
them through unique historical conditions, causally ambiguous links, or social
complexities), and d) nonsubstitutable (no strategically equivalent valuable resources)
(Wemerfelt 1984). According to RBV, ﬁrm resources lead to capabilities, and
capabilities inﬂuence ﬁrm performance.

Applications of RBV to corporate social responsibility assert that social
responsibility constitutes a resource or capability that leads to sustained competitive
advantage (McWilliams, Siegel, and Wright 2006). Social responsiveness capability is
“valuable” to a company because it allows the company to respond to its speciﬁc
stakeholders issues, and the heterogeneity of these issues makes it difﬁcult for other
companies to imitate responsiveness policies (Deniz-Deniz and Saa-Perez 2003).
Corporate social responsiveness capability meets all three determinants of inimitability.
First, corporate responsiveness policies develop over a period of years and are difﬁcult to
acquire on the market by competitors. Second, it is difﬁcult to identify the exact
mechanisms by which the corporate responsiveness policies interact to generate value,
owing to causal ambiguity. Lastly, socially complex elements such as culture and
interpersonal relationships inherent in social responsiveness capabilities further inhibit
imitation. Empirical research provides support for the relationship of social
responsiveness with ﬁnancial and competitive advantages using RBV theory, including

environmental social responsible performance (Baker and Sinkula 2005; Hart 1995;

24

Rugman and Verbeke 1998), involvement in a ﬁrm's ISO 14001 standard (Delmas 2001),
and high commitment employee practices (Deniz-Deniz and Saa-Perez 2003).
Stakeholder Theory

A dominant theoretical perspective in corporate social responsibility research is
the stakeholder concept that business has wider responsibilities than economic
performance. The stakeholder concept represents a redeﬁnition of organizations as a
grouping of stakeholders, and the purpose of the organization is to manage their interests
(Friedman and Miles 2006). The implication of embracing a stakeholder concept is that
companies that address diverse stakeholder interests perform better than companies that
do not (Greenley and Foxall 1998). Stakeholder theory argues that managers must satisfy
various constituents (e. g., customers, employees, suppliers, local community
organizations) that would withdraw support for the ﬁrm if important social
responsibilities were unmet (Freeman 1984). According to Clarkson (1995), the survival
and proﬁtability of the corporation depends on its ability to create and distribute wealth
or value to ensure primary stakeholder commitment.

A profusion of different and overlapping approaches to the stakeholder concept
creates confusion and debate, resulting in a multitude of stakeholder theories (Friedman
and Miles 2006). Donaldson and Preston (1995) label stakeholder theories as normative,
descriptive, and instrumental. Based on ethical principles, normative stakeholder theories
focus on how managers Should act, many adopting the view that the organization serves a
variety of stakeholder interests. Normative stakeholder research explores whether
managers ought to attend to stakeholders other than shareholders and, if so, on what

grounds these various stakeholders have justiﬁable claims on the ﬁrm (Margolis and

25

Walsh 2003). Descriptive stakeholder theories are concerned with how managers and
stakeholders actually behave, focusing on whether and to what extent managers do in fact
attend to various stakeholders and act in accord with their interests (Margolis and Walsh
2003).

Instrumental stakeholder theory focus on the connections between the practice of
stakeholder management and achievement of corporate goals (Donaldson and Preston
1995). Donaldson (1999) describes instrumental stakeholder theory as:

[A]ny theory asserting some form of the claim that, all other things being

equal, if managers view the interests of stakeholders as having intrinsic

worth and pursue the interests of multiple stakeholders, then the

corporations they manage will achieve higher traditional performance

measures, such as return on investment, than had they denied such

intrinsic worth and pursued only the interests of a single group. (p. 238)
Generally adopting a position that stakeholders are seen as a means by which the ﬁrm
achieves its assumed ends, instrumental stakeholder research includes a strategic
approach to stakeholder management, providing direction for enhanced organizational
performance (Friedman and Miles 2006). Sustainable companies develop expertise in
understanding the formation of stakeholder groups, their key issues, and the potential for
helping or harming the corporation. Freeman (1984) warns that consequences of not
adopting a stakeholder approach include legal action, regulation, and loss of markets.
Therefore, this study will adopt a strategic approach to stakeholder management in
examining corporate social responsibility with an instrumental stakeholder theoretical
perspective. The next section provides a summary of the strategic stakeholder view of

corporate social responsibility and the role of a stakeholder perspective in global

marketing strategy.

26

Stakeholder Approach to Corporate Social Responsibility

An early linkage of corporate social responsibility and the stakeholder concept
was made by Johnson (1971) in Business in Contemporary Society: Framework and
Issues, where the author describes a socially responsible ﬁrm as balancing a “multiplicity
of interests” that include employees, suppliers, dealers, local communities and the nation
(p. 50). Halal (1977) presents a Retum-on-Resources model of corporate performance
based on an “Open system perspective” that views the corporation as a social institution
comprised of various stakeholders such as investors, employees, customers, public
groups, suppliers, distributors, and other partnering ﬁrms. According to Carroll (1991),
the stakeholder concept delineates the speciﬁc groups or persons business Should
consider in its corporate social responsibility orientation and activities.

Research involving responses to corporate social activities provides insight on
both the scope and limitations of the stakeholder reaction to corporate social
responsibility. Customer responses to corporate social responsibility range from
unresponsive to highly responsive to corporate social responsibility (Mohr, Webb, and
Harris 2001). Curlo (1999) ﬁnds that consumers will purchase products of socially
responsible companies labeling products as meeting safety standards. A study in 2005
shows that 92 percent of Canadians surveyed are more likely to purchase products from
the more socially and environmentally responsible company and 91 percent prefer to
work for a more responsible company (Beauchesne 2005). Another study indicated that
stakeholders react positively not only in the consumption domain but in the employment
and investment domains as well, moderated by stakeholder attributions regarding the

genuineness of the company's motives (Sen, Bhattacharya, and Korschun 2006).

27

Definition of Stakeholders

The stakeholder theory of the ﬁrm argues that all persons or groups with
legitimate interests in an enterprise do so to gain beneﬁts, and that managerial attention to
these stakeholders’ interests are critical to success (Berman et al. 1999; Donaldson and
Preston 1995). Depending on the context, different deﬁnitions of stakeholders have
emerged. Friedman and Miles (2006) identify ﬁfty-ﬁve deﬁnitions for stakeholders that
vary on two factors. One is whether the deﬁnition perceives stakeholders as strategic
through achievement of the organization’s objectives or solely based on socially
recognized norms. The other factor is whether the deﬁnition is broad to include all
entities or narrow to only those stakeholders critical for ﬁrm success. A widely accepted
and popular deﬁnition is Freeman’s ( 1984) view of a stakeholder as “any group or
individual who can affect or is affected by the achievement of the organization’s
objectives.”

IdentiﬁCation of stakeholders is central to successful stakeholder management,
deﬁned as the development and implementation of organizational policies and procedures
that consider the goals and concerns Of all stakeholders (Post, Preston, and Sachs 2002).
Mitchell, Agle, and Wood (1997) provide a model of stakeholder identiﬁcation that
suggests how to identify stakeholders, but also the relative importance of each. Three
stakeholder features form an identiﬁcation typology — power, legitimacy, and urgency.
Power refers to the extent that a stakeholder can impose its will in its relationship with
the ﬁrm. A stakeholder has legitimacy when its actions toward the ﬁrm are desirable or
proper within the norms, values, and beliefs of the larger society. Urgency is the extent to

which stakeholder efforts call for immediate attention by a ﬁrm. In a recent study,

28

Parthiban, Bloom, and Hillman (2007) ﬁnd that managers are more likely to settle
shareholder proposals challenging corporations to improve their corporate social
performance that are ﬁled by “salient” stakeholders (i.e., those with power, legitimacy,
and urgency).

F inns generally identify two classiﬁcations of a company’s stakeholders in
developing a stakeholder management strategy (Freeman 1984). Primary stakeholders are
those groups whose continued association are necessary for a ﬁrm’s survival and often
include customers, employees, suppliers, investors, and shareholders. Governments and
local communities, whose laws inﬂuence company operations and tax obligations while
providing infrastructure and markets to the company, can be primary or secondary
stakeholders (Clarkson 1995; Frederick, Davis, and Post 1988). Secondary stakeholders
can inﬂuence the ﬁrm or be inﬂuenced by the ﬁrm, but are not directly necessary for the
ﬁrm’s survival, and typically include consumer advocate groups, media, unions, political
groups, scientiﬁc community and trade associations (Greenley et al. 2004; Polonsky
1995). Some organizations classify the natural environment as a stakeholder (Bazin and
Ballet 2004; Berrnan et al. 1999), for example, McDonald’s has reevaluated packaging
continually since the 1970’s to minimize the impact on the environment (Polonsky 1995).
Even the judicial system in the US recognizes the stakeholder concept. At least 28 states
have passed "other constituency" statutes permitting senior managers and corporate
directors, while acting in the best interests of the corporation, to consider the interests of
other stakeholders groups besides stockholders, especially employees and local

communities (Green 1993).

29

The recognition of the consumer as a stakeholder is a matter of contention in
marketing research. Historically, marketing research focuses on two primary
stakeholders: customers and channel members (Mai gnan and Ferrell 2004). Friedman and
Miles (2006) assert that marketing views stakeholder management solely in relation to
customers and the effect of stakeholder relations on consumption patterns. F itchett (2005)
argues that consumers may not represent a legitimate stakeholder because consumers
enter into purchases individually with a limited sense of duty toward the ﬁrms or other
consumers as a group, thereby failing to meet the established deﬁnitions of a legitimate
stakeholder. However, Ferrell (2004) asserts that while employees, customers,
shareholders, and suppliers are key organizational stakeholders, customers are key
stakeholders that help establish the ﬁrrn's reputation and identiﬁcation. Therefore, six
basic stakeholder groups for most organizations include shareholders (investors/owners),
customers, employees, suppliers/distributors, regulators, and host community (Laczniak
and Murphy 2006).

For furthering research in stakeholder theory, this study will adopt generally
accepted perspectives from the marketing literature relating to the deﬁnition of a
stakeholder and identiﬁcation of stakeholder groups for consideration. The study will
adopt Freeman’s (1984) balanced view of a stakeholder as “any group or individual who
can affect or is affected by the achievement of the organization’s objectives.” Following
the stakeholder model from Mai gnan, Ferrell and Ferrell (2005), six primary stakeholders
will be considered. These include customers, employees, shareholders, suppliers,

community, and government regulatory agencies.

30

Stakeholder Orientation

Stakeholder orientation refers to the extent to which a ﬁrm understands and
addresses stakeholder demands in daily operations and strategic planning. Organizations
displaying high stakeholder orientation recognize the needs and expectations of various
stakeholders. In one of the initial conceptualizations of stakeholder orientation, Greenly
and Foxall (1996) incorporate the degree of research, planning, and corporate culture to
measure the relative attention managers give to speciﬁc stakeholder groups. Tying the
level of stakeholder orientation to moral development, Logsdon and Yuthas (1997)
differentiate between narrow market-based stakeholder relationships (owners, customers,
employees) and broad stakeholder orientation including both market-based and non—
market-based (communities, government agencies). Maignan and Ferrell (2004)
conceptualize stakeholder orientation as three sets of behaviors: generation of stakeholder
intelligence, dissemination of stakeholder intelligence, and responsiveness to stakeholder
intelligence. Attempting to address multiple stakeholder groups, Greenley, Hooley, and
Rudd (2005) deﬁne a multiple stakeholder orientation proﬁle as “the simultaneous
ordering of attitudes towards each set of primary stakeholder interests, and allocated
managerial behavior to serve these interests.” All of these approaches to stakeholder
orientation stress the attitude toward stakeholders and the level of activities that a ﬁrm
expends to identify, assess and consider relevant stakeholder issues in strategic decision-
making.

Understanding and addressing stakeholder demands is a complex undertaking.
The stakeholder approach stresses the relationship between a ﬁrm and its stakeholders as

two-way (Freeman 1984). Stakeholder activities may affect the ability to achieve a ﬁrm’s

31

objectives, while the ﬁrm’s decisions can affect the well-being of its stakeholders
(Berman et al. 1999). Stakeholders have various inﬂuence strategies to obtain desired
actions from a ﬁrm, including consumer boycotts as that against StarKist to change tuna
ﬁshing practices (Frooman 1999). Managers should consider that stakeholders not only
interact with the ﬁrm, but also interact with other stakeholders, increaSing the stakeholder
power to exert pressure. An example is Monsanto’s abandoned attempt to commercialize
seed sterilization technology because of protests initiated by Indian farmers that spread
worldwide (Hart and Sharma 2004).

Stakeholder orientation is not static. The importance of a stakeholder varies over a
ﬁrm’s life cycle and inﬂuences the ﬁrm’s responsiveness (Neill and Stovall 2005). Power
is the primary attribute of stakeholder salience driving corporate social responsibilities,
whereas responsiveness to legitimate and urgent stakeholders is not as strong as the
responsiveness to stakeholders that have the power to deny support to the ﬁrm. Another
reason for corporate stakeholder orientations to change over time is reaction to triggering
events, such as natural disasters, negative publicity over business practices, and

legislative actions (Maurer and Sachs 2005).

Stakeholder Orientation — Performance Relationship

Instrumental stakeholder theory provides a theoretical basis for predicting the
nature of the relationship between the socially beneﬁcial behaviors of a corporation and
its ﬁnancial performance (e. g., Barnett and Salomon 2006; Margolis and Walsh 2003).
Some scholars argue that social responsibility detracts from a ﬁrm’s ﬁnancial
performance by raising costs from discretionary expenditures on social responsiveness

(Friedman 1970; Jensen 2002). A contrasting view asserts that better social performance

32

provides the ﬁrm with advantages leading to ﬁnancial performance (Barnett and Salomon
2006). Competitive advantage can be obtained through lower labor costs (Greening and
Turban 2000; Turban and Greening 1997), less community opposition and legal costs
(Barnett and Salomon 2006; Freeman 1984), and creation of new marketing opportunities
(Fombrun, Gardberg, and Barnett 2000). Studies Show that corporate social
responsibility is positively associated with growth in sales for the current and subsequent
year (Ruf et al. 2001).

Proponents of stakeholder theory suggest that the better a ﬁrm manages its
stakeholder relationships, the better its ﬁnancial performance over time (Donaldson and
Preston 1995; Freeman 1984). Empirical studies support a positive inﬂuence on ﬁrm
ﬁnancial performance of investments in stakeholder relations (e. g., Berrnan et al. 1999;
Graves and Waddock 2000) and effective stakeholder management (e.g., Hillman and
Keim 2001). Shareholders (one of the primary stakeholder groups) ﬁnancially beneﬁt
when management meets the demands of multiple stakeholders (Ruf et a1. 2001). While
reviews of empirical research support a positive relationship between corporate social
performance and ﬁnancial performance (e. g., Margolis and Walsh 2003; Orlitzky,
Schmidt, and Rynes 2003), the nature and boundaries inﬂuencing how a stakeholder
orientation affects ﬁrm ﬁnancial performance remains unclear. Questions include how
much investment in stakeholder responses is enough, and which stakeholders the ﬁrms
should address.

Companies that perceive stakeholders as competing for the attention and
resources of the ﬁrm require that the inﬂuence on ﬁnancial performance be substantial

enough to convince managers that those stakeholders are worthy of attention (Freeman

33

1999; Jones and Wicks 1999). Research in the past decade highlights the consequences
of paying attention to stakeholders such as employees, the community, and consumers
(Funk 2003; Greening and Turban 2000; Greenley and Foxall 1996). However, the
interests of one group of stakeholders may not be complementary to another, thereby
creating a dilemma for managers to balance stakeholder claims in making strategic
decisions (Laczniak and Murphy 2006). For example, Barnett and Salomon (2006) ﬁnd
that investment in community programs inﬂuences ﬁnancial performance while

investment in employees does not have a similar effect.

Stakeholder Theory and Global Marketing

Marketers are in a prominent position to include stakeholder concerns in strategic
planning and promote corporate social responsibility practices within the ﬁrm (Maignan
and Ferrell 2004). The experience of marketers in developing customer relationships may
extend to establishing relationships with other stakeholders. Additionally, the interests Of
consumers cannot be considered in isolation from other stakeholders, given that the
interests may compete for scarce resources or be dependent on orientations to other
groups such as employees (Greenley and Foxall 1998).

One research stream advocates a stakeholder relationship model of marketing
(Payne 2004; Payne, Ballantyne, and Christopher 2005). Stakeholder relationship
marketing involves “creating, maintaining, and enhancing strong relationships with
customer, employee, supplier, community, and shareholder stakeholders of a business
with the goal of delivering long-term economic, social, and environmental value to all
stakeholders in order to enhance sustainable business ﬁnancial performance” (Murphy et

al. 2005, pp. 1050-51). Application of a stakeholder relationship marketing evaluation

34

system in China demonstrates that the principles of stakeholder relationships is not new
to China, is supported by cultural values, and is consistent with other parts of the world
(Murphy and Wang 2006). Polonsky, Schuppisser and Beldona (2002) provide a
framework for marketers to analyze their ﬁrm's diverse relationships. They distinguish
between the positive and negative side of relationships (i.e., the ladder of stakeholder
loyalty), and describing the various relational factors (i.e., relationship orientation, trust,
communication, learning, power, reciprocity and commitment) that shape a speciﬁc
relationship.

Firm activities relating to product production, introduction, and promotion can
unintentionally harm consumers, society, or other stakeholders (Fry and Polonsky 2004).
Some marketing issues include branding (i.e., integrating corporate social responsibility
as a core value in brand positioning) (Polonsky and J evons 2006), youth as consumers
and subsequent advertising to children (Horgan 2005), and global sales ethics (Ferrell,
Ingram, and LaForge 2000). Additionally, social responsibility registration/certiﬁcation
(SA8000) adoption may impact a ﬁrm's marketing activities (Miles and Munilla 2004).
SA8000 provides a standard of corporate social responsibility that addresses consumer
and investor perceptions of the importance of emerging global social issues such as child
labor, worker rights, discrimination, and compensation. Socially responsible marketing
involves product differentiation (i.e., environmental), reputation building (i.e.,
advertising), competitive advantage (i.e., ﬁrst-mover, barrier to entry), and innovation
(McWilliams and Siegel 2001). Empirical studies of multiple stakeholder orientations

suggest that ﬁrms incorporating customer, competitive, and employee perspectives in

35

strategic planning experience greater marketing capabilities and superior competitive
advantage (Greenley and Foxall 1998; Greenley et al. 2004).

An integral activity to marketing is new product development. Increasingly,
concerns regarding the extent to which new products are good and for whom they are
good are expressed (Lehmann 2006). However, Luo and Bhattacharya (2006) ﬁnd that
ﬁrms need to ensure that they are perceived as innovative and as makers of high-quality
products before they undertake major corporate social responsibility initiatives since a
low innovativeness capacity reduces customer satisfaction levels. Examples where new
product development and corporate social initiatives interact include environmental
impact, or “green marketing,” and medical innovations, such as the biomedical and
pharmaceutical industry. Research of US and Australian marketers' perceptions of
stakeholders' involvement in the green new product development process include
stakeholders with broader environmental expertise are included (Polonsky and Ottman
1998). Pujari and Wright (1999) identify Six drivers and stakeholders for environmental
responsiveness at product development level in manufacturing ﬁrms. In a recent
application of RBV, Baker and Sinkula (2005) ﬁnd that a ﬁrm’s environmental marketing
strategy development is positively related to new product success, which is positively
related to change in market share.

New product development in the medical industry has a particular need to
consider a broad base of stakeholders (Nystrom and Poon-Asawasombat 2003).
Addressing a larger population, biotechnology ﬁrms face new challenges as their new
products account for an increasing Share of product approvals and their high costs are

under scrutiny by regulators, employers, and consumers (Simon 2006). Pharmaceutical

36

companies are also under pressure to provide treatments for diseases at a cost lower than
needed to recoup development expenses (Blowﬁeld and Frynas 2005; Khanna 2006),
potentially stiﬂing innovation and new product development (Calfee and Bate 2004;
Miles, Munilla, and Covin 2002).

Global companies are experiencing increasing pressure to contribute to the
economic development, as well as improve the quality of life, of the workforce and
community (Bazin and Ballet 2004; Wheeler, Fabig, and Boele 2002). International
studies suggest that managerial attention to stakeholders from an ethical perspective
varies between cultures, most noticeably in employee welfare and environmental
sustainability (Blodgett et al. 2001; Cai and Wheale 2004; Maignan and Ferrell 2003).
Environmental sustainability in emerging economies is a particular focus of
nongovernmental organizations and activist groups (Hendry 2003), prompting companies
such as DuPont and Hewlett-Packard to adopt practices that lessen the environmental
footprint in all operations (Hart and Milstein 1999). Wheeler, F abig and Boele (2002)
provide an analysis of stakeholder management practices of Shell Oil with the Ogoni of
Nigeria. This case, in which environmental and human rights groups accused Shell and
its Nigerian subsidiary of degrading the Ogoni environment for four decades, highlights
the importance of a stakeholder orientation in corporate strategy.

Although globalization often is perceived as being incompatible with social
responsibility, there are examples of multinational businesses spreading ethical and
responsible behavior among nations. One example is the empirical results of a study of
the pulp and paper industry in India, identiﬁed as one Of the most polluting industries in

the country, indicating that economic liberalization had a positive inﬂuence on

37

environment-friendly behavior (Pradhan and Barik 1999). Logsdon and Lewellyn (2000)
argue that a Western European standard for reporting social responsibility activities be
adopted in the US. In another analysis, globalization resulted in French ﬁrms integrating
many practices prevalent in the US private sector, despite France's own political and
historical norms with respect to human rights (Colonomos and Santiso 2005).

From the literature review on corporate social responsibility, there is an overlap
between principles (social orientation), practices (social responsiveness) and outcomes
(performance). In other words, there is a distinction between what ﬁrms ought to do,
what they put into practice and what potential beneﬁts they might obtain. There are direct
parallels between the normative, descriptive and instrumental dimensions of stakeholder
theory identiﬁed by Donaldson and Preston (1995) and the emphasis on principles,
practices and outcomes. Principles have a normative element, practices have a descriptive
element and outcomes have an instrumental element.

Marketing research ﬁnds that marketers embracing the stakeholder concept have
to consider various stakeholder interests, in addition to customers, when making
marketing decisions. A stakeholder orientation requires a balanced evaluation of
stakeholders and their competing demands, recognizing that complex marketing
strategies may alienate a particular group (Laczniak and Murphy 2006). Firms operating
across national boundaries experience further challenges due to cultural and institutional
variations. The next chapter presents a conceptual framework to examine the
incorporation of stakeholder issues in corporate marketing strategy to explain ﬁrm
performance, and the moderating effect Of international Operations on successfully

responding to multiple stakeholders.

38

Chapter III

CONCEPTUAL FRAMEWORK AND HYPOTHESIS DEVELOPMENT

This chapter discusses a conceptual framework depicting how a stakeholder
orientation adds value through marketing outcomes. This research examines the
incorporation of stakeholder issues in corporate marketing strategy to explain ﬁrm
performance and provide further insight regarding the inﬂuence of international
Operations on stakeholder responsiveness. The four research questions are:

1. How does attention to speciﬁc stakeholders drive implementation of programs
and policies responding to stakeholders?

2. What is the inﬂuence of international sales, number of countries, and sourcing
on a ﬁrm’s responsiveness to stakeholders?

3. DO actions (responding to stakeholders) inﬂuence customer satisfaction,
innovation, and reputation?

4. How does a stakeholder orientation affect ﬁrm performance?

Conceptual Framework

Managers need to understand how a stakeholder orientation affects ﬁrm
performance. Subsequent Instrumental stakeholder theory provides a theoretical basis for
predicting the nature of the relationship between the ﬁrm’s stakeholder orientation and its
ﬁnancial performance (e. g., Barnett and Salomon 2006; Margolis and Walsh 2003).
Results of empirical studies Show that the relationship of a proactive strategy for
stakeholder management and performance is complex. A number of studies Show that
ﬁrms perceived as socially responsible have higher ﬁnancial performance (e.g. Maignan,

Ferrell, and Hult 1999; Margolis and Walsh 2003; Orlitzky, Schmidt, and Rynes 2003).

39

However, the positive relationship with ﬁnancial performance does not hold across all
stakeholders or corporate response activities. For example, Seifert, Morris, and Bartkus
(2004) Show that community philanthropy is not related to ﬁnancial performance.
Likewise, Berrnan et al. (1999) ﬁnd that relationships with many stakeholders other than
employees and customers have only indirect effects on ﬁrm ﬁnancial performance.

A stakeholder mismatching perspective is one explanation for why the correlation
between corporate social responsibility and corporate ﬁnancial performance varies
among studies (Orlitzky, Schmidt, and Rynes 2003). The stakeholder mismatching thesis
of Wood and Jones (1995) argues that effects of corporate social responsive actions vary
depending on different expectations and evaluations of stakeholder groups. Programs and
policies responding to market-oriented stakeholders such as customers and shareholders
are more likely to inﬂuence market-based ﬁrm performance, whereas community-related
philanthropic activities may not correlate directly to market-based ﬁrm performance. For
many stakeholder groups, the effect of corporate social responsiveness may effect non-
ﬁnancial outcomes (Orlitzky, Schmidt, and Rynes 2003). Corporate social responsiveness
is found to inﬂuence corporate reputation (Brammer and Millington 2005), customer
satisfaction (Luo and Bhattacharya 2006), and innovation (McWilliams and Siegel 2001).
Based on results of their meta-analysis, Orlitzky, Schmidt, and Rynes (2003) call for
additional research to include well-deﬁned stakeholder groups, precise deﬁnitions of

socially responsive outcomes and appropriate measures for performance.

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Therefore, this research seeks to understand how valuing each stakeholder group
affects ﬁrm performance through stakeholder responsiveness and marketing outcomes, as
well as the inﬂuence of global business operations on stakeholder responsiveness. A
conceptual framework for the study is in Figure 1. Subsequent discussion of the
conceptual framework begins with conceptualizing the stakeholder orientation construct
and stakeholder groups, deﬁning the stakeholder responsiveness construct and developing

hypotheses relating to the research questions.

Hypothesis Development

Research question 1: Stakeholder Orientation and Stakeholder Responsiveness

The concept of stakeholder orientation has been deﬁned and operationalized in
prior research focusing on the attitude and behavior of the organization towards various
stakeholders (e. g., Greenley and Foxall 1996;, 1997; Logsdon and Yuthas 1997;
Maignan and Ferrell 2004). A parallel can be made between market orientation and
stakeholder orientation, in such that both have been viewed as culture and behaviors
(Kohli and J aworski 1990; Narver and Slater 1990). Homburg and Pﬂesser (2000)
conceptualize market orientation as both culture (values, norms, artifacts) and behaviors
(information generation, information dissemination, responsiveness). Noble, Sinha and
Kumar (2002) build on a View that customer orientation is a part of an overall
organizational culture to develop a competitive culture approach to strategic orientations.
Deshpande, Farley, and Webster (1993) argue that internal processes and the
organizational strategies are inﬂuenced by a deep, culture-driven characteristic of an

organization. The competitive culture View allows for the integration Of strategic

42

orientations of multiple stakeholders. For this research, I adopt the Noble, Sinha, and
Kumar (2002) deﬁnition for market orientation to deﬁne stakeholder orientation as an
organization’s values and priorities in interactions with its stakeholders.

Building on the deﬁnition of social responsiveness as the adaptation of corporate
behavior to social needs (Sethi 1975; Wood 1991), stakeholder responsiveness refers to
the extent that the organization implements policies and programs to address the needs of
stakeholder groups. Luo and Bhattacharya (2006) describe stakeholder responsiveness as
“a company’s activities and status related to its perceived societal or stakeholder
Obligations.” Demonstrating a high degree Of stakeholder responsiveness may require a
diverse range of activities (including engagement in philanthropic activities, reduction of
environmental impacts, and the introduction of practices that empower employees)
(Brammer and Pavelin 2006). In other words, stakeholder orientation refers to the ﬁrm’s
belief regarding speciﬁc stakeholder relations, and stakeholder responsiveness represents
the implementation of strategies relating to those stakeholders.

The notion of stakeholder orientation as culture and stakeholder responsiveness as
behaviors is consistent with current thinking on global corporate citizenship. Logsdon
and Wood (2005) assert that global corporate citizenship requires: (1) a set of
fundamental values embedded in the corporate code of conduct and in corporate policies
that reﬂect universal ethical standards; and (2) implementation throughout the
organization with thoughtful awareness of where the code and policies ﬁt well and where
they might not ﬁt with stakeholder expectations.

A stakeholder is any group or individual who can affect, or be affected by, the

achievement of an organization’s purpose, with each of the many stakeholder groups

43

having a unique set of expectations, needs, and values (Clarkson 1995; Freeman 1984;
Mitchell, Agle, and Wood 1997). This research will consider six primary stakeholders
identiﬁed in the marketing stakeholder model from Mai gnan, Ferrell and Ferrell (2005).
Primary stakeholders are those where direct relationships are necessary for the company
to perform its major mission of producing goods and services, and commonly include
customers, employees, Shareholders, suppliers, community, and government regulatory
agencies (Freeman 1984; Friedman and Miles 2006).

Customers are key stakeholders that help establish the ﬁrm's reputation and
identiﬁcation. The relationship between a customer and a ﬁrm exists because of mutual
expectations built on trust, good faith, and fair dealing in their interaction. In fact, there is
an implied covenant of good faith and fair dealing, and performance cannot simply be a
matter of the ﬁrm's own discretion. Not only is this an ethical requirement but it has been
legally enforced in some states (Ferrell 2004). Paying attention to customers improves
responsiveness to other stakeholders, such as shareholders reacting in a signiﬁcantly
positive manner to improvements in customer service (Ogden and Watson 1999).
Consumer orientation emerged as the most important group in studies of stakeholder
orientation (Greenley and F oxall 1996).

Equally important, the research indicates that marketing might well need to give
as much attention to the strategic management of managers and employees as it does to
customers (Jackson 2001). Employees can position the organization in the minds of
customers, employees, and other stakeholders (Miles and Mangold 2005). A study of the
airline industry ﬁnds that labor relations has a direct effect on performance, and an

indirect effect on reputation through customer experiences (Martinez and Norman 2004).

44

While a shareholder orientation typically refers to proﬁts, shareholders are a
primary stakeholder that can inﬂuence responsiveness to multiple stakeholders. Meeting
the needs of creditors directly affects both return on assets and net proﬁt margin
(Martinez and Norman 2004). As typical contemporary investors rarely control corporate
activities, management feels it is highly questionable whether most have Obligations to
stakeholders. Whether or not shareholders have obligations to stakeholders, business
managers have a greater obligation to educate shareholders about how corporate activities
affect stakeholders (Spurgin 2001 ). Research provides support that the dominant
stakeholder group (shareholders) ﬁnancially beneﬁts when management meets the
demands of multiple stakeholders, as change in corporate social responsibility is
positively associated with growth in sales for the current and subsequent year (Ruf et al.
2001). Investors are looking with increasing favor on Shareholder proposals asking
companies to disclose and monitor their political contributions, to report on their fair
employment policies, and to issue broad-based reports on sustainability (Voorhes 2006)

A supplier orientation refers to attention both to the needs of the supply chain and
to socially responsible purchasing practices, including incorporation of noneconomic
buying criteria relating to diversity, environmental, and labor issues. Suppliers expect fair
treatment by customers. Key ethical issues inﬂuencing supplier relationships include 1)
demonstrating partiality towards suppliers preferred by upper management, 2) allowing
personalities to improperly inﬂuence the buying decision, and 3) failing to provide
prompt, honest responses to inquiries and requests (Cooper, Frank, and Kemp 2000). The
network Of relationships inherent in the supply chain has resulted in a greater likelihood

that organizations shoulder more responsibility for actions of their suppliers (Phillips and

45

Caldwell 2005). AS companies recognize social issues that are related to their supply
chain, some include paying more for vendors with good social policies, helping
competent vendors become socially responsive, and helping socially responsive vendors
to become competent (Drumwright 1994).

Regulatory orientation refers to the attention to the regulatory environment,
trends, and policies. Distinctive advantages arise from partnerships with local
communities or government agencies, such as reduced unfavorable litigation, reduced
levels of negative publicity and favorable regulatory policies (Harrison and St John
1996). The values of the management team have a positive effect on working
relationships with regulatory agencies. The inﬂuences of regulatory forces are all
signiﬁcantly mediated by top management commitment and moderated by industry type
(Banerjee, Iyer, and Kashyap 2003). The growing regulatory concerns over the
environmental impact of corporate practices have begun to inﬂuence marketing policies
and practices (Menon and Menon 1997).

A community orientation refers to the attention to social duties relating to the
common good of the host community. Pulling from stewardship theory, Laczniak and
Murphy (2006) argue that marketers are obligated to ensure that their marketing
operations will not impose external costs on society. Community stakeholders include
many nongovernmental organizations and other potential activist groups that have an
interest in social issues and have the ability to mobilize public opinion (Banerj ee, Iyer,
and Kashyap 2003). Community advocacy groups can inﬂuence corporate strategy. For
example, a chemical company’s plans to locate in an economically deprived Louisiana

community changed in response to community opinion (Berry 2003). Brammer and

46

Millington (2003) suggest that corporate community involvement activities may be
inﬂuenced by the preferences of societal stakeholders.

Therefore, while speciﬁc stakeholders have varying concerns, companies should
strive for responses that appeal to multiple stakeholders. To examine the relationship that
each Speciﬁc stakeholder has on overall responsiveness, the following hypotheses relate
to how attention to which stakeholders drives the overall implementation of responsive
programs and policies.

H1 : Stakeholder responsiveness is affected by stakeholder orientation:

Customer orientation has a positive effect on stakeholder responsiveness
Employee orientation has a positive effect on stakeholder responsiveness
Shareholder orientation has a positive effect on stakeholder responsiveness
Supplier orientation has a positive effect on stakeholder responsiveness

Regulatory orientation has a positive effect on stakeholder responsiveness
Community orientation has a positive effect on stakeholder responsiveness

neenve

Research question 2: The moderating role of “globalness”

F inns operating in multiple countries experience cultural and institutional
differences in expectation and returns of social responsiveness (Doh and Guay 2006). To
examine the moderating effects of global Operations on the ability for a ﬁrm to respond to
multiple stakeholders, the study includes “globalness” as a moderator. The degree of
globalness refers to the internationalization of the business, including sales, number of
countries, and supply (J chanson and Vahlne 1977). Globalization activities such as global
product sourcing, global market seeking, and global partnerships moderate a ﬁrm’s
market orientation, entrepreneurial orientation, and innovative (Luo, Sivakumar, and Liu
2005). Global companies are experiencing increasing pressure to contribute to the
economic development, as well as improve the quality of life, of the workforce and

community (Bazin and Ballet 2004; Wheeler, Fabig, and Boele 2002). Intemational

47

studies suggest that managerial attention to stakeholders from an ethical perspective
varies between cultures, most noticeably in employee welfare and environmental
sustainability (Blodgett et al. 2001; Cai and Wheale 2004; Maignan and Ferrell 2003).
The roles and responsibilities of government are being redeﬁned, with the boundaries
between business and government becoming less clear, and the multinational corporation
is acting more often in a quasi-governmental role at the global level (Hatcher 2003;
Wettstein 2005). It is not surprising then that a recent study ﬁnds a direct effect of
international diversiﬁcation (depth and breadth of international sales) on overall
corporate social performance (Strike, Gao, and Bansal 2006). Relationships between
stakeholders and the ﬁrm must be examined in light of the cultural contexts and different
forms of market systems within which different ﬁrms emerge, operate and interact
(Palmer and Quinn 2005). Therefore, the degree of global business interactions can
inﬂuence the various stakeholder orientations and company responsiveness.

Varying cultural values and ethical beliefs of consumers have been identiﬁed
between various national groupings (Ford 2005; Rawwas 2001). Consumers in different
cultures assess the ethics of a situation based on factors such as religion (Comwell et al.
2005), cultural values (Chan, Wong, and Leung 1998), nationality (Erffrneyer, Keillor,
and LeClair 1999), and both gender and age (Fisher, Woodbine, and Fullerton 2003).
Distinct ethical consumer behaviors exist across European countries (Germany,
Denmark, Scotland, The Netherlands, Portugal, Spain, Italy, Greece), questioning the
ability of organizations to consider even the European Union as one homogeneous market
(Polonsky et al. 2001). Differences in consumer ethics and cultural values inﬂuence how

corporations respond to social issues, as well as how consumers react to those responses

48

(Babakus et al. 2004) . Maignan (2001) ﬁnds that French and German consumers appear
more willing to actively support responsible businesses than their US counterparts, and
while US consumers value highly corporate economic responsibilities, French and
German consumers are most concerned about businesses conforming with legal and
ethical standards.

Multinational companies with global production or sales facilities have to address
employee stakeholder concerns both in their home market and in international markets.
Downsizing due to location of production of goods or services in other countries can
reduce employee loyalty and morale (Karake 1998). Production operations overseas often
have to address employment issues where legal requirements are less stringent,
particularly regarding child labor and low wages (Kolk and van Tulder 2002).
Multinational corporations (MNCS) are the frequent target of NGOs in their human rights
advocacy efforts, possibly skewing corporate social responsibility practices by the
multinational corporation (Schepers 2006). For example, initial responses to campaigns
on child labor in the sports-goods industry in Pakistan led to many children losing their
jobs and working in more hazardous or abusive industries (Bendell 2005). The
experience of two companies, Chiquita Brands International, Inc. and Levi Strauss &
Company, both with operations in Latin America, underscore the presence of common
challenges that accompany the employment of international labor (Radin 2004).

Organizations that depend on global suppliers for goods and services have to
consider how actions are perceived to avoid supply-chain problems like Nike experienced
when exposed for “slave-labor conditions” in Asian countries (Bachman 2000). One

example includes Starbucks, which claims to pay premium prices for coffees, invest in

49

social development projects, provide access to affordable loans in coffee growing regions
and is considered the ﬁfth most admired corporation in Fortune’s 2006 survey (Fisher
and Demos 2006). Oxfam, a non-proﬁt organization that works to end global poverty,
claims that Starbucks is depriving farmers in Ethiopia of $90 million a year by rejecting
the Ethiopian government's efforts to trademark three types of local coffee bean. Their
campaign generated more than 89,000 faxes from 70 countries asking Starbucks CEO
Jim Donald to support Ethiopia's ownership of its coffee names ("Business: Storm in a
Coffee Cup; Starbucks Vs. Ethiopia" 2006).

Attention and responsiveness to shareholders have two implications for
companies with global operations. First, shareholders can inﬂuence multinational
corporation decisions to downsize (Collett 2004) and to relocate overseas (Birkinshaw et
al. 2006). Second, attention to shareholder’s concerns inﬂuences the ability to attract
investors. The growth of social and ethical investment criteria among shareholders,
mutual funds, and pension asset managers demonstrate increased demands for good
global citizenship (Henderson 2000). In Europe, a tradition Of greater concern with a
broader stakeholder perspective has changed the capital structure, with practicing Value
Based Management common in the UK, Germany, Switzerland and Austria (Mills and
Weinstein 2000). Likewise, stock price reactions primarily attributable to institutional
investors occur when corporations announce the enactment of corporate governance
guidelines (Picou and Rubach 2006).

Shareholder resolutions have become increasingly successful at promoting
corporate change in global social responsiveness. Support for social and environmental

resolutions reached record levels in the 2006 proxy season, according to Institutional

50

Shareholder Services (188) (Voorhes 2006). In 2006, shareholders asked four companies
(Lear, C.R. Bard, Bed & Beyond and Time Warner) to develop and monitor a code of
conduct for its operations and suppliers based on conventions of the International Labor
Organization and the UN. Norms for Transnational Corporations.

Companies operating in multiple countries experience institutional differences in
expectation and returns, inﬂuencing the relationships with regulatory agencies,
governments and communities, especially in developing countries (Deb and Guay 2006;
Mohan 2006). Research of multinational chemical companies ﬁnds that a shift of societal
expectations resulted in economic and legal responsibilities increasingly required in most
countries, while the degree of ethical responsibilities and philanthropic responsibilities
varied over time and country (Pinkston and Carroll 1996). Reed (2002) argues that
different economic, political, and sociocultural circumstances under which corporations
have to operate in developing countries increase the responsibilities of corporations to a
full range of stakeholder groups. A study of chemical companies in Mexico and South
Africa ﬁnds several challenges for the chemical industry in moving forward on CSR:
credibility, stakeholder engagement, value-chain accountability, disclosure and
transparency (Acutt, Medina-Ross, and O'Riordan 2004). A study in Poland identiﬁes a
dysfunctional legal background and corruption as obstacles of CSR (Lewicka-Strzalecka
2006). In addition, the growing regulatory concerns over the environmental impact of
corporate practices have begun to inﬂuence marketing strategies (Menon and Menon
1997).

Multinational corporations implement various methods and responsiveness to

addressing the complex social issues of stakeholders (Deniz-Deniz and Garcia-Falcin

51

2002). Khan and Atkinson (1987) ﬁnd Signiﬁcant Similarities and differences of social
responsibility practices in India, Britain and America. Another study ﬁnds that Japanese
ﬁrms are able to make quicker and more efﬁcient decisions and have more ﬂexibility
when dealing with many stakeholders than US counterparts (Steadman, Green, and
Zimmerer 1994). American managers tend to be more legally and ethically driven than
French managers who are more concerned about the economic and philanthropic
components of corporate social responsibility (Ibrahim and Parsa 2005). In his
dissertation research, Mackey (2005) ﬁnds that the location and the extent of
international operations inﬂuence corporate social responsibility, with ﬁrms with
operations in developing countries tending to have positive associations in terms of
community and diversity CSR ratings, but negative associations with product and human
rights CSR ratings.

Research questions arise with this Observed variation in consumer ethics,
employee and supply-chain issues, shareholder perceptions, community and institutional
demands inherent in global business. How does ﬁrm globalness inﬂuence the effect of
stakeholder orientation on stakeholder responsiveness? In other words, is it more difﬁcult
for companies with greater international sales, number of countries, and sourcing to pay

attention and respond to stakeholders? These questions are tested with the following

hypotheses:
H2: “Globalness” moderates the effect of stakeholder orientation on stakeholder
responsiveness:

a. Globalness moderates the relationship between customer orientation and
stakeholder responsiveness

b. Globalness moderates the relationship between employee orientation and
stakeholder responsiveness

c. Globalness moderates the relationship between shareholder orientation and
stakeholder responsiveness

52

d. Globalness moderates the relationship between supplier orientation and

stakeholder responsiveness

e. Globalness moderates the relationship between regulatory orientation and

stakeholder responsiveness

f. Globalness moderates the relationship between community orientation and

stakeholder responsiveness
Research question 3: The role of stakeholder responsiveness on marketing outcomes

Socially responsible marketing involves product differentiation (i.e.,
environmental), reputation building (i.e., advertising), and competitive advantage (i.e.,
ﬁrst-mover, barrier to entry) (McWilliams and Siegel 2001). Corporate social
responsiveness is found to inﬂuence corporate reputation (Brammer and Millington
2005), customer satisfaction (Luo and Bhattacharya 2006), and innovation (McWilliams
and Siegel 2001).

Customer satisfaction is deﬁned as an overall evaluation based on the customer’s
total purchase and consumption experience with a good or service over time (F omell
1992). An equity approach to exchange evaluation shows that perceived fairness from the
customer’s View is a strong predictor for customer satisfaction (Symanski and Henard
2001). Unethical marketing that exploits or harms another party reduces the customer’s
evaluation of perceived fairness and risks alienating the most committed customers
(Ingram, Skinner, and Taylor 2005). Not just attention to customers increases customer
satisfaction. Consumers react to corporations’ initiatives to address outside stakeholders
in their evaluation and subsequent loyalty to the organization (Bhattacharya and Sen
2003; Sen and Bhattacharya 2001). For example, an increase in organizational
commitment to employees improves customer satisfaction (Roca-Puig et al. 2005).

Overall, corporate social responsiveness to stakeholders positively affects customer

satisfaction (LuO and Bhattacharya 2006).

53

Innovation relates to the implementation Of new ideas, products, and processes
(Hurley and Hult 1998). While marketing traditionally focuses on product innovation,
organizational innovation differentiates between technical innovation, referring to work
activities related to products and services, and administrative innovation, referring to
processes indirectly related products and services (Damanpour 1991). Focusing on the
degree to which an organization encourages introducing new ideas and processes, Hult
and Ketchen (2001) found an organization’s openness to new ideas, products or processes
to be an inﬂuencing factor in developing positional advantage. There is evidence of a
relationship between market-focused companies and innovation (Day 1994; Deshpande,
Farley, and Webster 1993). In a study of market orientation, Han, Kim and Srivastava
(1998) ﬁnd a positive relationship between customer orientation and innovation.
However, little empirical research exists examining the effect that responsiveness to
multiple stakeholders has on ﬁrm innovativeness. Miles et al. (2002) proposes that
innovation in the pharmaceutical industry would be hindered by pressure from NGOS and
governments to provide drugs to developing nations at a substantial loss or for free.

The resource—based-view (RBV) and instrumental stakeholder theory suggest that
social responsibility leads to sustained competitive advantage through innovation (Bunn,
Savage, and Holloway 2002; McWilliams, Siegel, and Wright 2006). RBV perceives
social responsiveness as a capability that is valuable, rare, and inimitable (Deniz-Deniz
and Saa-Perez 2003). For example, Baker and Sinkula (2005) ﬁnd that a ﬁrm’s
capability in environmental marketing strategy development is positively related to new
product success. Instrumental stakeholder theory references strategic approaches to

stakeholder management that provide direction for enhanced organizational performance

54

(Donaldson and Preston 1995). A social network perspective of stakeholder management
suggests that innovations through new product development result in a particular need to
consider a broad base of stakeholders that have direct relationships with one another
(Bunn, Savage, and Holloway 2002; Rowley 1997).

There is some research supporting a positive relationship between stakeholder
orientation and innovation. DuPont includes a diversity of stakeholders from India,
Africa, and Latin America in developing a strategy for biotechnology development, even
inviting environmental proponents such as the former head of Greenpeace International
to provide divergent views on the issue (Hart and Sharma, 2004). Management found that
incorporating different perspectives generated new ideas, modiﬁcations, and
improvements to the company’s approach to biotechnology commercialization. Likewise,
managers of oil companies adopting a proactive stakeholder orientation reported a
continuing momentum of innovations (Sharma and Vredenburg 1998). Attention to
multiple stakeholders increases innovative actions in new product development and
distribution.

Reputation refers to a perceptual representation of a company’s past actions and
future prospects that describe the ﬁrm’s overall appeal to all its key constituents when
compared to other leading rivals (Fombrun 1996, p. 72). Social responsiveness to
stakeholders has external effects on organizational reputation through building a positive
image with customers, investors, creditors, and suppliers (Orlitzky and Benjamin 2001).
Disclosure alone is not as highly correlated with reputation as social responsiveness. In a
study of large US ﬁrms, Fombrun and Shanley (1990) found that publics assign higher

reputations to organizations that exhibit social responsiveness. Shanna and Vredenburg

55

(1998) found that stakeholder integration gives competitive beneﬁts that translate into
increased goodwill that eased opposition to oil companies’ everyday Operations and
development plans.

Research tends to support the notion that a stakeholder orientation can result in
marketing intermediaries such as customer satisfaction, innovation, and reputation
through the social responsiveness to stakeholder needs. Therefore, the following
hypotheses seek to address whether actions responding to stakeholders generate greater
marketing outcomes.

H3: The greater the stakeholder responsiveness,

a. the greater the customer satisfaction

b. the more innovative the ﬁrm
c. the more favorable is the ﬁrm’s reputation

Research question 4: The mediating role of marketing outcomes on the impact of
stakeholder responsiveness on performance

The ﬁnal research question seeks to understand how valuing each stakeholder
group affects ﬁrm performance through marketing outcomes. Prior research shows that
marketing outcomes, such as customer satisfaction, innovation, and reputation, are key
determinants of ﬁrm performance. Therefore, this set of hypotheses examines the role
that the marketing outcomes play in full or partial mediation between stakeholder
responsiveness on performance.

Stakeholder theory argues that companies that address diverse stakeholder
interests perform better than companies that do not (Clarkson 1995; Greenley and Foxall
1998). Stakeholder-oriented companies develop expertise in understanding the formation
Of stakeholder groups, their key issues, and the potential for helping or harming the

corporation. The stakeholder mismatching thesis of Wood and Jones (1995) argues that

56

effects of corporate social responsive actions vary depending on the expectations and
evaluations of stakeholder groups. Therefore, speciﬁc stakeholder orientations may
inﬂuence different marketing and performance measures (Orlitzky, Schmidt, and Rynes
2003). For example, reputation is basically related to the values of individual evaluators,
resulting in different aspects Of corporate social responsiveness inﬂuencing corporate
reputation (Siltaoja 2006). Berman et al. (1999) examine the interaction of stakeholder
relationships, ﬁrm strategy and performance; ﬁnding support for both direct and indirect
affects on ﬁrm ﬁnancial performance.

A direct link between social responsiveness and ﬁnancial performance has been
established through a decade of empirical studies (Orlitzky and Benjamin 2001; Orlitzky,
Schmidt, and Rynes 2003; Roman, Hayibor, and Agle 1999); however, it does not hold
across all stakeholders or corporate response activities (Berman et al. 1999; Seifert,
Morris, and Bartkus 2004). The resource-based-view (RBV) suggests that stakeholder
orientation and responsiveness constitute a resource or capability that leads to sustained
competitive advantage (Deniz-Deniz and Saa-Perez 2003; McWilliams, Siegel, and
Wright 2006). Likewise, ﬁrms incorporating multiple stakeholder perspectives in
strategic planning experience greater marketing capabilities and superior competitive
advantage (Greenley and Foxall 1998; Greenley et al. 2004). Luo and Bhattacharya
(2006) provide empirical evidence for the resource-based view that a ﬁrm’s sustainable
competitive advantages results from a complementary “bundle” of valuable internal
(corporate abilities) and external (CSR initiatives) assets. Stakeholder responsiveness has
been shown to inﬂuence ﬁrm performance through customer satisfaction (Luo and

Bhattacharya 2006), innovation (Bunn, Savage, and Holloway 2002; McWilliams and

57

Siegel 2000), and reputation (Brammer and Pavelin 2006; Orlitzky, Schmidt, and Rynes
2003; Preston and O'Bannon 1997).

Customer satisfaction has signiﬁcant implications for the economic performance
of ﬁrms (Bolton, Lemon, and Verhoef 2004). One reason is that customer satisfaction has
a negative impact on customer complaints and a positive impact on customer loyalty and
usage behavior (Bolton 1998; Fomell 1992). Therefore, customer satisfaction may reduce
costs related to warranties, complaints, defective goods, and ﬁeld service costs (Fomell
1992). Anderson, Fomell, and Mazvancheryl (2004) ﬁnd a strong relationship between
customer satisfaction and Tobin's Q (as a measure of shareholder value) after controlling
for ﬁxed, random, and unobservable factors. Recently, Fomell, Mithas, Morgeson and
Krishnan (2006) ﬁnd that customer satisfaction, as measured by the American Customer
Satisfaction Index (ACSI), is signiﬁcantly related to market value of equity.

Innovation capability is an important determinant of ﬁrm performance
(DeShpande, Farley, and Webster 1993; Hurley and Hult 1998). Organizational
innovation in products, managerial systems, and marketing strategies can lead to
successful market performance (Weerawardena, O'Cass, and Julian 2006). New product
research ﬁnds that ﬁrm innovativeness is positively related to ﬁrm performance
(Montoya-Weiss and Calantone 1994). The diffusion of innovations literature suggests
that ﬁrms must be innovative to gain a competitive edge in order to survive (Li. and
Calantone 1998). The foundation for this competitive advantage relates to a full
understanding of customer needs, competitors’ actions, and technological development

(Calantone, Cavusgil, and Zhao 2002). A linkage exists, therefore, between cultural

58

orientations, innovativeness, and performance (Deshpande, Farley, and Webster 1993;
Han, Kim, and Srivastava 1998).

Reputation has a complex relationship with ﬁrm performance, as past ﬁnancial
performance is one component of a company's reputation dimension (Fombrun and
Shanley 1990). However, recent studies ﬁnd that reputation inﬂuences future ﬁnancial
performance after controlling for past performance (Eberl and Schwaiger 2005; Roberts
and Dowling 2002). Fombrun (1996) argued that a positive reputation could present an
organization with a competitive advantage that enables the ﬁrm to charge premium prices
and economize on promotional costs. Black, Carnes and Richardson (2000) found that
organizations devote resources to the intangible asset of reputation, with the expectation
that these efforts will improve the performance of the ﬁrm. For example, a positive
reputation has been shown to affect customers' buying intentions (Yoon, Guffey, and
Kijewski 1993) and supplier choice (Weiss, Anderson, and Maclnnis 1999), and to
support superior proﬁt outcomes over time (Roberts and Dowling 2002). In sum, this
would lead to higher proﬁtability for the "well reputed" ﬁrm.

Therefore, there are a number of mechanisms inﬂuencing the relationship
between stakeholder responsiveness and ﬁrm performance. Understanding how and why
stakeholder responsiveness increases performance requires probing the mediating roles Of
marketing outcomes on performance. Thus, the following series of relationships are
hypothesized:

H4: Stakeholder responsiveness increases ﬁrm performance through marketing
outcomes:

a. Stakeholder responsiveness 9 satisfaction 9 performance

b. Stakeholder responsiveness 9 innovation 9 performance
0. Stakeholder responsiveness 9 reputation 9 performance

59

Chapter Summary

The conceptual framework and hypotheses described in this chapter contributes to
our understanding of the performance outcomes of stakeholder orientation and
responsiveness beyond prior studies. First, is the conceptualization of stakeholder
orientation as culture, referring to the ﬁrm’s belief regarding speciﬁc stakeholder
relations, and stakeholder responsiveness as behaviors in the implementation of strategies
relating to those stakeholders. By studying the orientation to six speciﬁc stakeholder
groups, the study will provide insights on whether the prioritization that each ﬁrm gives
to a Speciﬁc stakeholder allows for greater or lower overall responsiveness. Second, is the
inclusion of globalization measures reﬂective of current practice as a moderator for the
difﬁculty in responding to multiple stakeholders. This work may also contribute to
marketing by empirically testing the link between stakeholder responsiveness and ﬁrm
performance through intermediary marketing outcomes. The following chapter provides

details of the research design and method for testing the hypotheses.

60

Chapter IV

RESEARCH DESIGN & METHOD

This chapter presents the research design and method for examining the
hypothesized relationships developed in Chapter 111. First, the sample frame and sample
achieved are discussed. Next, the data collection processes for the qualitative and
quantitative aspects of the study are explained. Within the discussion of the data
collection process are the measures used to operationalize the model constructs.

For this research, the ﬁrm is the unit of analysis to examine the inﬂuence of
globalness on the relationships between stakeholder orientation, responsiveness and
performance. While variances in responsiveness may vary among strategic business units
or locations, the overall strategic orientation of top management and company ﬁnancial
performance are Often studied at the ﬁrm level (e. g. Baker and Sinkula 2005; Luo and
Bhattacharya 2006). Testing of the hypothesized model draws from a sample of
companies representing publicly traded ﬁrms on the US exchange. Prior marketing
studies of strategic orientation and stakeholder management have used a similar sample
frame for empirical research (e. g., Berman et al. 1999; Hillman and Keim 2001; Noble,
Sinha, and Kumar 2002).

Limiting the study to publicly traded ﬁrms provides for both qualitative document
review and quantitative secondary data sources for enhanced understanding of the
phenomena. A mixed method approach of qualitative and quantitative data collection
provides for enhanced understanding of the phenomena. . Harris (2001) argues that

qualitative content analysis of secondary data can provide a “reality check” for a

61

conceptual framework, which encourages researchers to develop closer links between the

theoretical and empirical components of the research. Data collection through document

review for data collection enhances the validity of results by mitigating method biases

(Kolbe and Burnett 1991). This study incorporates qualitative data Obtained from

corporate documents with quantitative data from respected secondary sources.

See Table 4.1 for summary of data sources for statistical analysis.

Table 4.1 Data Sources

 

 

 

 

 

Construct Deﬁnition Data Source

Stakeholder An organization’s values and priorities in Annual reports

Orientation interactions with its stakeholders (Noble, Sinha (2004)

0 Customer & Kumar 2002)

0 Employee

0 Shareholder

O Supplier

0 Regulatory

0 Community

Stakeholder The extent that the organization implements KLD STATS

Responsiveness policies and programs to address the needs of (2005)
stakeholder groups (Luo & Bhattacharya 2006)

Degree of Degree of international business (Johanson and

globalness Vahlne 1977) and international diversiﬁcation Mergent Online
(Strike et al. 2006) & Compustat®
F irm’s sales outside the US (2005)
Number of countries operating outside the US Annual Reports
Dependence on foreign suppliers &

Corporate
websites
Reputation A perceptual representation of a company’s Fortune’s Most

past actions and future prospects that describe
the ﬁrm’s overall appeal to all its key
constituents when compared to other leading

rivals (Fombrun 1996)

Admired
(2006)

 

62

Table 4.1 (cont’d)

 

 

 

 

 

 

 

 

Construct Definition Data Source
Customer An overall evaluation of the post consumption American
Satisfaction experience of products or services in the minds Customer
of customers Satisfaction
(Luo & Bhattacharya 2006, Fomell 1992) Index
(2006)
Innovation The implementation of new ideas, products, KLD STATS
and processes (Hurley and Hult, 1998) (2006)
Market-based Stock price-based measure of ﬁrm market Compustat®
Performance value (Luo & Bhattacharya 2006) (2006)
(Tobin’s Q)
Finance-based Forecasts the probability of a ﬁrm entering Compustat®
Performance bankruptcy within a two-year period (Altman (2006)
(Altman’s Z) 1968)
Return on How efﬁcient management is at using its assets Compustat®
Assets to generate earnings (2006)
Controls
Industry Primary industry Compustat®
Age Years since incorporation (2006)
Size Assets
Sample Achieved

The study sample consists of 141 ﬁrms obtained from merging data from the

different archival sources. See Appendix A for list of companies in sample. Although

KLD has ratings for 3016 ﬁrms, the sample is limited by many ﬁrms excluded in other

data sources such as FAMA, with reputation ratings of only 587 ﬁrms and ACSI, with

data on approximately 190 ﬁrms. As the measure for customer satisfaction was the

limiting factor in the sample size, sixteen ﬁrms were added by using a comparable

measure from the Reputation Institute, described in detail in the subsequent data

collection process section. The ﬁnal data set includes individual ﬁrms in various

63

industries, thirty ﬁrms (21.3%) are from durable goods (e. g., automobiles, household
appliances, personal computers), thirty-four (24.1%) from nondurable goods (e. g.,
beverages, pharmaceuticals, cigarettes, apparel), thirty-one (22%) are services (e. g.
airlines, hotels, and banking), twenty-six (18.4%) are retail (e.g., department stores,
discount stores, supermarkets), and twenty (14.2%) provide utilities (e.g., power,
telecommunications). The ﬁrms range from four to 154 years old, have total sales on
average of US$38.85 billion (from $1.8 billion to $346 billion), and employ from 1,700
to 1.9 million people. Almost 70% of the ﬁrms have some international sales, although
only 19 generate more than 50% of their revenue from foreign markets and only 39 ﬁrms
report employees outside of the United States.

Table 4.2 Comparison of Means for Sample

 

 

Std.
N Mean Sd Error Min Max
SR Agg Exclude 2874 -.569 1.84 .03 -8 10
Sample 141 .099 4.17 .35 -9 11
Total 3015 -.536 2.01 .04 -9 11
Cust Sat Exclude 87 75.66 7.67 .82 55 87
Sample 67 75.98 6.33 .77 62 87
Total 154 75.80 7.10 .57 55 87
Reputation Exclude 444 6.08 .93 .04 3.20 8.06
Sample 139 6.65 1.01 .09 3.90 8.60
Total 583 6.21 .98 .04 3.20 8.60

 

 

In order to derive general conclusions about the relationship between stakeholder
orientation, stakeholder responsiveness, and performance, it is important that this sample
is representative of the population of US traded companies. Company selection on
availability of data in multiple data sets could result in a biased sample. Table 4.2 reﬂects

the results of tests to examine if the means of the study sample varies signiﬁcantly from

64

the excluded companies. Independent sample t-tests Show no signiﬁcant difference in the
customer satisfaction from the sample used in this study and the excluded companies,
with only a slight (p<.10) difference of stakeholder responsiveness. There is a Signiﬁcant
difference in the means of the reputation ranking from the Fortune’s Most Admired
Companies between the selected and the excluded companies, with the study sample

reﬂecting higher reputation scores.

Data Collection Process

In this section, a discussion of the data collection process includes the data
sources for each of the model constructs. To address an anticipated lag between
expressing values toward stakeholders, responsiveness, and performance outcomes, the
year of the data sources is included in Table 4.1. The measures for stakeholder orientation
and stakeholder responsiveness represent 2004 and 2005 positions respectively. The
measures for marketing and ﬁrm ﬁnancial performance reﬂect the most recent (2006)
results. Additionally, a three-year average for stakeholder responsiveness and
performance outcomes was used in a subsequent analysis to address the inﬂuence of time
while also reducing alternative explanations for performance variance.

Qualitative Data Collection

Qualitative data collection involves reviewing and categorizing content in
corporate annual reports, fulﬁlling two purposes for this study. First, a qualitative review
allows an assessment of the theoretical framework of relationships among speciﬁc
stakeholder orientations, globalness, stakeholder responsiveness and outcomes. Second,

content analysis of corporate documents provides a measurement of corporate

65

orientations to speciﬁc stakeholders and the globalness of the sample companies for
statistical analysis of hypothesized relationships.

Content analysis is a method for analyzing a variety of text, visual, and verbal
data through reducing large quantities of content into deﬁned categories (Harwood and
Garry 2003). Theoretically, publicly scrutinized annual reports reﬂect the values and
positioning of the top management team, representing the values of the organization
rather than the individuals (Bettman and Weitz 1983). Therefore, through cognitive
mapping techniques, the managerial mind-set expressed in annual reports can offer
insights on the strategic orientations of the ﬁrm (Noble, Sinha, and Kumar 2002).
Methodologically, content analysis of corporate annual reports has been used in
marketing studies of customer orientation (Judd and Tims 1991), market orientation
(Noble, Sinha, and Kumar 2002) and corporate social responsibility communication
(Branco and Rodrigues 2006).

Content analysis was selected for this research because the use of self-reported
data in many empirical studies of business ethics attracts criticism regarding respondent
bias and failure to address validity (Harris 2001). Self-reporting of business ethics
involves asking questions that are sensitive, embarrassing, threatening, stigmatizing or
incriminating and result in a strong bias to “answer according to the wishes Of the person
asking the question,” distortion to avoid reporting honestly about one’s own unethical
behavior, and a social desirability bias to deny socially undesirable traits and to admit to
socially desirable ones. Content analysis has been used in dissertations and published

research for examining corporate social responsibility issues. A sample of journal articles

66

in Table 4.3 illustrates the various applications and instruments available to corporate

social responsibility researchers.

Table 4.3 Sample of CSR Research Articles Using Content Analysis

 

 

Author/Y ear

(Deegan, Rankin,

and Tobin 2002)

(Nasi et al. 1997)

(Thompson and
Zakaria 2004)

(Cramer, van der
Heijden, and Jonker

2006)

(Moir and Tafﬂer

2004)

(Kolk and van
Tulder 2002)

(Kemisky 1997)

(Harris 200 1 )

(Peyreﬁtte and
David 2006)

(Snider, Hill, and

Martin 2003)

(Campbell and
Beck 2004)

(Chun 2005)

(Siltaoja 2006)

Purpose of Study

This study examines social and environmental
disclosures.

Examines social performance of corporations

Assess the state of corporate social
responsibility reporting in Malaysia.

Investigates how companies make sense of CSR

Study motivation for business giving to the arts

Examines the way in which multinationals,
business associations, governmental and non-
governmental organizations deal with child
labor

Analyze the legitimacy and ethicality of one of
crisis management strategies over a lO-year
period.

The extent to which the executive virtue of
courage was observed

Use of mission components to communicate to
stakeholders

Examining the content of what ﬁrms are
communicating to various stakeholders about
their commitment to socially responsible
behaviors.

Examine “ethical” reputation management
communication in response to public allegations

Examine ethical values or equivalent statements

Explores the nature of corporate social
responsibility (CSR) and corporate reputation

Instrument

Annual reports

Annual reports

Annual reports

Annual reports
and interviews

Case studies

Codes of
conduct

Company
published
bulletin

International
daily
newspapers
Mission
statements

Websites

Websites

Websites
(followed up by
a questionnaire
survey)

Interviews

 

67

 

Nasi et al. (1997) provide four reasons that annual reports are appropriate for

corporate social responsibility research:

1.) They are an unobtrusive and easily accessible measure;

2) Annual reports are an essential part of the company's public image

strategy, portraying the model of the corporation that management has

decided to portray to the outside world;

3) Annual reports provide a reasonable surrogate measure of the attention

and priority that managers allocate to various social issues, given that they

have to account for the corporation's activities within the limited space of

an annual report;

4) A number of authors suggest that annual reports are a reasonable

surrogate for corporate social performance.

However, there are criticisms of content analysis. For example, ethical codes of
conduct often express the Ofﬁcial values of the companies, and do not necessarily
reﬂect everyday work ethics as experienced and expressed by employees (De Geer,
Borglund, and F rostenson 2002 p. 333). When researching global contexts, there are
difﬁculties in cross-cultural content analysis of messages (Lerman and Callow 2004).
TO overcome some limitations of content analysis, a multiple source approach is
recommended, including documents, observations, and interviews (Harwood and
Garry 2003).

Content Analysis as data collection for quantitative analysis

This research used the computer software Atlas.ti® to organize, code, and analyze
quotations from the annual reports relating to the appropriate variables. Computer
assisted qualitative data analysis software (CAQDAS) offers many advantages in both the
qualitative and quantitative analysis of data from annual reports (Lindsay 2004).

Features of Atlas.ti include tools to manage, extract, compare, explore, and reassemble

meaningful quotes from the documents through visual linking of concepts (Muhr and

68

F riese 2004). Use of CAQDAS software provides more rigor and traceability, thus
enhancing reliability (Lindsay 2004). The Atlas.ti® software allows multiple coders to
access documents for consistent coding of stakeholder orientation and globalness for the
quantitative analysis.

Multiple independent coders for each document were trained, supervised, and
provided a codebook to establish interrater reliability (Noble, Sinha, and Kumar 2002;
Swenson-Lepper 2005). A master code list (Appendix B) was generated from the prior
literature and an initial qualitative review of annual reports. Two independent coders
conducted a manual pre-test of the coding instructions using annual reports not in the
research sample. As a result, the code list, coding instructions, and coding process
improved, including the decision to permit coding to occur only on campus using
designated computer workstations.

For this research, measurement of stakeholder orientation and globalness does not
rely solely on frequency counts of words. One approach of content analysis is that the
number of mentions, or the percentage of sentences, regarding an issue represent how
relevant the topic is to the company (Noble, Sinha, and Kumar 2002; Thompson and
Zakaria 2004). Another approach uses a scoring system to establish the quality of the
statement surrounding an issue (Campbell and Beck 2004). For example, companies may
mention responsibilities towards employees only as part of their legal obligation or as a
critical part of their organizational culture. During the pretest, attempts to assess the
quality of the statement increased the complexity and time for the coder. Since the

Atlas.ti® software allows for further linguistic analysis of coded quotations, the raters

69

only coded each phrase reﬂecting orientation towards a stakeholder or globalness without
assessing quality or motivation.

In order to test the hypotheses, four graduating marketing majors were hired as
raters to identify and code sentences that express an orientation toward stakeholders and
ﬁrm globalness. Extensive training involved the analysis Of annual reports for companies
not included in research sample. First, the students were given background information
on the purpose of the data collection, deﬁnition of all constructs, and coding instructions.
Next, the students manually reviewed a printed copy of two annual reports for companies
not in the research sample. Discussions ensued regarding which sentences reﬂect
orientations to the six stakeholder groups. For example, the students found that
understanding the industry of the ﬁrm was important in order to recognize terminology
for customers. Students were assigned unique user names and passwords for Atlas.ti® and
provided instruction on the use of the software. After the students were comfortable with
the basic features of the software, they coded the two annual reports in a test
environment. Actual coding of the annual reports for the sample companies began after
all four students were conﬁdent in their understanding of the assignment and utilizing the
software.

The documents for coding consisted of Annual Reports from ﬁscal year 2004
from Mergent OnLineTM or the corporate website. Where available, the narrative annual
report was the primary coding document, supplemented by the ﬁrst sections of the SEC
lO-K report. In order to provide as consistent documents for coding as possible, photos,
ﬁnancial charts, tables, and management’s discussion of the ﬁnancial reports (i.e.

“Notes” and/or “Changes in Accounting”) were not included in the coding process. The

70

amount of content in the original documents varied greatly, even with the removal of
graphics and tables. Each document was assigned to two coders by generating a random
sequence number for eliminating industry or company bias and avoiding pairs of coders
consistently working on the same documents.

Stakeholder orientation

 

Coding of stakeholder orientation involves identifying the extent that the
organization values and prioritizes the needs of stakeholder groups. For example,
statements representing orientation should include an action verb such as value, focus,
depends, believe, consider; or express a relationship with or responsibility to a particular
stakeholder. For consistent coding, a sentence was the unit of analysis.

A procedure for calculating inter-rater reliability allowed the coders to identify
where there were discrepancies in classifying a sentence as representing orientation to
one of the six stakeholder groups. While some researchers report a percentage agreement
among raters, Cohen’s (1960) kappa coefﬁcient is widely considered a better standard
measure of the degree of agreement existing beyond chance alone across a wide range of

annotation efforts. The general equation for kappa is:

K p0—'pe

_ 1 - p.
where p0 is the observed proportion agreement and pe is the expected proportion
agreement by chance. A score of 0.8 or higher is considered a high level of agreement,
whereas above 0.6 is considered substantial agreement, and above 0.4 moderate
agreement (Rietveld and van Hout 1993). A tool developed by The University Of

Southern California, Information Sciences Institute, generated reports for each document

71

showing the quotations that are coded exactly by the two raters and listing those that

overlap (vary by a few words) or do not match among the raters. Along with this detailed

report, a kappa coefﬁcient and F-measure is generated. The F-measure is an alternate

index with a range -1 .0-l.0 that regards one set of armotations as the correct answer and

the other as the coding system output. A sample of the report for two documents is in

Table 4.4.

Table 4.4 Kappa Coefficient for Sample Documents

 

 

Document early in coding process

Code Coderl Coder2 Match
employee 24 3 8 1 7
community 1 0 l 6 7
Customer 21 45 1 5
regulatory l 6 20 1 0
shareholder 9 9 7
Supplier 8 7 5

Document later in coding process

Code Coderl Coder2 Match
employee 1 5 20 l 2
community 7 1 1 7
Customer 23 3O 22
regulatory 3 5

shareholder O 1 0
Supplier 0 2 0

Overlap Kappa

0

OOI-‘OO

.47
.51
.37
.54
.77
.65

Overlap Kappa

2

COP-‘NO

.73
.74
.85
.73

Na
Na

F-measure
.55
.54
.45
.59
.78
.67

F-measure
.80
.78
.91
.75

Na
Na

 

 

These reports were valuable during the training and the ﬁrst weeks of coding to

revisit coding deﬁnitions and examples of mismatch that resulted in solid coding Of

stakeholder orientation. At least two other coders for resolving differences or ﬁnding

omissions reviewed all documents before creating a ﬁnal master data set. The Kappa

coefﬁcient for an early document shows moderate to substantial agreement between in

72

coding orientations towards all stakeholders except customer. Since the terminology used
for the customer varied by industry and company, it was necessary to expand the coding
guidelines to include additional terms (i.e., subscriber) and discuss better understanding
of what is a customer. As document coding progressed, the agreements among the raters
increased tO more acceptable range. A sample of quotations for each stakeholder
orientation is in Appendix C.

The number of pages in the original documents varied greatly, especially due to
the use of graphics and larger text size. Even with removing graphics and tables from the
coded document, the number of words ranged from 1900 to 33,800. It makes sense, then,
that ﬁrms with larger documents could result in greater mentions of stakeholder groups.
In order to obtain a consistent measure of the size of coded document, a comparable page
count was calculated by dividing the Atlas.ti® supplied number of words by 750. The 141
documents were on average 13 pages (2.5 — 45). This approach ranks the ﬁrm’s number
Of mentions relative to document length without changing the priority of attention to
speciﬁc stakeholder groups for the ﬁrm. For example, while customer orientation remains
the highest priority for MacDonald’s Corporation, they moved from the bottom ﬁve ﬁrms
(ranked 139) to the top half (ranked 69) in total mentions for all stakeholder groups when
adjusting for number of pages. Therefore, two sets of ﬁelds are in the data set relating to
stakeholder orientation: 1) the raw counts of number of phrases relating to valuing and
prioritizing each speciﬁc stakeholder, and 2) the number of mentions per page. Table 4.5
illustrates the means, minimum, and maximum of each of the stakeholder orientation

ﬁelds.

73

Table 4.5 Summary Statistics for Stakeholder Orientation

 

Raw Counts Per Page
Min Max Mean sd. Min Max Mean sd.

 

 

 

 

 

 

community orientation 0 108 l 1.78 14.50 0.00 4.13 1.04 1.06
customer orientation 0 78 18.12 12.78 0.00 5.33 1.78 1.33
employee orientation 1 77 16.06 13.31 0.03 6.79 1.56 1.22
regulatory orientation 0 73 10.74 13.66 0.00 5.03 0.76 0.85
shareholder orientation 0 30 6.18 4.90 0.00 3.21 0.65 0.63
supplier orientation 0 39 5.23 6.89 0.00 3 .00 0.43 0.51
All stakeholders 8 288 68.13 37.77 0.76 14.70 6.21 3.02
Valid N = 141
Globalness

Coding ofglobalness involves identifying indicators of international business
operations through sales, manufacturing or servicing, and sourcing. Indicators include
statements expressing the amount of sales in international markets, the number of
countries in which the organization has operations, and dependence on global suppliers.
Information ﬁ'om annual reports was supplemented by corporate websites and
quantitative data from Mergent Online and Compustat®.

There are three components for globalness: intemational sales, number of
countries, and dependence on offshore suppliers. Compustat®TM and Mergent Online
provide sales by geographic segment, allowing for an amount for international sales and
exports for years 2004, 2005, and 2006. For this study, the percent of international sales
for 2005 is calculated by dividing the sum of international sales and exports by the total
sales. Information for 2005 international sales is available for 140 ﬁrms. On average, the
ﬁrms had international sales of $10,809, which represents 23% of total sales. Thirty-six

ﬁrms had no international sales and ﬁfty percent of the sample had international sales of

74

fewer than $2,232 or 14% of total sales. Only twenty-one ﬁrms (15%) have international
sales greater than 50% of total sales.

The measure for number of countries the ﬁrm services through sales or
manufacturing came from the annual reports and was supplemented by material presented
on the corporate website. Sixty-one of the manufacturing ﬁrms and 47 of the service
ﬁrms had operations in more than one country. Twenty-four ﬁrms (17%) had operations
in one hundred or more countries.

The measure for international supply was from analyzing the coded quotation of
annual reports and was supplemented by Global Reporting Index or CSR material
presented on the corporate website. Each ﬁrm received a score for dependence on
Offshore suppliers using the following criteria:

1 = no intl suppliers mentioned

2 = intl presence/implied intl supply but none speciﬁcally mentioned

3 = domestic & foreign supply mentioned (degree not evident)

4 = signiﬁcant (but less than 50% of international suppliers)

5 = over 50% of supply is foreign sourced
Of the 46 ﬁrms with less than 5% of international sales, eight had some dependence on
offshore suppliers including two with over 50% of suppliers from international locations.

Thirteen of the 21 ﬁrms with more than 50% of international have substantial or greater

dependence on offshore suppliers.

Quantitative Secondary Data Collection

Secondary data provides the measurements for stakeholder responsiveness,
customer satisfaction, reputation, innovation, and ﬁrm performance. Using secondary
data is appropriate when the subject examined requires historical perspectives. One

example of appropriate use is when Kotabe, Srinivasan and Aulakh (2002) examine the

75

relationship between the multinationality of a ﬁrm and its market performance through a
time series cross-sectional analysis Of historical information available through the
Compustat® database. Secondary data is also efﬁcient when duplicating information on
large numbers of subjects would be time-consuming and expensive. There are two main
reasons for use of secondary data for this research. First, self-reports of the focal
constructs may be biased. Second, two constructs in the study — customer satisfaction and
reputation — represent opinions of sources external to the subject company. Therefore, to
ensure multiple and appropriate sources, data was collected from six databases including
Kinder Lydenburg Domini (KLD), Fortune America’s Most Admired Corporations

(F AMA), American Customer Satisfaction Index (ACSI), Global RepTrakTM Pulse,
Mergent OnLineTM and Standard & Poor’s Compustat®. This section will describe each
database and deﬁne measurements for the variable(s) from that source.

Kinder Lydenburg Domini (KLD)

KLD Research & Analytics, Inc., the social investment research ﬁrm founded by
Kinder, Lydenburg and Domini, provides a data source to measure stakeholder
responsiveness and innovation. KLD conducts research on the social, governance and
environmental performance of publicly traded companies for reporting to institutional
investors worldwide. Through their commercial database of corporate ratings,
SOCRATES, the company provides narrative accounts and ratings on over 90 indicators
in seven major areas including Community, Corporate Governance, Diversity, Employee
Relations, Environment, Human Rights and Product. In addition to this, KLD also
provides exclusionary screening information for involvement in the following

Controversial Business Issues: Alcohol, Gambling, Firearms, Military, Nuclear Power,

76

and Tobacco. An independent research staff specializing in issues including the
environment, community relations, diversity, product safety and accessibility, corporate
governance, and domestic and international labor relations assembles the data. Ratings
derive from ﬁve sources: 1) Direct communication with companies, 2) Global research
ﬁrms, 3) Media, 4) Public documents, and 5) Government and NGO information.

Appropriate for academic empirical research, KLD STATS (Statistical Tool for
Analyzing Trends in Social and Environmental Performance) is a data set with annual
snap-shots of all company ratings at calendar year end. Data available to researchers
include ﬁfteen years of coverage on ﬁrms comprising the S&P 500 and four years of
historical coverage on over 3100 ﬁrms that comprise the Russell 3000® Index (Russell
1000® plus Russell 2000®), the S&P 500® Index and the Domini 400 Social SM Index
(D8 400). The KLD STAT data set includes a binary (1/0), yes/no value for each social
indicator or controversial issue. The absence of a rating indicates that the company has
not qualiﬁed for that individual strength or concern rating. The KLD data has been
accepted as a good assessment of corporate social responsibility with construct validity
established in empirical studies (Sharfman 1996; Szwajkowski and Figlewicz 1999).

A number of different rating systems developed from KLD data are found in
published research. One rating is a ﬁve-point scale ranging from -2 (major concerns), -1
(concern), 0 (neutral), +1 (strength), to +2 (major strength) developed by counting
whether the company had two or more strengths or concerns in a particular issue area
(Berman et al. 1999; Hillman and Keim 2001; Waddock and Graves 1997b;, 1997a). For
a Data Envelopment Analysis, Bendheim, Waddock, and Graves (1998) used a ﬁve-point

scale ranging from 1 to 5 for measuring stakeholder relationships. The Business Ethics

77

100 Best Corporate Citizens list uses a formula that creates a standardized net score in
each KLD category by adding strengths and subtracting concerns for the category (Raths
2006). An additional category, shareholder-service, is created by taking a three-year
average of total return to shareholders (stock price appreciation plus dividends). Each
company then receives an overall score based on averaging together the scores from each
of those eight areas.

There are some concerns regarding the aggregation of the KLD data for empirical
research. Rather than giving all attributes equal importance, some researchers use
category weightings to address the view that stakeholders are not given equal priority
(Graves and Waddock 1994; Waddock and Graves 1997b;, 1997a). A criticism of the
weighting approach, however, is that a generalized determination of weights is not
established and may vary by company (Hilhnan and Keim 2001). Another concern with
aggregating KLD data involves adding strengths and subtracting concerns for a net score.
This method assumes that that the positive and negative components of the KLD database
are measuring the same concept and are reverse of one another. Recent studies ﬁnd that
strengths and weaknesses represent different concepts, and should not be combined in
empirical research (Mattingly and Berrnan 2006; Strike, Gao, and Bansal 2006).
Stakeholder responsiveness

For this study, the KLD indicators will measure stakeholder responsiveness.
Stakeholder responsiveness refers to the extent that the organization implements policies
and programs to address the needs of stakeholder groups. While much prior empirical
research has conceptualized the KLD data to represent social performance outcomes,

Berrnan, Wicks, Kotha and Jones (1999) used the KLD data to operationalize stakeholder

78

responsiveness. Mattingly and Berman (2006) argue that the data represent social actions
rather than outcomes. The proliferation of references to actions, policies and programs in
the KLD rating criteria (see Appendix D) further supports the data as representing
responsiveness. For example, one indicator for community responsiveness is “The
company has consistently given over 1.5% of trailing three year net earnings before taxes
(NEBT) to charity, or has otherwise been notably generous in its giving.”

Not all stakeholder groups included in the stakeholder orientation measure are
represented explicitly in the KLD database. Suppliers and regulatory agencies do not
have a distinct category, while the KLD category referring to product is a common proxy
for customer and governance for shareholders. One item relating to diversity, Women &
Minority Contracting, includes the record on purchasing or contracting, with women-
and/or minority-owned businesses (Hillman and Keim 2001). Likewise, a number of
items relate to government and regulatory agencies. For example, the Tax Disputes in the
Community category refers to major tax disputes involving federal, state, local or non-US
govemment authorities. Details of the items available in the KDL STATS database and
proposed use for this study are in the Appendix D.

There are four options for measuring stakeholder responsiveness in this study.
One is an aggregate measure for stakeholder responsiveness as in Berman et al. (1999)
that is appropriate given that actions toward a speciﬁc stakeholder may be in response to
multiple stakeholder groups. A second approach is to treat positive stakeholder
responsiveness and negative stakeholder responsiveness as two different constructs
(Mattingly and Berrnan 2006; Strike, Gao, and Bansa12006). Another approach uses a

typology of social action developed by Mattingly and Berman. (2006), who argue that the

79

KLD data may represent two types of stakeholder groups: technical stakeholders
(employee, customer, stockholder, supplier) and institutional stakeholders (community,
regulatory).
A fourth method is to measure responsiveness for each speciﬁc stakeholder (Hillman and
Keim 2001). Given that our research question focuses on the relationship that each
Speciﬁc stakeholder has with the overall responsiveness that appeals to many
stakeholders, the measurement of stakeholder responsiveness for the study will be an
aggregate measure. However, the use of the KLD database allows for analysis of positive
and negative responsiveness or speciﬁc stakeholder groups.

Therefore, there are three views of stakeholder responsiveness for this study (see
Table 4.6). First, overall stakeholder responsiveness (SR AGG) is calculated by adding
strengths and subtracting concerns for 2005. The aggregated score for stakeholder
responsiveness ranges from a minimum of -9.00 to a maximum of 11, with a mean score
of .10. Positive stakeholder responsiveness (Pos SR) is the sum of all of the strengths and
ranges from no strengths to a maximum of 18. Negative stakeholder responsiveness (Neg
SR) is the sum of all the concerns ranging from no concerns to a maximum of 16. To
generate scores for responsiveness to the six stakeholder groups, the 113 items in the
2005 KLD database were allocated to community, customer, employee, regulatory,
shareholder and supplier. The allocation to the stakeholder groups is found in Appendix
D. Some items represented actions to more than one stakeholder. Strengths were added
and concerns subtracted to obtain an overall score for responsiveness to each stakeholder

group. AS the number of items for each stakeholder varied, the total scores were

80

centralized. The largest range Of responsiveness was for community and shareholder

groups.

Table 4.6 Stakeholder Responsiveness Measures

 

 

 

SR Pos Neg Reg/
Agg SR SR Com Cust Emp Gov Shldr Sup
Mean .10 5.44 5.34 .00 .00 .00 .00 .00 .00
sd (4.16) (3.87) (3.18) (1.00) (1.00) (1.00) (1.00) (1.00) (1.00)
Min -9.00 .00 .00 -2.36 -2.31 -1.97 -3.35 -2.53 -2.14
Max 11.00 18.00 16.00 3.59 1.75 2.09 1.14 2.98 1.52

 

 

lnnovaﬁon

The measurement for innovation should reﬂect the implementation of new ideas,
products or processes (Hurley and Hult, 1998). While marketing traditionally focuses on
product innovation, this study will also include innovative managerial processes
indirectly related to products and services (Damanpour 1991). There are three common
secondary sources for measuring innovation in business research. One source relates to
the quantity and quality of patents, using a Citation Impact Index as a measure of the
importance of a ﬁrm's innovation relative to other ﬁrms (i.e. Herold, J ayaraman, and
Narayanaswarny 2006). The use of patents measures primarily product innovation.
Corporate social responsibility research oﬁen uses the innovation indicator from
Fortune’s Most Admired database (i.e. Luo and Bhattacharya 2006). The innovativeness
measure from F AMA, however, is a component of the multi-dimensional reputation
construct (Szwajkowski and Figlewicz 1999) and would not be an appropriate measure
for this study. The third source for measuring innovation involves calculating the
research and development (R&D) intensity. Expenditure in R&D results in knowledge

enhancement leading to product and process innovation (McWilliams and Siegel 2000).

81

Managerial perceptions of product and process innovations are highly correlated with
R&D spending, establishing the measure as reliable and valid (Zahra and Covin 1993).
However, R&D intensity is typically a proxy for innovation as an input in empirical
studies. Therefore, the measure for innovation in this study is the sum of two items

relating to innovation in the KLD database for 2006:

o R&D/Innovation. The company is a leader in its industry for research and
development (R&D), particularly by bringing notably innovative products to
market.

0 Beneficial Products and Services. The company derives substantial revenues
from innovative remediation products, environmental services, or products that
promote the efﬁcient use of energy, or it has developed innovative products with
environmental beneﬁts.

An innovation measure is available for 139 ﬁrms. Although the possible range for
innovation is 0 to 2, no ﬁrm achieved the maximum score. Only 19 ﬁrms are perceived as
innovative, nine for strength in R&D/Innovation and ten for strength in developing
innovative products or services with environmental beneﬁts. For the 73 ﬁrms with data
for 2005 R&D Intensity, there is a moderate relationship with the KLD innovation score
(.23 p<.10).

Fortune America ’s Most Admired Corporations (FAMA)

A data source for the marketing outcome reputation is the Fortune database on
corporate reputations (FAMA), published since 1983 in the Most Admired list (Fisher
and Demos 2006). Reputation refers to a perceptual representation of a company’s past
actions and future prospects that describe the ﬁrm’s overall appeal to all its key
constituents when compared to other leading rivals (Fombrun 1996, p. 72). The FAMA is

an annual undertaking to survey 10,000 executives, outside directors and ﬁnancial

analysts to rate companies in their own industry utilizing a scale of 0 (poor) to 10

82

(excellent). The survey includes eight criteria: (1) quality of management; (2) quality of
products/services Offered; (3) innovativeness; (4) value as a long term investment; (5)
soundness of ﬁnancial position; (6) ability to attract, develop, and keep talented peOple;
(7) responsibility to the community and environment; and (8) wise use of corporate
assets. These attributes reﬂect a multiple-constituency view of the ﬁrm as having many
stakeholders, including not only investors but also customers interested in quality,
employees interested in rewarding employment, and the global community. The 2006
Most Admired survey included 582 companies across 65 industries. The sample of
companies was based on having at least $1.2 billion on revenue and being one of the ten
largest companies in their industry.
Reputation

This study adopts the overall rating from FAMA as a measure for reputation. The
FAMA data has been used in prior research to measure such constructs as stakeholder
orientation (Chakravarthy 1986; Preston and Sapienza 1990), corporate social
responsibility (Luo and Bhattacharya 2006; McGuire, Sundgren, and Schneeweis 1988),
management quality (Waddock and Graves 1997a), and corporate reputation (Fombrun
and Shanley 1990). Speciﬁc attributes of the survey were measures for innovation and
product quality in a study of corporate social responsibility by Luo and Bhattacharya
(2006). Questions on the use of FAMA as a data source prompted empirical
investigations of the validity and reliability of the data (Szwajkowski and Figlewicz
1999), a single factor for reputation (Fombrun and Shanley 1990), a two-factor
ﬁnancially dominant construct (Fryxell and Wing 1994), and a perceived ﬁnancial “halo

effect” (Brown and Perry 1994). The F AMA index has been described as more a

83

reﬂection Of the image that the company has in the business community (Sharfrnan 1996)
and recommended as a measure of overall business reputation instead of using single
components (i.e., corporate social responsibility and innovation) (Szwajkowski and
Figlewicz 1999). For this study, a reputation score is available for 139 ﬁrms, ranging
from 3.9 to 8.6 with a mean of 6.7.

American Customer Satisfaction Index (A CSI)

A measure for customer satisfaction is the American Customer Satisfaction Index
(ACSI) developed and maintained by the National Quality Research Center at the
University of Michigan (F omell et a1. 1996). The ACSI is based on econometric
modeling of data obtained from polling more than 50,000 customers — the actual users of
products and services that make up a substantial part of the gross domestic product
(GDP). The measured companies, industries, and sectors are broadly representative of the
US economy serving American households. Companies based outside of the United
States with major market shares in several industries are also included in the ACSI. Data
are collected at the individual customer level, with scores for a company's customers
aggregated to produce the company-level scores on a 0 to 100 scale. In 2006, the ACSI
included ten economic sectors, 42 industries (including e-commerce and e-business), and
more than 200 companies and federal or local government agencies.

Global Rep T rakTM Pulse

The Reputation Institute provides a measure of the company’s reputation with
consumers through the Global RepTrakTM Pulse index (RepTrakTM). Over 30,000
consumers in 25 countries were interviewed to measure the esteem, good feeling, trust

and admiration felt towards more than 750 ﬁrms. Standardized scores on both the country

84

and global level range from a low of 0 to a high of 100. The RepTrakTM measure
correlates with the 2006 ACSI measure for customer satisfaction (.61 p<.01), whereas
there is a much smaller correlation with the FAMA reputation measure (.28 p<.05).
Customer satisfaction

This study will use the ACSI overall ranking to measure customer satisfaction,
with the RepTrakTM ranking as a complementary measure. Customer satisfaction is
deﬁned as an overall evaluation based on the customer’s total purchase and consumption
experience with a good or service over time (Fomell 1992). While the new RepTrakTM
ranking has not been used in published studies to date, the ACSI has been a reliable
source of measuring customer satisfaction in the marketing literature (e. g., Anderson,
Fomell, and Mazvanchery12004; F omell et al. 2006; Luo and Bhattacharya 2006;
Mithas, Krishnan, and Fomell 2005). Data manipulations were required to generate a
customer satisfaction measure for each ﬁrm. First, the ACSI database contains more than
one satisfaction rating for ﬁrms by subsidiary or brand. For example, Time Warner, Inc.
appears three times in the ACSI database with a rating for American Online (74), CNN
(74), and Time Warner Cable (61). An average rating, therefore for Time Warner, Inc. is
70. Second, all of the sample ﬁrms were provided a customer satisfaction rating for 2006
in the ACSI. Therefore, customer satisfaction for each ﬁrm in the sample was calculated
based on the following rules: 1) 2006 measure ACSI; 2) Three-year average ACSI; 3)
RepTra TM measure for customer perception of reputation; and 4) Average ACSI of
previous years. Using this formula, 3 score for customer satisfaction for the 141 sample

ﬁrms ranged from 22 to 87, with a mean score of 72.

85

Standard & Poor 's C 0mpustat®

Measures of ﬁrm performance, international sales, countries, and control variables
are calculated from the Standard & Poor’s Compustat® North America database of
ﬁnancial, statistical and market information covering more than 10,000 publicly traded
companies in the US and Canada. Compustat® data is standardized, ensuring that
comparability exists among similar types of data items, as well as ﬁnancial results in
current and prior periods. More than 2,500 validity checks are performed on each
company entered into the database to follow the highest standards of accuracy and
timeliness.
Mergent OnLineTM

Mergent OnlineTM is a database provided by Mergent, Inc., a leading provider of
global business and ﬁnancial information on publicly traded companies. The database
contains information on more than 15,000 US public companies, 20,000 non-US public
companies in 100 countries, and 20,000 US municipal entities.

Market-based Performance

 

Tobin’s Q will measure ﬁrm market value, following prior marketing studies (Lee
and Grewal 2004; Luo and Bhattacharya 2006; Rao, Agarwal, and Dahlhoff 2004).
Tobin’s Q is a ratio devised by James Tobin of Yale University, Nobel laureate in
economics, who hypothesized that the combined market value of all the companies on the
stock market should be about equal to their replacement costs. The Q ratio is calculated
as the market value of a company divided by the replacement value of the ﬁrm's assets:

Total Market Value of Firm
Total Asset Value

Q Ratio =

86

A low Q (between 0 and 1) means that the cost to replace a ﬁrm's assets is greater than
the value of its stock and implies that the stock is undervalued. Conversely, a high
Q (greater than 1) implies that a ﬁrm's stock is more expensive than the replacement cost
of its assets, which implies that the stock is overvalued.
Financial—based Performance

This study’s ﬁnancial-based performance measure is Altman’s Z, which forecasts
the probability of a ﬁrm entering bankruptcy within a two-year period (Altman 1968).
Chakravarthy (1986) argues that the Z-score is a surrogate index of strategic performance
and a “valuable index of the company’s overall well-being”. Altman’s Z-score is a
weighted composite of proﬁtability, efﬁciency, slack, and stock market performance
factors, calculated as:

Z = 0.012 X1 + 0.014 X2 +0033 X3 + 0.006 X4 + 0.999 X5
where X1= Working capital/total assets, X2 = Retained earnings/total assets, X3=
Eamings before interest and taxes/total assets, X4= Market value of equity/Book value of
total debt, X5= Sales/total assets (Chakravarthy 1986). A Z—score less than 1.81 is
associated with a high probability of failure, while a Z-score greater than 2.99 is
indicative of a ﬁnancially healthy ﬁrm. When a Z-score falls within 1.81 and 2.99,
inclusive, misclassiﬁcations are likely and is termed the "zone of ignorance" (Altman
1968)
Accounting-based Performance

An accounting-based performance measure is the return on assets (ROA) that
represents how efﬁcient management is at using its assets to generate earnings. ROA is

measured as the ratio of net income after extraordinary items to book value of total assets.

87

The assets of the company are comprised of both debt and equity, which are used to fund
the operations Of the company. The ROA gives investors an idea of how effectively the
company is converting the money it has to invest into net income. The higher the RCA
number, the better, because the company is eaming more money on less investment. For
this study, ROA will be derived ﬁom variables available in Compustat®.

Measures for ﬁrm performance were available for 138 ﬁrms, as ﬁnancial
performance was not available for three ﬁrms from the sample. Albertson’s split and sold
portions to Supervalu and CVS, while BellSouth merged with AT&T. Financial
information relating to 2006 was not available for Dell. Therefore, the ﬁrm performance
for the years 2004, 2005, 2006 has been calculated and provided in Table 4.7.

Table 4.7 Firm Performance Measures

 

 

AltmanZ AltmanZ AltrnanZ TobinQ TobinQ TobinQ ROA06 ROA ROA

 

06 05 04 06 05 04 05 04
N 138 141 141 138 141 141 138 141 141
Mean 2.60 2.60 2.58 .99 .98 .96 .06 .06 .05
Min -1.82 -l.99 -l.71 .10 .10 .09 -.15 -.19 -.32
Max 10.29 10.20 8.23 1.63 1.62 1.62 .19 .18 .18

 

Control variables

Three control variables are included in the analysis to ensure that any relationship
found between speciﬁc stakeholder orientations, stakeholder responsiveness, globalness,
marketing outcomes and ﬁnancial performance are not a result of other confounding
variables. Previous literature has indicated a need to control for industry (Hillman and
Keim 2001; Waddock and Graves 1997a). Attention to stakeholders and social
responsiveness has been Shown to be related to industry type, whereas the nature of the

industry attracts greater public scrutiny (e.g., forestry, energy or mining) (Banerj ee, Iyer,

88

 

and Kashyap 2003; Brammer and Millington 2003). Likewise, institutional pressures
from competitors promote homogeneous activities with respect to responsiveness to
stakeholders (Grifﬁn and Weber 2006). For this study, it is important to control for
industry, particularly when the measure of reputation is industry-Speciﬁc in the sense that
respondents are asked to rate ﬁrms relative to industry peers (Brammer and Pavelin
2006). The measure for industry will be the ﬁrst two codes of the Standard Industrial
Classiﬁcation (SIC) from Compustat®.

Size is a relevant control variable for two reasons. First, Size may be related to the
urgency and salience of stakeholder relations (Hillman and Keim 2001). Larger
companies are often the target of activist groups or given greater public scrutiny. Second,
size can inﬂuence the type and level of stakeholder relation management and
responsiveness (Grifﬁn and Weber 2006). Large ﬁrms may have more resources for
implementing social responses, while smaller ﬁrms may be more ﬂexible to respond to
changing social issues. There are a number of measures used for ﬁrm size in marketing
and ethics research, including net sales and net income (Hillman and Keim 2001), the log
number of employees (Luo and Bhattacharya 2006), and the log number of assets
(Brammer and Millington 2005). For this study, the log number of assets, from total
assets found in the Compustat® database, represents the size of the ﬁrm.

The third control variable, ﬁrm age, is included to address the common notion
that age lends to ﬁrms’ credibility and reputation-building capabilities. Established ﬁrms
likely have credibility already in place with company stakeholders, as unethical ﬁrms are
unlikely to survive (Saini and Johnson 2005). Roberts (1992) argues that a ﬁrm's

"reputation and history of involvement in social responsibility activities can become

89

entrenched" (p. 605), thus raising stakeholder expectations about sponsorship or
corporate community involvement and making it difﬁcult to withdraw. In addition to
signaling credibility, age also implies that the ﬁrm possesses greater knowledge stocks
gained from learning and experience (Sinkula 1994). Research of Spanish ﬁrms ﬁnds that
philanthropic ﬁrms are about 10 years older than ﬁrms with a predominantly ﬁnancial
focus (Deniz-Deniz and Cabrera Suarez 2005). In this study, ﬁrm age will be measured
as the number of years the ﬁrm has been in operation, by including the years from
incorporation as a control variable.
Chapter Summary

Chapter IV discusses the research design and data collection procedures for the
study. A sample Of 141 ﬁrms consists of ﬁve different industry types. Content analysis of
annual reports provides a valid measure of stakeholder orientation, while secondary data
for the remaining variables are from trusted sources. The dataset allows for testing of the
hypotheses presented in Chapter 111 through multiple views of stakeholder orientation,

globalness, and stakeholder orientation.

90

Chapter V

ANALYSIS AND RESULTS

Chapter V presents the analytical technique and results for testing the hypotheses
described in Chapter III. The hypothesis tests examine the data collected as detailed in
Chapter IV. A correlation matrix for the major variables is provided in Table 5.1. The
results described in this chapter provide the basis for interpreting the results in Chapter
VI. The analysis Shows support for some, but not all of the hypothesized relationships.

Statistical Analysis

Given the complexity of the relationships and the possibility of a relatively small
sample size, regression analysis will be the statistical technique to test the hypothesized
model. Three types Of regression analyses will be required to evaluate the relationships
among the constructs, including multiple regression analysis, moderator regression
analysis, and mediation analysis. Multiple regression analysis is appropriate for
examining hypotheses proposing some form of relationship between one or more factors
Of interest and an outcome (Cohen et al. 2003). Moderated multiple regression models
allow the Simple relationship between the dependent variable and an independent variable
to depend on the level of another independent variable, and are central to many
marketing-related studies (Irwin and McClelland 2001). Mediation analysis allows tests
for whether the variable represents the generative mechanism through which the focal
independent variable is able to inﬂuence the dependent variable of interest (Baron and
Kenny 1986). In addition to the following analyses, there will be appropriate tests for

alternative explanations. Table 5.2 provides a summary of the research hypotheses.

91

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Table 5.2 Summary of Research Hypotheses

 

Stakeholder responsiveness is affected by stakeholder orientation

 

 

 

 

 

 

Customer orientation +9 stakeholder responsiveness H1 A
Emplopree orientation +9 stakeholder responsiveness. HlB
Shareholder orientation +9 stakeholder responsiveness HlC
Supplier orientation +9 stakeholder responsiveness HID
Regulatory orientation +9 stakeholder responsiveness HIE
Community orientation +9 stakeholder responsiveness HlF

 

 

“Globalness” moderates the effect of stakeholder orientation on
stakeholder responsiveness

 

 

 

 

 

 

 

 

 

 

Customer orientation 9stakeholder responsiveness H2A
Employee orientation 9stakeholder responsiveness. H2B
Shareholder orientation 9stakeholder responsiveness H2C
Supplier orientation 9stakeholder responsiveness H2D
Regulatory orientation 9stakeholder responsiveness H2E
Community orientation 9stakeholder responsiveness H2F
Stakeholder responsiveness on marketing outcomes
Stakeholder responsiveness +9 customer satisfaction H3A
Stakeholder responsiveness +9 innovation H3B
Stakeholder responsiveness +9 reputation H3C

 

Mediatingrole of marketing outcomes on the impact of stakeholder

 

Responsiveness +9 customer satisfaction +9 market performance H4A

 

 

 

 

 

 

 

 

Responsiveness +9 innovation +9 market performance H4B
Responsiveness +9 reputation +9 market performance H4C
Responsiveness +9 customer satisfaction +9 Altrnans’ Z H4D
Responsiveness +9 innovation +9 Altman’s Z H4E
Responsiveness +9 reputation +9 Altman’s Z H4F
Responsiveness +9 customer satisfaction +9 ROA H4G
Responsiveness +9 innovation +9 ROA H4H
Responsiveness +9 reputation +9 ROA H41

 

Hypothesis 1 : Stakeholder Responsiveness

Hypothesis 1 relates to a positive relationship between speciﬁc stakeholder
orientations and stakeholder responsiveness, to address the ﬁrst hypothesis question:
How does attention to speciﬁc stakeholders drive implementation of programs and
policies responding to stakeholders? Therefore, the hypothesis proposes some form of

relationship between one or more factors of interest and an outcome. Following

94

procedures in Cohen et al. (2003), a series of hierarchical multiple regression equations
will be employed with the control variables entered as a block in step 1, followed by the

hypothesized variables in step 2.. Analysis will use the least squares technique to estimate

the regression coefﬁcients (bj) for each stakeholder orientation (Xj) on stakeholder

responsiveness (Y) in an equation of the form:

Y = b0 + b1X1+ b2X2 + b3X3 + b4X4 + b5X5 + b6X6 + u

where u denotes a random disturbance term. The regression coefﬁcient (bj) represents the

expected change in stakeholder responsiveness associated with a one-unit change in the
ith stakeholder orientation.

There are three ways of viewing stakeholder orientation from the data collected.
First, the relative attention paid to all stakeholders is calculated from dividing the total
counts by number of pages (see models 1a, 2a, 3a). Second, measures for attention for the
speciﬁc groups are represented by the percent of mentions per page for community,
customers, employees, regulatory agencies, shareholders and suppliers (see models 1b,
2b, 3b). The third measure for stakeholder orientation is the prioritization among the
stakeholders by the percentage of attention allocated to each stakeholder group,
calculated by dividing the stakeholder group raw count by total count of all stakeholders
(see models 1c, 2c, 3c).

In order tO understand how attention to Speciﬁc stakeholders drives the
implementation of programs and policies responding to stakeholders, three sets of
regression models examine the relationship of the different measures for stakeholder

orientation with stakeholder responsiveness. The ﬁrst models analyze the relationship

95

between stakeholder orientation and aggregated stakeholder responsiveness, measured by
subtracting harmful actions from actions seen as positively responding to all stakeholder
groups. The second and third sets of regression models consider stakeholder
responsiveness to consist of two distinct components — the positive actions towards
stakeholders (Positive SR) and the action that harm stakeholders (Negative SR). We
would expect that greater attention to stakeholder groups would increase favorable
actions, while decreasing harmful actions.

Table 5.3 summarizes the results of nine regression models to answer the ﬁrst
research question. Regression models with aggregated measures of stakeholder
responsiveness as a dependent variable provide little support for the hypothesis that
stakeholder orientation is related positively to stakeholder responsiveness. The ﬁrst
models analyze the relationship between stakeholder orientation and aggregated
stakeholder responsiveness, with the independent variable in Model 1a as the overall
stakeholder orientation (SO Total) and the orientation to speciﬁc stakeholder groups
(Community, Customer, Employee, Regulatory, Shareholder, Supplier) is entered as the
independent variables in Model lb. Neither independent variable(s) explain the variance

in overall stakeholder responsiveness.

96

 

 

 

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97

Greater insights on the relationship between stakeholder orientation and
stakeholder responsiveness are in results of the regression models with the positive
stakeholder responsive actions as a dependent variable. Both models 2a and 2b explain
over 30% of the variance, with a signiﬁcant amount of variance more than the control
variables. However, the hypothesis that stakeholder orientations have a positive
relationship with stakeholder responsiveness is not supported. Overall stakeholder
orientation has a negative relationship with stakeholder orientation (-.17 p<.05), with
shareholder (-.15 p<.10) and regulatory (-.14 p<.05) orientations the only signiﬁcant
relationships of the six stakeholder groups.

Likewise, the regression results for negative stakeholder responsiveness (Model
3a and 3b) are not supportive of the hypotheses that greater stakeholder orientation would
decrease harmful activities. Model 3a did not explain a signiﬁcant amount of variance
more than the control variables. Results of Model 3b show that orientation on the two
secondary stakeholder groups, community (.21 p<.01) and regulatory (.11 p<.10) are
signiﬁcant, and both are positively related to negative stakeholder responsiveness.

Regressing the prioritization of each stakeholder group on stakeholder
responsiveness explains a signiﬁcant portion of variance. The amount of attention on
customers (.23 p<.05) and suppliers (.22 p<.05) has a signiﬁcant relationship with overall
stakeholder responsiveness. Models 2c and 3c indicate how the prioritization of these
two groups is related to stakeholder responsiveness. The amount of prioritization that is
given to suppliers is related to positive responsiveness (.17 p<.05), while the

prioritization to customers reduces negative responsiveness (-.14 p<.10).

98

Overall, the hypotheses for a positive relationship between stakeholder orientation
and stakeholder responsive were not supported, with negative relationships evident. The
regression results also show that ﬁrm size is a strong predictor of both positive and
negative stakeholder responses. As the further analysis of subsequent hypotheses
illustrates, the ability for a ﬁrm to respond favorably to multiple stakeholders and reduce

harmful activities is complex.

Hypothesis 2: Moderator effect of globalness

Moderated regression analysis will test for the moderating effect of globalness on
the relationship between speciﬁc stakeholder orientations and responsiveness in order to
address the second research question of how international sales, number of countries and
sourcing inﬂuence ability to respond to multiple stakeholders. Sharma, Durand, and Gur-
Arie (1981) do not recommend splitting a potential moderating by transforming a
continuous variable in a qualitative one. Moderated regression analysis maintains the
integrity of the sample, while providing a basis for controlling the effects of the
moderator variable. As hypothesized that the degree of international operations may
vary the relationships to stakeholder orientation by the six stakeholder groups, the
analysis will examine the moderating effect of globalness for each of the six stakeholder
orientations. When applying moderated regression analysis in terms of one predictor
variable, the equality of the regression coefﬁcients of three regression equations is
examined. The three equations are:

Y = b0 + b1X (Equation 1)
Y = b0 + b1X + b2Z (Equation 2)
Y = b0 + b1X + bZZ + b3XZ (Equation 3)

99

with Y representing stakeholder responsiveness, X representing the speciﬁc stakeholder
orientation, and Z representing globalness. If equations 2 and 3 are not statistically
different, globalness is not a moderator variable but simply an independent predictor
variable. For globalness to be a pure moderator, equations 1 and 2 should not be different
but should be different from equation 3. For globalness to be classiﬁed as a quasi-
moderator, all three equations should be different from each other. While both a pure
moderator variable and a quasi-moderator variable modify the form of the relationship, a
pure moderator variable is not related to the predictor and the criterion variables; the
quasi-moderator variable is a predictor variable in addition to its role as a moderator
(Sharma, Durand, and Gur-Arie 1981).

The ﬁrst set of regression models examines the speciﬁc moderating effects of the
three components of globalization — percent of international sales, number of countries,
and dependence on foreign suppliers — on speciﬁc stakeholder orientations on positive
stakeholder responsiveness. Results are speciﬁed in Tables 5.4, 5.5 and 5.6. The ﬁrst
model includes only the control variables of age, industry and size (Model la). The three
subsequent models (Model 1b, 1c, 1d) relate to equations 1, 2, and 3. All are statistically
different so each of the components acts as a quasi-moderator variable — as a predictor
variable in addition to its role as a moderator. A set of regression models executed with
overall stakeholder responsiveness and negative responsiveness indicates that neither the
globalness components nor the interaction effects were signiﬁcant.

Table 5.4 provides insights in the nature of the interaction effect of international
sales with stakeholder orientations, explaining 50% of the variance in positive

stakeholder responsiveness when including interaction effects. Model 1c shows that the

100

percent of sales outside the United States has a moderate and positive relationship with
stakeholder responsiveness (.37 p<.01). Model 1d shows that international sales has a
negative coefﬁcient (p<.01) for employee and shareholder orientations (-.20, -.26
respectively), indicating that greater attention to those stakeholder groups is more
positively related with stakeholder responsiveness when the percent of international sales
is lower. In addition, employee (-.15 p<.10), shareholder (-.24 p<.01), and regulatory (-
.16 p<.05) orientations had negative relationships with positive stakeholder
responsiveness when including percent of international sales as a predictor and
moderator.

Table 5.4 Moderator Effect of International Sales

 

 

Regression Estimates of Stakeholder Orientation on Positive Stakeholder Responsiveness
Variable Model Ia Model 1b Model 1c Model 1d
Customer -.05 -.01 .03
Employee -.13‘ -.12 -.15*
Shareholder -. 1 5 -.09 -.24***
Supplier .02 -.03 -.05
Regulatory -.15** -.11* -.16**
Community .07 .1 l .09
Int] Sales "/0 .37*** .30***
Cust x IntlSales .13
Emp x IntlSales -.20***
Shldr x IntlSales -.26***
Supp x IntlSales -.09
Reg x IntlSales -.04
Comm x IntlSales .02
Controls

Age .09 .07 .02 .07
Industry -.20*** -.21*** -.78 -.10
Sales (Assets) .54*** .57*** .49*** .49***
model F stat 21.63** 9.21*** 11.95*** 9.51***
R2 .32 .39 .48 .55
2
Adj R .31 .35 .44 _50
A R’- .07 .09 .07
F for A R2 2.36“ 2269*” 3.32***

 

101

 

 

*** P < .01

**p<.05

*p<.10

 

Table 5.5 Moderator Effect of Number of International Countries

 

Regression Estimates of Stakeholder Orientation on Positive Stakeholder Responsiveness

 

Variable Model I a Model 1}) Model 10 Model Id
Customer -.04 -.04 .07
Employee -. 13 -. 13 -.14'
Shareholder -.15' -.13' -.27""
Supplier .04 .04 .00
Regulatory -.14“ -.08 -.02
Community .06 .08 .07
Countries .27". .35“.
Cust x Countries .30.”
Emp x Countries -.14
Shldr x Countries «26"
Supp x Countries -.03
Reg x Countries .12
Comm x Countries -.002
Controls

Age .09 .06 .08 .10

Industry —.20‘” -.21'" -.10 -.08

Sales (Assets) .54‘“ .57“ .52'“ .52'“
model F stat 21.51 9.17‘” 10.33‘“ 7.9‘“
R2 .32 .39 .44 50

2
Adj R .31 .34 .40 .44
A R2 .07 .06 .06
2 it iti ti
F for A R 2.36 13.18 2.62
***p<.01 **p<.05 *p<.10

 

Table 5.5 provides insights in the nature of the interaction effect of the number of

countries with stakeholder orientations, explaining 44% of the variance in positive

stakeholder responsiveness when including interaction effects. Model 1c shows that the
number of countries operating has a moderate and positive relationship with stakeholder

responsiveness (.27 p<.01). Model 1d shows that the number of countries has a positive

coefficient for customer orientation (.30 p<.01) indicating that greater attention to

customers is more positively related with stakeholder responsiveness when the number of

102

 

countries is higher. However, a negative coefﬁcient for shareholder responsiveness (-.26
p<.05) indicates that greater attention to shareholders is more positively related when the
number of countries is lower. Regulatory orientation is not signiﬁcant when including the
number of international countries as a predictor and moderator, while employee (-.14

p<. 10) and shareholder (-.27 p<.01) orientations maintain negative relationships with
positive stakeholder responsiveness.

Table 5.6 Moderator Effect of Dependence on Offshore Suppliers

 

 

Regression Estimates of Stakeholder Orientation on
Positive Stakeholder Responsiveness

Variable Model la Model I b Model 16 Model 1d
Customer -.04 -.002 -.06
Employee -. 13 -.l3* -.19**
Shareholder -.15* -. 12 -.l 1
Supplier .04 -.04 .02
Regulatory -.14** -.10 -.07
Community .06 .08 .05
Intl Suppliers .27*** .22**
Cust x Intl Suppliers .01
Emp x Intl Suppliers -.26***
Shldr x Intl Suppliers -.08
Supp x Intl Suppliers -.10
Reg x Intl Suppliers .09
Com x Intl Suppliers .08
Controls

Age .09 .06 .03 .06

Industry -.21*** -.21*** -.09 -.08

Sales (Assets) .53*** .57*** .55*** .52***
model F stat 21 .51** 9.17*** 9.59*** 7.80***
R2 .32 .39 .43 .50

2
Adj R .31 .34 .38 .44
2
A R .07 .04 .08
F for A R2 2.36** 8.64*** 3.19***
***p<.01 **p<.05 *p<.10

 

103

 

Table 5.6 provides insights in the nature of the interaction effect of depending on
offshore suppliers with stakeholder orientations, explaining 50% of the variance in
positive stakeholder responsiveness when including interaction effects. Model 1c shows
that dependence on offshore suppliers has a moderate and positive relationship with
stakeholder responsiveness (.27 p<.01). Model 1d shows that dependence on offshore
suppliers has a negative coefﬁcient for employee orientation (-.26 p<.01) indicating that
greater attention to employees is more positively related with stakeholder responsiveness
when dependence on offshore suppliers is lower. Only employee orientation (-.19 p<.05)
maintains a signiﬁcant and negative relationship with positive stakeholder responsiveness
when including the dependence on offshore suppliers as a predictor and moderator.

Given these results, the second set of hypotheses relating to the moderating effect
that international sales, operations, and supply have on the relationship between
stakeholder orientation and stakeholder responses are partly supported. Signiﬁcant
interaction effects exist with customer (H2A), employee (H2B), and shareholder (H2C)
orientations.

To understand the moderating effect of the overall degree of globalization on the
relationship between stakeholder orientation and responsiveness, a fourth set of
regressions includes a variable (Globalness) by summing the standardized values of
international sales percentage, number of countries and dependence on offshore suppliers.
Table 5.7 provides insights in the nature of the interaction effect of globalness with
stakeholder orientations, explaining 52% of the variance in positive stakeholder

responsiveness when including interaction effects. Model 1c shows that globalness has a

strong and positive relationship with stakeholder responsiveness (.45 p<.01). Model 1d

104

shows that globalness has a negative coefﬁcient for employee orientation (-.23 p<.01)
and shareholder orientation (-.17 p<.01) indicating that greater attention to those
stakeholders is more positively related with stakeholder responsiveness when the degree
of global operations are lower. Regulatory orientation is not signiﬁcant when including
globalness as a predictor and moderator, while employee (-.15 p<.05) and shareholder (-
.17 p<.05) orientations maintain negative relationships with positive stakeholder
responsiveness.

Table 5.7 Moderator Effect of Globalness

 

 

Regression Estimates of Stakeholder Orientation on
Positive Stakeholder Responsiveness

Variable Model Ia Model 1b Model Ic Model 1d
Customer -.05 .01 .01
Employee -.l3 -.l3* -.15**
Shareholder -.15* -.09 -.17**
Supplier .02 -.06 -.07
Regulatory -.15** -.06 -.08
Community .07 .11 .09
Globalness .45*** .40***
Cust x Globalness .11
Emp x Globalness -.23***
Shldr x Globalness -.l7**
Supp x Globalness -.03
Reg x Globalness .03
Com x Globalness .03
Controls

Age .09 .07 .03 .05

Industry -.21*** -.21*** .02 -.002

Sales (Assets) .54*** .57*** .48*** .46***
model F stat 21.63*** 9.21*** 13.08*** 10.36***
R2 .32 .39 .50 .57

2
Adj R .31 .35 .47 .52
2
A R .07 .1 l .07
F for A R2 2.36** 29.63*** 3.96***
***p<.01 **p<.05 *p<.10

 

105

 

Hypothesis 3: Marketing outcomes

Hypothesis 3 relates to a positive relationship between stakeholder responsiveness
and three marketing outcomes to address the third hypothesis question of how does
responding to stakeholders inﬂuence customer satisfaction, innovation and reputation.
Therefore, a similar process as used for examining the ﬁrst set of hypotheses will
examine each marketing outcome. Control variables will be entered in step 1, and then
stakeholder responsiveness will be added in step 2 to determine the expected change in
the marketing outcome for each change in responsiveness. As in testing for hypothesis 1,
alternate models will examine the effects from overall stakeholder responsiveness as an
aggregate (Model 1a, 2a, 3a) in addition to effects from positive and negative actions
(Model 1b, 2b, 2b). A third model examines the relationship of speciﬁc stakeholder
responsiveness on marketing outcomes (Model lc, 2c, 3c).

The results of the regression analysis by marketing outcome are in Table 5.8.
Overall stakeholder responsiveness has a moderate and positive relation to customer
satisfaction (.24 p<.01), innovation (.26 p<.01) and reputation (.26 p<.01). Thus, the third
set of hypotheses H3A, H3B, and H3C are supported. This study also explores how the
relationship with proactive stakeholder responsiveness and harmful/negative responses
vary by marketing outcome. While positive stakeholder responsiveness is slightly
signiﬁcantly related to customer satisfaction (.17 p<.10), harmful responses have a
stronger and negative relationship with customer satisfaction (-.24 p<.05). Only positive
stakeholder responsiveness is related to innovation (.42 p<.01), whereas the positive
relationship of proactive responsiveness with reputation (.20 p<.05) has to consider the

stronger negative relationship of harmful activities (-.25 p<.05).

106

Further insights on how stakeholder responsiveness is related to marketing
outcomes are found by examining the coefﬁcients in the model that includes the
measures of responsiveness to speciﬁc stakeholder groups as the independent variable.
There were no signiﬁcant relationships between speciﬁc stakeholder groups and customer
satisfaction, although customer responsiveness has the largest coefﬁcient for customer
satisfaction (.16 p=.107). Customer (.29 p<.01), community (.43 p<.01) and employee
(.15 p<.10) responsiveness has a positive relationship with innovation, while regulatory
responsiveness (-.30 p<.01) has a negative relationship. These results support those
scholars arguing that increasing regulation can hamper innovation. Shareholder
responsiveness has the strongest positive relationship with reputation (.26 p<.01) while
regulatory responsiveness has a positive and slightly signiﬁcant relationship with ﬁrm

reputation (.20 p<.10).

107

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Hypothesis 4: Mediating effect of marketing outcomes

The ﬁnal research question seeks to understand how valuing each stakeholder
group affects ﬁrm performance through stakeholder responsiveness and marketing
outcomes. Understanding how and why stakeholder responsiveness increases
performance requires probing the mediating roles of marketing outcomes on
performance. Procedures for testing the hypothesis of the mediating effect of marketing
outcomes on stakeholder responsiveness will follow that of Baron and Kenny (1986).
Three regression models will be estimated for each hypothesized mediation relationships:
regressing the mediator on the independent variable, regressing the dependent variable on
the independent variable, and regressing the dependent variable on both the independent
variable and the mediator. The following conditions establish mediation: First, the
stakeholder responsiveness variable must affect the marketing outcome in the ﬁrst
equation; second, the marketing outcome must affect the ﬁnancial performance outcome
in the second equation; and third, stakeholder responsiveness must affect the ﬁnancial
performance outcome. If these conditions all hold in the predicted direction, then the
effect of stakeholder responsiveness on the ﬁnancial performance outcome must be less
in the third equation than in the second equation. Perfect mediation holds if stakeholder
responsiveness has no effect when the effect of the marketing outcome is controlled for in
the third equation.

The ﬁrst equation is addressed with the regression models used to test the
previous hypothesis that examined the relationship between stakeholder responsiveness
and the proposed mediator variables of marketing outcomes. For the second equation,

three regression analyses examine the relationship between the marketing outcomes and

109

ﬁnancial performance and are shown in Table 5.9. The control variable of size is
excluded as assets are included in the ﬁrm ﬁnancial performance measures. Since not all
of the marketing outcomes have signiﬁcant relationships with each of the ﬁnancial
performance measures, testing for mediation relationships is appropriate for customer
satisfaction with Tobin’s Q, reputation with Altman’s Z, and innovation and reputation
with Return on Assets.

Table 5.9 Results of marketing outcomes on financial performance outcomes

 

 

 

Variable Tobin 's Altman 's Z ROA
Customer Satisfaction .19** .07 .01
Innovation .03 .12 .17**
Reputation .08 .27*** .38***
Controls
Age —.12 .00 -.05
Industry -.32*** -.04 -.15*
model F stat 4.50*** 3.24*** 7.35***
R2 .15 .11 .22
Adj R2 .12 .08 .19
A R2 .05 .11 .20
F for A R2 230* 5.13*** 10.89***
***p<.01 **p<.05 *p<.10

 

To test the third condition that stakeholder responsiveness affects performance
outcomes, a series of regression analyses examined the relationship of stakeholder
responsiveness on the three ﬁnancial performance outcomes. Three measures for
stakeholder responsiveness include overall stakeholder responsiveness, positive and
negative aspects of responsiveness and responsiveness to speciﬁc stakeholder groups.

Regression coefﬁcients are in Table 5.10

110

Table 5.10. Relationship of stakeholder responsiveness and ﬁrm performance

 

 

 

 

 

Variable Tobin ’s Q Altman ’s Z ROA
Stakeholder responsiveness -.06 .06 .16*
Controls

Age -. 12 .04 .01

Industry -.34*** -.07 -.19**
Positive SR —.19** -.02 .17
Negative SR -.16* -.18* -.09
Controls

Age -.05 .08 .00

Industry -.40*** -.ll -.18*
Customer responsiveness .12 .20** .19*
Employee responsiveness .05 -.15 -.05
Shareholder responsiveness .12 .27*** .19**
Supplier responsiveness -.20** -.27*** -.05
Regulatory responsiveness -.02 -. 12 -.15
Community responsiveness -.22** .1 l .07
Controls

Age -.05 . .09 .02

Industry -.30 .00 -. 10
***p<.01 **p<.05 *p<.10

 

Eight combinations of responsiveness variables and mediators meet the three
conditions. Therefore, eight sets of regressions examined whether the marketing outcome
partially or fully mediated the effect of stakeholder responsiveness on ﬁnancial
performance. Table 5.11 summarizes the hypotheses of mediation and ﬁndings.

Table 5.1] Summary of Results of Mediation Tests

 

Mediating role of marketing outcomes on the impact of stakeholder

 

 

 

 

 

 

 

responsiveness on performance Hyp Sig
Positive Responsiveness +9 customer satisfaction +9 Tobin’s Q H4A ns
Negative Responsiveness +9 customer satisfaction +9 Tobin’s Q H4A partial
Negative Responsiveness +9 reputation +9 Altman’s Z H4F partial
Shareholder Responsiveness +9 reputation +9 Altman’s Z H4F partial
Responsiveness +9 innovation +9 ROA H4H full
Customer Responsiveness +9 innovation +9 ROA H4H full
Responsiveness +9 reputation +9 ROA H41 full

 

Shareholder Responsiveness +9 reputation +9 ROA H41 full

111

Table 5.12 shows the ﬁrst set of tests for mediation of customer satisfaction on
ﬁrm performance. Model 1 examines the mediating role of customer satisfaction on
Tobin’s Q, with positive stakeholder responsiveness as the independent variable. Results
show that positive stakeholder responsiveness had a similar effect (-.24 p<.01) when
customer satisfaction was included, indicating that customer satisfaction is not supported
as a mediator. Model 2 examines the mediating role of customer satisfaction on Tobin’s
Q, with negative stakeholder responsiveness as the independent variable. Results show
that negative stakeholder responsiveness had a less negative effect when customer
satisfaction was included, indicating that customer satisfaction is a partial mediator.

Table 5.12 Mediating Analysis on Tobin’s Q

 

 

 

Variable Model 1a Model 1b Model 2a Model 2b
Positive SR -.24*** “24*”
Negative SR -.22** -.l7*
Customer Satisfaction .20** .16*
Controls
Age -.08m -.06 -.08 -.07
Industry -.37 -.35*** -_40** “37*“
model F stat 8.64*** 8.49*** 7,95*** 6.9840101:
R2 .16 .20 .15 .17
AdeZ .14 .18 .13 .15
A R2 .05 .10 .04 .02
1: for A R2 8.59*** 7.93** 6.74** 3.60*
***p<.01 **p<.05 *p<_10

 

Table 5.13 shows the next set of tests for mediation of reputation on Altman’s Z
Model 3 examines the mediation relationship with negative stakeholder responsiveness as

the independent variable. Results show that the coefﬁcient for negative responsiveness is

112

slightly less negative when reputation is controlled, indicating a partial mediation affect
of reputation on the relationship of negative stakeholder responsiveness to Altman’s Z.
Model 4 examines the mediation relationship with stakeholder responsiveness to
shareholders as the independent variable. Results show that the coefﬁcient for
shareholder responsiveness (.22 p<.05) is less when reputation is controlled (.15 p<.10),
indicating a partial mediation affect of reputation on the relationship of shareholder
responsiveness to Altman’s 2.

Table 5.13 Mediating Analysis on Altman’s Z

 

 

Variable Model 3a Model 3b Model 4a Model 4b
Negative SR -.l9** -.17*
Shareholder Responsiveness .22** .15*
Reputation .29*** .26***
Controls
Age .08 .05 .06 .03
Industry -.10 -.10 -.05 -.06
model F stat 1.71 4.35*** 2.47* 4.23***
R2 .04 .12 .05 .11
Adj R2 .02 .09 .03 .09
A R2 .03 .08 .05 .06
F for A R2 4.37** 11.87*** 6.65** 9.06***
***p<.01 **p<.05 *p<.10

 

 

Table 5.14 shows the tests for mediation of innovation and reputation on the
relationship between stakeholder responsiveness and an accounting performance
measured by return on assets (ROA). Model 5 examines the mediating role of innovation
with overall stakeholder responsiveness as the independent variable. Model 6 has

customer responsiveness as the independent variable. The coefﬁcients for both measures

113

of stakeholder responsiveness is not signiﬁcant in the mOdels controlling for innovation,
indicating full mediation of innovation in the relationship of overall stakeholder
responsiveness and customer responsiveness to ROA. Model 7 examines the mediating
role of reputation with. overall stakeholder responsiveness as the independent variable.
Model 6 has shareholder responsiveness as the independent variable. The coefﬁcients for
both measures of stakeholder responsiveness are not signiﬁcant in the models controlling
for reputation, indicating ﬁrll mediation of reputation in the relationship of overall

stakeholder responsiveness and customer responsiveness to ROA.

114

 

 

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Chapter VI

DISCUSSION AND CONCLUSION

“More than ever, I’m convinced that our success depends on our ability to

build strong and enduring relationships with everyone we touch:

associates, shareholders, consumers, retail customers, business partners,

suppliers, governments, community members, educational institutions and

organizations working to improve our communities, our environment and

our lives.” (PepsiCo Inc. 2004 Annual Report)

As the preceding quotation illustrates, ﬁrms recognize the value of establishing
relationships with multiple stakeholders. The goal of this research is to examine how the
incorporation of stakeholder issues in corporate marketing strategy can explain ﬁrm
performance. The conceptual framework and four sets of hypotheses in Chapter III are
structured to examine the role of multiple stakeholder prioritization and responsiveness,
marketing outcomes, and global operations. As presented in Chapter IV, a mixed method
of data collection using qualitative content analysis and multiple secondary sources
provides a rich database allowing analysis for testing hypotheses. Results from the
empirical hypothesis tests are summarized in Table 6.1. Overall, the results of the data
analysis supported eleven of the twenty—four sub-hypotheses presented in Chapter III.

This chapter provides an interpretation of the results for theoretical and empirical
insights. First, a discussion of the research ﬁndings organized around research questions
stated in Chapter I provides implications of the research ﬁndings for researchers and
practitioners. This section will include the relationship of this study to previous research
and will focus on how this study builds upon the knowledge base and implications of

conﬁrming existing theory or presenting disconﬁrming evidence. The next section will

concentrate on the signiﬁcance of this study to practitioners to address the challenges of

116

balancing multiple stakeholders in a global environment. The third section targets future

research including further exploration of the database using various techniques and

perspectives. Finally, the limitations of the present study are recognized in order to

highlight the proper positioning of the research ﬁndings.

Table 6.1 Summary of Hypothesis Tests

 

Stakeholder responsiveness is affected by stakeholder orientation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer orientation +9 stakeholder responsiveness H1 A Sb
Employee orientation +9 stakeholder responsiveness. HlB NS
Shareholder orientation +9 stakeholder responsiveness H1 C NSa
Supplier orientation +9 stakeholder responsiveness H1D sb
Regulatory orientation +9 stakeholder responsiveness HIE NSa
Community orientation +9 stakeholder responsiveness HlF Nsa
“Globalness” moderates the effect of stakeholder orientation on
stakeholder responsiveness
Customer orientation 9stakeholder resmnsiveness H2A S
Employee orientation 9stakeholder responsiveness. HZB S
Shareholder orientation 9stakeholder responsiveness H2C S
Supplier orientation 9stakeholder responsiveness HZD NS
Regulatory orientation 9stakeholder responsiveness HZE NS
Community orientation 9stakeholder responsiveness HZF NS
Stakeholder responsiveness on marketing outcomes
Stakeholder responsiveness +9 customer satisfaction H3A S
Stakeholder responsiveness +9 innovation HBB S
Stakeholder responsiveness +9 reputation H3C S
Mediating role of marketing outcomes on the impact of stakeholder
responsiveness on performance
Positive Responsiveness +9 customer satisfaction +9 Tobin’s Q H4A NS
Negative Responsiveness +9 customer satisfaction +9 Tobin’s Q H4A PS
Negative Responsiveness +9 reputation +9 Altman’s Z H4F PS
Shareholder Responsiveness +9 reputation +9 Altman’s Z H4F PS
Responsiveness +9 innovation +9 ROA H4H S
Customer Responsiveness +9 innovation +9 ROA H4H S
Responsiveness +9 reputation +9 ROA H41 S
Shareholder Responsiveness +9 reputation +9 ROA H41 S

 

Note: 8: Supported, PS=partially supported, NS=not supported

a =opposite sign as expected, b =prioritization as independent variable

117

Discussion of the Research Questions

This research seeks to understand how valuing each stakeholder group affects
ﬁrm performance through stakeholder responsiveness and marketing outcomes, as well as
the inﬂuence of global business operations on stakeholder responsiveness through four
speciﬁc research questions presented in Chapter 1. Each research question is restated in
this section, followed by an insightful discussion of results from this study.

How does attention to specific stakeholders drive implementation of programs
and policies responding to stakeholders?

As discussed in Chapter I and Chapter II, adoption of a stakeholder orientation to
understand and address stakeholder demands provides ﬁrms an opportunity anticipate
changing societal expectations and use its capacity for innovation to create additional
business value from superior social and environmental performance (Laszlo et al. 2005).
Questions include how much investment in stakeholder responses is enough, and which
stakeholders the ﬁrms should address.

References in annual reports highlight the cultural orientations toward. multiple

stakeholders:

0 “Each year, we ﬁnd new ways to create lasting value for the shareholders,
customers and communities we serve.”

o “The Credo provides a common set of values and serves as a constant reminder of
the Company’s responsibilities to its customers, employees, communities and
shareholders.”

0 “Setting the highest standards for honesty, integrity and fairness in dealing with
our stakeholders — which includes our Customers, Suppliers, Associates, and
Communities — remains the essence of the Wal-Mart culture, and is central to our
Company’s long-term success.”

0 “By balancing responsibilities to our constituents, we maximize value to all our
stakeholders: customers, employees, franchisees, shareholders and suppliers.”

118

In examining the results of the nine multiple regressions for testing the ﬁrst
hypothesis, positive relationships emerge for customer and supplier orientation when
measuring the prioritization that a ﬁrm places among the stakeholder groups. This ﬁnding
is consistent with Greenley and Foxall (1996) where customer orientation emerged as the
most important group in studies of stakeholder orientation. The current study provides
further insights through treating positive stakeholder responsiveness as distinct from
harmful activities. Prioritizing customers over other stakeholder groups reduces the
negative responses overall. Results also suggest that greater prioritization of suppliers can
improve positive stakeholder responses to all stakeholders. Focusing on suppliers has
become increasingly important as ﬁrms rely on networks of suppliers, supporting the
ﬁndings of Neil and Stovall (2005) that the importance of a stakeholder varies over a
ﬁrrn’s life cycle and inﬂuences the ﬁrm’s responsiveness. For example, Costco states in
their annual report: “Our suppliers are our partners in business, and we believe in
establishing alliances with them that enable both of us to prosper.”

When measuring the extent that a ﬁrm values a stakeholder ﬁom the amount of
attention given to a stakeholder in the annual report, stakeholder orientation had a
negative relationship with responsiveness. Speciﬁcally, regulatory and shareholder had
the opposite effects on responsiveness than expected. These results suggest that
orientation to speciﬁc stakeholder groups is a reﬂection of pressure to pay attention
because of inadequate responses. For example, one energy supplier states in their annual
report

“Customers and regulators are increasingly measuring our performance

against other leading utilities — and even service leaders in other industries

— and they’re expecting us to stay ahead of the curve.” (PG&E
Corporation)

119

Williams and Barrett’s (2000) study indicates that charitable giving appears to be a
means by which ﬁrms may partially restore their good names after being sanctioned for
legal violations. Maurer and Sachs (2005) ﬁnd that stakeholder orientation changes over
time in reaction to triggering events, such as natural disasters, negative publicity over
business practices, and legislative actions. Companies in controversial business
categories such as tobacco, alcohol, and military operations strive to improve
relationships with multiple stakeholders. The effects on responsiveness takes time, as
indicated by this quotation from Anheuser—Busch:

“Working together with our more than 600 wholesalers nationwide, and

our many partners in the areas of education, law enforcement, retailing,

and parents and community groups, Anheuser-Busch has made a lasting

contribution to helping our nation realize signiﬁcant declines in drunk

driving and underage drinking during the past two decades.”

One explanation may be that orientations vary by industry. By examining the
amount of attention placed on a stakeholder, differences in the prioritization among the
stakeholders is evident by industry. Results of comparing the means of the percentage
allocated to each stakeholder group (calculated by dividing raw count by total count of all
stakeholders) by industry type are in Table 6.2. An ANOVA and post hoc Tukey tests
provide interesting insights. The percentage allocated to the community, employees, and
shareholder did not change signiﬁcantly among industry. Each industry type spent close
to the average of 10% on shareholders, 15% on the community, and 23% on employees.

By examining the signiﬁcant differences, however, we see that the prioritization
of stakeholders varies by industry. Retail operations have the highest focus on customers

(37%), signiﬁcantly greater than durable (27%) and consumer goods (23%), and utilities

(23%). Only services focuses greater than 30% of attention on customers, which is not

120

signiﬁcantly different than retail. Utilities have the greatest focus on

regulatory/ government stakeholders (29%), which is signiﬁcantly different from all other

industry types (ranging from 7%-16%). While suppliers are the stakeholder group

receiving the least attention overall, durable goods manufacturers place slightly more

attention on suppliers than on shareholders. Utilities and services focus the least on

suppliers, with a statistically signiﬁcant difference from both durable and nondurable

manufacturers.

Table 6.2 Stakeholder Orientation Priority by Industry

 

 

 

Industry N Commty CustM Emp Reg/Gov“ Shldr SuppM
Durable 30 .17 .27 .23 .15 .09 .10
(.13) (.15) (.11) (.13) (.08) (.08)
Nondurable 34 .19 .23 .23 .14 .ll .10
(.17) (.16) (.13) (.19) (.09) (.10)
Services 31 .11 .31 .27 .16 .10 .05
(.12) (.12) (.18) (.18) (.07) (.06)
Retail 26 .15 .37 .24 .07 .10 .07
(.14) (.15) (.10) (.12) (.08) (.07)
Utilities 20 .12 .23 .20 .29 . 12 .03
(.10) (.14) (.11) (.24) (.09) (.03)
Total 141 .15 .28 .23 .16 .10 .07
(.14) (.15) (.13) (.18) (.08) (.08)
Min .00 .00 .01 .00 .00 .00
Max .58 .75 .79 .90 .41 .43

** p < .01 table shows means (sd)

 

A similar examination of stakeholder responsiveness by industry provides

interesting insights as well. Results of comparing the means by industry type of overall

stakeholder responsiveness (SR Agg), positive (Pos SR) and negative (Neg SR)

responsiveness, and responsiveness to the six stakeholder groups are in Table 6.3.

Inconsistencies are evident in comparing the stakeholder prioritization by industry with

 

the stakeholder responsiveness scores. For example, retail places the highest priority on
customers, which has the strongest relationship to overall stakeholder responsiveness, yet
retail has one of the lowest averages for stakeholder responsiveness. Services, however,
has the greatest score for responding to employees as well as the highest prioritization
given employees compared to other industries.

These ﬁndings could be an indication that what the ﬁrm conveys through public
documents does not guarantee action or effective responses. For example, Allstate
indicates in its annual report that “. .. we know how to respond when customers and
communities need us most.” Allstate’s scores for community (2.11, mean=1.04) and
customer (3.90, mean=l .78) orientation are well above the average, conﬁrming the value
that top management places on those stakeholder groups. However, when examining the
scores for stakeholder responsiveness, the pattern does not hold. Allstate is above average
only for community responsiveness (.28, median=-.38) and below average in
responsiveness to customer (-1.29, median=-.28). The ﬁndings also could indicate that
the ability to respond to a valued stakeholder depends on other factors. Factors relating to

globalization are examined in the next research question.

122

 

 

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123

What is the inﬂuence of international sales, number of countries, and sourcing on
a ﬁrm ’5 responsiveness to stakeholders?

The second research question seeks to determine if it is more difﬁcult for
companies with greater international sales, number of countries, and sourcing to pay
attention and respond to stakeholders. As discussed in Chapter 11, ﬁrms operating in
multiple countries experience cultural and institutional differences in expectation and
returns of social responsiveness (Doh and Guay 2006). The hypotheses stated only that a
moderating effect exists, not whether stakeholder orientation had a stronger or weaker
relationship to stakeholder responsiveness when globalness indicators were high.

The results of the moderated regression find negative interaction effects for
employee and shareholder orientations, indicating that greater attention to those groups
has a stronger relationship to responsiveness when the degree of globalness is lower.
Specifically, as the degree of international sales and the dependence on international
suppliers increase, attention to employees has an increasingly negative relationship with
responsiveness. The findings related to employee orientation support the conclusion of
Mackey (2005) that the location and the extent of international operations tended to have
positive associations in terms of community and diversity CSR ratings, but negative
associations with product and human rights CSR ratings. The ﬁndings related to
shareholder orientation reﬂect how shareholders can inﬂuence multinational corporation
decisions (Birkinshaw et al. 2006) and that the growth of social and ethical investment
criteria among shareholders, mutual funds, and pension asset managers demonstrate
increased demands for good global citizenship (Henderson 2000).

The only positive interaction effect relates to the number of countries and

customer orientation. The results indicate that greater attention to customers is more

124

positively related with stakeholder responsiveness when the number of countries is
higher. This ﬁnding is inconsistent with studies showing that varying cultural values and
ethical beliefs of consumers between various national groupings make attending to
consumers more complex (Ford 2005; Rawwas 2001). One reason for these results is
that learning as a ﬁrm becomes experienced in international business creates greater
capabilities to respond to different conditions. Annual reports of two companies with
operations in a large number of countries reﬂect how they use their knowledge and
resources to meet customer needs.

Being global means creating value for customers by combining industry

expertise and deep knowledge of local markets with a responsive, world-

class supply chain. (Emerson Electric Co.)

We have the ability to reap the beneﬁts of a $50 billion global company

while understanding and responding to needs in individual local markets.

(Proctor & Gamble)

Since each of the moderated regression analyses indicated a quasi moderator
relationship with the globalness components and stakeholder orientation, the nature of the
predicting relationship of globalness on stakeholder responsiveness requires further
regression models. According to the internationalization theories of J ohanson and Vahlne
(1977), a ﬁrm becomes more efﬁcient as experience in international operations provide
opportunities for learning. Therefore, while lower levels of international operations create
complexity and could result in a reduced capability to respond to multiple stakeholders,
results of polynomial regressions show a curvilinear relationship with increased
responsiveness as globalness increases (Table 6.4). These ﬁndings are consistent with the

cubic effects of international diversiﬁcation on overall corporate social performance

(Strike, Gao, and Bansal 2006).

125

Table 6.4 Relationship of Globalness and Stakeholder Responsiveness

 

Dependent: Positive Stakeholder Responsiveness

Independent: International Sales

E? .d._f. E m b_1 Q is
LIN .20 138 35.00*** 3.78 7.38
QUA .23 137 20.20*** 3.33 14.54 -10.95
CUB .25 136 l4.93*** 3.67 1.76 34.82 -38.66

 

Independent: Number of International Countries

.112. d._f. E E0 bi b_2. b_3
LIN .15 138 24.32*** 4.28 .03
QUA .20 138 17.15*** 3.65 .07 -.000
CUB .21 137 12.35*** 3.41 .11 -.001 -.000

 

Independent: Dependence on International Suppliers

R_2 1.: E b_o b_1 b_2 b_3
LIN .08 139 11.91*** 3.77 .72
QUA .08 138 6.14*** 3.08 1.44 -.13
CUB .10 137 5.09*** 9.47 -8.18 2.63 -.42

 

 

Independent: Globalness

33: Q E E9 E1 E2. E2
LIN .22 138 38.78*** 5.46 .76
QUA .22 137 19.30*** 5.38 .74 .01
CUB .23 136 13.60*** 5.03 .96 .12 -.O3

 

**ak p < _01

 

A curvilinear relationship exists between the percent of sales outside the US and
stakeholder responsiveness, explaining 25% of the variance. As international sales
increase up to 60%, the positive stakeholder responsiveness increases, from which
positive stakeholder responsiveness declines for most of the ﬁrms with a greater
percentage of international sales (Figure 6.1). The number of countries in which a ﬁrm is
operating also has a cubic relationship with overall stakeholder responsiveness,

explaining 21% of the variance. As the number of countries increase, the overall

126

stakeholder responsiveness improves up to around 50 countries where the responsiveness
decreases. There seems to be a slight improvement in responsiveness as the number of
countries approaches 150 (Figure 6.2).

There is a cubic relationship of dependence of international suppliers and
stakeholder relationship, explaining 10% of the variance. Firms using few suppliers
overseas see a slight dip in overall stakeholder responsiveness, with better stakeholder
responsiveness for ﬁrms that use suppliers on a typical basis, up to 50% of their suppliers
(Figure 6.3). Firms dependent on the majority of supply from outside the United States

experience lower overall stakeholder responsiveness

127

Figure 6.1 Curvilinear relationships of International Sales

 

Positive Stakeholder Responsiveness

 

20—1 0 Observed
— Linear
—- Quadratic
— -Cubic

 

 

 

 

0.00 0.20 0.40 0.60 0.80 1.00
INTL SALES %

 

 

 

128

Figure 6.2 Curvilinear Relationships of Number of Countries

 

Positive Stakeholder Responsiveness

 

 

 

 

0 Observed
Linear
--- Quadratic
— —Cubic

 

 

 

I I I I I
50 100 150 200 250
Nbr Countries Operating

 

129

 

Figure 6.3 Curvilinear relationships of International Supply

 

Positive Stakeholder Responsiveness

 

 

 

 

   
    
 

 

 

 

201 0 Observed
Linear
O —- Quadratic
o — -Cubic
15— O
o o o
o o o
o o
o o o o o
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o o o
o o o , .- ~ \
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5— o "’ o o
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o o o o o
o o o o
o o o o 0
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I I I I I
1 2 3 4 5

Intl Supply Scale

 

130

 

Do actions (responding to stakeholders) inﬂuence customer satisfaction,
innovation, and reputation?

The inﬂuence of corporate social responsiveness on marketing outcomes has been
examined in prior research, with positive relationships with corporate reputation
(Brammer and Millington 2005), customer satisfaction (Luo and Bhattacharya 2006), and
innovation (McWilliams and Siegel 2001). The results of regressions of overall
stakeholder responsiveness on marketing outcomes are consistent with these studies. For
example, the standardized coefﬁcient for stakeholder responsiveness to customer
satisfaction of .24 is close to the signiﬁcant coefﬁcient for corporate social responsibility
to customer satisfaction (.21) in a similar study in Luo and Bhattacharya (2006).

By disaggregating responsiveness by positive and negative actions, this research
provides insights in the relationship between stakeholder responsiveness on customer
satisfaction, innovation, and reputation beyond that of prior studies. Speciﬁcally, the
results provide a better understanding of the tentative relationship between “doing good”
and customer satisfaction. While overall stakeholder responsiveness with aggregated
strengths and concerns has a signiﬁcantly positive relationship with customer satisfaction
(.24 p<.01), the proactive actions reﬂected in positive stakeholder responsiveness is only
slightly signiﬁcant and much weaker (.17 p<.10). Negative responses have a stronger and
negative relationship with customer satisfaction (-.24 p<.05), which is consistent with
ﬁndings that unethical marketing that exploits or harms another party reduces the
customer’s satisfaction (Ingram, Skinner, and Taylor 2005). The positive relationship
between corporate social responsiveness and customer satisfaction may be more
complex. For instance, Luo and Bhattacharya (2006) ﬁnd that ﬁrms need to ensure that

they are perceived as innovative and as makers of high-quality products before they

131

undertake major corporate social responsibility initiatives since a low innovativeness
capacity reduces customer satisfaction levels. The strong relationship between positive
stakeholder responsiveness and innovation suggests that improvement in customer
satisfaction from corporate social responsibility is through innovation. Aetna recognizes
the link between innovation and customer satisfaction when stating that they “regained
the conﬁdence of customers through product and service innovation.”

Likewise, the relationship of positive and negative responsiveness to reputation is
complex with a stronger negative relationship with harmful activities (-.25 p<.05) than
the positive relationship with “doing good” (.20 p<.05). There are two implications of
understanding how stakeholder responses can inﬂuence reputation. First, is the
recognition that corporate reputation may be slow to change through positive stakeholder
responsiveness due to the lingering effects of past corporate reputation. Pulling from
attribution theory, studies ﬁnd that a poor reputation for corporate social responsibility
discredits charitable activities (Dean 2003; Kuzma et al. 2003) . Some ﬁrms recognize
this in their annual reports as Altria Group states:

“We know that this is an evolving process and continually strive to

improve our efforts to earn public trust and strengthen our reputation

through a commitment to responsible marketing, quality assurance, ethical

business practices and by giving back to our communities.”

Second, is the suggestion that social responsiveness helps to mitigate the negative
reputational actions as argued by Brammer and Millington (2005). They found that the
negative impact of operating in a socially damaging industry (more than 10% of the mean

reputational score) signiﬁcantly inﬂuenced by the level of corporate philanthropic

expenditures.

132

This research provides further insights in the relationship between stakeholder
responsiveness and marketing outcomes by examining responsiveness to each
stakeholder group. It is interesting that none of the stakeholder groups had a signiﬁcant
relationship with customer satisfaction, although customer responsiveness was closest
with a p value of . 10. Many of the mentions in annual reports relating to customer
responsiveness were associated with customer satisfaction. For example, the annual
report for Kroger states:

“Whether it’s speeding up the checkout process, making sure our stores

have the right products always in stock, or rewarding our best customers

with special savings, we’re committed to making sure that everything we

do, every decision we make, positively inﬂuences the way our customers

feel about Kroger.”

Reputation had two moderately positive relationships that were signiﬁcant.
Shareholder responsiveness has the strongest positive relationship with reputation,
consistent with views that reputation is a ﬁnancially dominant construct (F ryxell and
Wing 1994). The positive relationship of reputation with paying attention to regulatory
and governmental agencies further supports the mitigating effect of proactive responses
on a negative reputation. Especially for industries that are highly regulated, such as
utilities and pharmaceutical, ﬁrms that have a strong relationship with the regulatory
agencies experience a greater reputation.

The ﬁndings highlight the two views of how balancing multiple stakeholders
inﬂuences ﬁrm innovation. Customer, community and employee responsiveness has a
positive relationship with innovation, while regulatory responsiveness has a negative

relationship. These results are consistent with Han, Kim and Srivastava’s (1998) ﬁnding

of a positive relationship between customer orientation and innovation. The innovative

133

company, 3M, acknowledges the role of customer orientation with innovation when
stating: “A culture of customer-inspired innovation is at the core of this business model.”
Community orientation supports a social network perspective of stakeholder management
that results in a particular need to consider a broad base of stakeholders (Bunn, Savage,
and Holloway 2002; Rowley 1997). The negative relationship of regulatory
responsiveness provides support for scholars arguing that increasing regulation can
hamper innovation.

In conclusion, the relationship between a ﬁrm’s ability to respond to multiple
stakeholders has differing positive and negative effects on customer satisfaction,
innovation, and reputation. Firms recognize that the attention given to various
stakeholder orientations affects marketing outcomes, illustrated from a quotation from the
annual report of Microsoft, a ﬁrm that relies on innovation to compete yet experiences
regulatory scrutiny.

“We believe that over the last few years we have laid a foundation for

long-term growth, delivering innovative new products, creating

opportunity for partners, improving customer satisfaction with key

audiences, putting some of our most signiﬁcant legal challenges behind us,

and solidifying internal processes.” (Microsoft 2004 Annual Report)

How does a stakeholder orientation affect ﬁrm performance?

The ﬁnal research question seeks to understand how valuing each stakeholder
group affects ﬁrm performance through marketing outcomes. Prior research shows that
marketing outcomes, such as customer satisfaction, innovation, and reputation, are key
determinants of ﬁrm performance. The role that the marketing outcomes play in full or

partial mediation between stakeholder responsiveness on performance is understood

through interpretation of the mediation analysis results.

134

Results from the study on the relationship of customer satisfaction, innovation,
and reputation with ﬁnancial outcomes are consistent with prior studies. For instance,
Anderson, F omell, and Mazvancheryl (2004) also ﬁnd a strong relationship between
customer satisfaction and Tobin's Q. However, customer satisfaction does not have a
signiﬁcant relationship with accounting performance as found in previous studies. Only
reputation has a signiﬁcant relationship with the ﬁnancial base measure of Altman’s Z,
while both innovation and reputation have a signiﬁcant relationship with return on assets.

Providing a great deal of insight beyond prior studies is the analysis of the direct
effects of responsiveness to stakeholders on ﬁrm performance. As discussed in previous
chapters, results of empirical studies show that the relationship of a proactive strategy for
stakeholder management and performance is complex. The measure for overall
stakeholder responsiveness allows positive actions to counteract harmful actions. The
only signiﬁcant relationship for overall stakeholder responsiveness is with the accounting
based measure of return on assets and is consistent with the Orlitzky, Schmidt, and Rynes
(2003) ﬁnding that accounting measures were more highly correlated with corporate
social performance. Positive responsiveness has a negative relationship with market-
based performance (Tobin’s Q) that may be explained by what Frederick (1987) refers to
as a “trade-off problem” that exists when costs of compliance with social pressures and
accepting positive duty to society conﬂict with corporate economic goals of proﬁtability.
However, harmful actions also have a negative relationship with market-based and
ﬁnancial-based performance, highlighting the stakeholder theoretical perspective that
managers must satisfy various constituents that would withdraw support for the ﬁrm if

important social responsibilities were unmet (Freeman 1984).

135

This study further corroborates the stakeholder mismatching thesis of Wood and
Jones (1995) by showing that effects of corporate social responsive actions vary by
stakeholder groups. Consistent with Berrnan et al. (1999), customer responsiveness has a
positive relationship with all performance outcomes, with a signiﬁcant relationship with
Altman’s Z and RCA. However, contrary to the earlier study, employee responsiveness
does not directly affect performance. With employee responsiveness having a positive
relationship with innovation and an insigniﬁcant effect on ﬁnancial performance, the
current study’s results are comparable with those of Greenley and Faxall’s (1998)
ﬁndings that paying attention to employees affects new product success rather than
ﬁnancial performance. They also ﬁnd similar results relating to the positive relationship
with shareholder responsiveness and performance outcomes. Although earlier hypothesis
tests show a supplier orientation as positively inﬂuencing the overall stakeholder
responsiveness of the ﬁrm, this analysis ﬁnds that attention to suppliers lowers market
and ﬁnancial performance. A negative relationship of community responsiveness to
Tobin’s Q is consistent with ﬁndings of Seifert, Morris, and Bartkus (2004) that
community philanthropy is not related to ﬁnancial performance.

Results from this study suggest that customer satisfaction does not mediate
stakeholder responsiveness and market-based ﬁrm performance when considering the
extent of positive actions by the ﬁrm. This would appear contrary to ﬁndings in Luo and
Bhattacharya (2006) of a fully mediated relationship of customer satisfaction on
corporate social responsibility and Tobin’s Q. However, this study examined both

positive and negative stakeholder responses, ﬁnding a partial mediation effect of

136

customer satisfaction on corporate irresponsibility and Tobin’s Q. It appears that for
customers, social responsiveness does not mitigate negative actions.

Reputation is a full mediator of stakeholder responsiveness on accounting-based
performance measure and a partial mediator on ﬁnancial performance. Findings suggest
that overall stakeholder responsiveness and shareholder responsiveness inﬂuences ROA
through the enhanced reputation of the ﬁrm. However, reputation only partially mediates
the negative relationship of harmful responses and Altman’s Z, providing further support
that social responsiveness helps to mitigate negative actions. The partial mediation of
reputation on shareholder responsiveness and ﬁnancial performance reﬂects the focus on
proﬁts typically associated with a shareholder orientation.

Innovation fully mediates the relationship between stakeholder responsiveness
and ﬁrm performance. Results of tests for innovation as a mediator on accounting
performance are consistent with the McWilliams and Siegel (2000) study showing that
when innovation is included among the independent variable the signiﬁcance of CSR on
ﬁrm performance disappears. This consistency is telling as the measurement for CSR
used the KLD data to generate a binary dummy variable (1 for socially responsible) and
R&D intensity was the proxy for innovation. Although the measurements differed from
the current study, the relationships uncovered are strikingly similar in direction and size
of coefﬁcients. Prior to introducing innovation in the model, the corporate social variable
has a signiﬁcantly positive effect of .158 in the current study and .141 in the 2000 study.
Likewise, when innovation was added to the model, the coefﬁcient of the CSR variable
was diminished to .10 and no longer signiﬁcant, and the coefﬁcient on innovation was

.24 and .26 respectively. This study further examines role of innovation in the

137

responsiveness-performance relationship by ﬁnding a full mediation effect of innovation
on customer responsiveness and ﬁrm performance, consistent with market orientation

studies linking customer orientation, innovation, and performance.

Recommendations for Managers

“Executives around the world overwhelming embrace the idea that the role of
corporations in society goes far beyond simply meeting obligations to
shareholders. But executives also say that, for most companies, sociopolitical
issues--such as environmental concerns and the effects of offshoring--present
real risks.” ("Global Survey of Business Executives" 2006)

As illustrated in the quotation, managers accept that the ﬁrm responsibility to
society requires focus on more than a single stakeholder. The results of this research
provide insights to managers seeking to balance multiple stakeholders in the current
global environment. There seems to be a discrepancy between top management views
and how incorporation of stakeholder issues in corporate marketing strategy affects ﬁrm
performance through marketing outcomes. This study corroborates the above quotation
by ﬁnding that valuing stakeholders does not always translate into effective
responsiveness. Global operations increase the complexity of meeting obligations to more
than to shareholders.

Responding to multiple stakeholders over a single stakeholder group.

“Cisco’s key stakeholders-customers, partners, employees, and
shareholders-remain at the center of our strategy.” (Cisco)

The idea is prevalent that focusing on multiple stakeholders over a single
stakeholder group provides better responsiveness and ﬁrm performance. The results of
this study show that ﬁrms focusing attention on more than two stakeholder groups exhibit

greater corporate social responsibly behaviors and marketing outcomes. However, there

138

is a slight decrease in outcomes as ﬁrms spread attention among ﬁve or more stakeholder
groups, indicating the need to prioritize stakeholder groups.

“Our future depends on maintaining strong, healthy relationships with a

number of stakeholders - ﬁrst among them, our customers.” (Entergy

Corporation)

Managers embraced the idea of focusing on customers in adopting a market
orientation, potentially ignoring other critical stakeholders (e. g. employees, suppliers,
shareholders, regulators, and local communities). At a result, ﬁrms experienced increased
customer satisfaction and market performance. It is not surprising then that a customer
orientation remains as the most important group of the stakeholders for most ﬁrms. While
a market orientation may be considered inconsistent with a stakeholder orientation, ﬁrms
focusing on customers are less likely to behave irresponsibly towards the community and
other stakeholder groups. Therefore, ﬁrms should continue to include customers as a
primary stakeholder.

“We proactively engage with other stakeholders, including socially

responsible investors, policy-setting bodies and non-govemmental

organizations, to communicate Intel’s views and understand their

priorities.” (Intel)

Managers should avoid adopting a “cookie cutter” approach to incorporating
multiple stakeholders in their marketing strategy. The prioritization of stakeholders varies
by industry as well as the level of scrutiny that a ﬁrm receives from the media, regulatory
agencies, and activist groups. For instance, suppliers are a stakeholder group that is not
receiving much attention, yet companies focusing on suppliers tend to have greater

corporate social responsiveness scores. There is also a tendency to acknowledge and

value a stakeholder defensively, in response to scrutiny. Companies adopting orientation

139

to a stakeholder group in response to negative publicity or legislative actions recognize
that improving relationships with stakeholders takes time and resources.

How the incorporation of stakeholder issues in corporate marketing strategy affects
ﬁrm performance through marketing outcomes.

Understanding how a ﬁrm’s stakeholder orientation inﬂuences customer
satisfaction, innovation, and reputation can help managers determine which stakeholder
groups to incorporate in marketing strategy. This research shows that the manner of the
effect varies by stakeholder group and marketing outcome. Findings provide insight on
how each stakeholder group affects ﬁrm performance through enhanced innovation and
reputation. For instance, while customer responsiveness is positively related to ﬁrm

performance, employee responsiveness affects ﬁnancial performance through innovation.

“Community outreach translates into increased customer loyalty” (Walgreen)

Marketers strive to increase customer satisfaction with their products and services
through cause marketing and philanthropic sponsorships. While studies showing the
social responsiveness can increase customer satisfaction, this has not necessarily
translated into customer loyalty or purchasing. This study shows that harmful activities
have a greater effect of lowering customer satisfaction than social responsiveness has on
increasing customer satisfaction. Results from this study also suggest that market-based
performance is affected by lower customer satisfaction from negative responsiveness.

“Changes in customer preferences, regulation, industry structure and

technology - to name just a few areas where transformation is occurring -

call for innovative strategies, teamwork and sound execution.” (FPL
Group)

140

Firms able to respond to multiple stakeholders through socially responsive actions
experience greater innovation. Results show that responsiveness to customers,
employees, and the community can increase innovation. A customer orientation includes
listening to customers and responding to their needs through innovative solutions. Best
Buy embraces an employee orientation by creating a culture where “employees are
energized because they have both the responsibility and the accountability to make
decisions and drive innovation based on their knowledge of the customer.” An example
of how a community orientation enhances innovation is an initiative by Bristol-Meyers
Squibb. “Through support by SECURE THE FUTURE of a wide range of innovative
community-based initiatives, we aim to help develop sustainable health care capacity that
is greatly needed in the ﬁght against AIDS.” IBM seeks innovation through “the
company’s efforts to advance open technology standards and to engage with
governments, academia, think tanks and nongovernmental organizations on emerging
trends in technology, society and culture.”

‘We also face increasing complexity in our product design and

procurement as we adjust to new and upcoming requirements relating to

the composition of our products, including restrictions on the use of lead

and other substances in electronics that will apply to products sold in the

European Union after July 1, 2006.” (Gateway)

Findings suggest that attention to regulatory agencies can decrease innovation,
through increased costs and restrictions. One recommendation is for ﬁrms to collaborate
with industry-wide efforts or govemmental/regulatory agencies. Rather than attract

governmental intervention, Abbott participates in industry-wide efforts to help low-

income, uninsured or underinsured patients access free or discounted medications.

141

Another recommendation is to seek regulatory changes or work with standards bodies
and trade associations.

“This legacy of honesty, quality, and integrity is fundamental to our

ability to attract and retain the best people, gain and keep the trust of our

customers, create shareowner value, support the communities in which we
operate, and protect our reputation.” (UPS)

A ﬁrm’s reputation is slow to change, and attention to multiple stakeholders can
help protect a positive reputation, but may not be able to repair a negative reputation.
Harmful activities have a greater negative effect on reputation than social responsiveness
activities. Therefore, paying attention to regulatory and governmental agencies to avoid
legal sanctions is the best method of protecting reputation. This research shows that
positive social responsiveness increases ﬁrm performance through enhanced reputation,
but negative reputational activities without positive actions reduce both reputation and
ﬁnancial performance. This would suggest increasing programs focusing on multiple
stakeholders. However, a poor reputation for corporate social responsibility discredits
charitable activities, and limits the effectiveness of community-oriented responses. As
most reputation scores published are from an investors View, paying attention to
shareholders has the greatest affect on reputation.

How global operations inﬂuence the ability for a firm to respond to multiple
stakeholders
“We deal with many factories in many countries, each with legal systems

and cultures far different from those of the United States.” (Jones New

York)

Firms with a larger percentage of their sales or supply from outside of the United

States should pay particular attention to address employee and shareholder concerns. A

need to focus on employees is a reﬂection of the various legal and regulatory issues with

142

labor in international markets, as well as the difﬁculty in managing and controlling
supplier labor practices. The ﬁndings related to shareholder orientation reﬂect how
shareholders can inﬂuence multinational corporation decisions and that the growth of
social and ethical investment criteria among shareholders, mutual funds, and pension
asset managers demonstrate increased demands for good global citizenship. Shareholder
resolutions have become increasingly successful at promoting corporate change in global
social responsiveness. For instance, Pepsico, Inc. developed a worldwide policy on
HIV/AIDS in response to a shareholder proposal.

“These achievements demonstrate the strategic advantage of being a

global company, learning from the insights of consumers on every

continent and taking advantage of our market presence all around the

world.” (Coca-Cola Company)

F inns operating in more countries implement stakeholder responsive programs
from focusing on customers. The attention to customers has a stronger affect on
stakeholder responsiveness when the number of countries is higher. As a ﬁrm becomes
experienced in international business and creates greater capabilities to respond to
different conditions. Investments in market research are required in order to understand
customers in international markets. Caterpillar builds long-term relationships with
customers around the world through a global network of independent dealers. General
Electric states:

“As a truly global company, with employees in many countries around the

globe, we can talk to our customers in their own language and with a full
understanding of local needs.” (General Electric)

143

Limitations and future research

The proposed research design is the result of an extensive review of empirical
research on corporate social responsibility and strategic orientations, and adheres to
rigorous research standards. However, the design has some limitations that should be
addressed or considered for future research.

The unit of analysis and sample frame establishes the context of the study to a
segment of ﬁrms. The selection of publicly traded companies as the focus of the study
includes subjects with multiple subsidiaries, aggregating the culture, actions, and
performance of individual strategic business units. It also excludes many large privately
owned companies, such as Levi Strauss and Dole, and many global companies, such as
Sony and Toyota. Recent mergers or companies no longer trading on the US exchange
further reduce the sample available for the study. The use of qualitative and quantitative
secondary sources limits the sample size available for analysis. Document analysis is
time and labor intensive, limiting the number of companies that may be examined
(Swenson-Lepper 2005). The sample is restricted further by the use of multiple secondary
data sources, with only 141 companies that have data in all four databases.

The database of quotations reﬂecting orientation to stakeholders provides a rich
source of future research. Interpretive analysis of quotations could highlight motivation,
temporal focus, and strategy. It may be possible to uncover ﬁrrther relationships among
the stakeholder orientations through examining the dataset in other ways. For example,
using a technique similar to than in Yadav, Prabhu, and Chandy (2007) by running

regressions with raw counts of mentions and taking into consideration document length

144

as a control variable ﬁnds different results with a greater number of hypotheses
supported.

This study conﬁrms the complexity of the relationship between social
responsiveness and performance. Additional research needs to include other known or
potential predictors or moderators such as R&D intensity and Advertising intensity.
Signiﬁcant control variables in this study suggest that further analysis could explore the
differences among industries and the inﬂuence of ﬁrm size.

While the sources for reputation and customer satisfaction are the best available,
there are some known concerns. The source for the reputation construct, FAMA, relates
primarily to the business and ﬁnancial image of the company and does not directly
include the customer or public’s opinion. In addition, the FAMA relies on ratings from
experts primarily in the United States. The measure for customer satisfaction, ACSI, is
also restricted to American opinion. Alternative sources, such as Reputation Quotient
from Harris for reputation, or RepTrakTM Pulse for customer satisfaction, have very small
sample sizes (n=60; n=75), although they provides ratings for a company in multiple
countries. As the objective of this research is to examine the effect of globalness on
stakeholder responsiveness, it would be interesting to include the customer satisfaction in
other countries where companies Operate. To understand the global aspects of corporate
social responsibility and stakeholder orientation, this study could be replicated with

comparable sources from Europe and Asia

145

Appendix A: Codebook

Codebook for Stakeholder Orientation and Globalness Content Analysis

Code: community
"Phrases that demonstrate attention to the community, including the importance of the
community, partnering with the community, desire to meet their needs.

Community refers to the surrounding environment of business operations - including the
neighborhood or country where a facility, supplier, or sales are located. Advocacy
groups/organizations and NGO's (Non governmental organizations like the UN, World
Bank) represent the community interests.

For example: Partnering with NGO's or nonproﬁts to improve the quality of life in the
community/country, paying attention to the interests of the local citizens, contributing to
the development of family, arts, and education programs, volunteering to help with
disaster relief."

Code: customer
"Phrases that demonstrate attention to the customer, including the importance of the
customer(s), listening to customers, desire to meet their needs.

This code will refer to the end-user (consumer) AND customers that are BZB channel.
Search criteria will include both end-user/consumer terms and channel (retailers,
distributors, dealers) terms.

For example: sending cross-functional teams into the market to meet with customers,
channels, and inﬂuencers, valuing a shared understanding of the market, commitment to
consumers, focus on exceeding customer's expectations, gain consumer conﬁdence."

Code: Employee
"Phrases that demonstrate attention to the employee(s), including the importance of the
employee(s), listening to employees, desire to meet their needs.

Examples: Expressing appreciation or recognition of the employees, seeking employees'
opinions and input to planning, establishing relationship with employees - improving job
satisfaction and motivation, conducting research on job safety, establishing goals for
diversity (minority representation in workforce), importance of training.

Phrases referring to actions demonstrating attention to the employees of the
organization, including:

0 employee health & safety programs - receiving a safety award, establishing a
safety department/committee/policy, providing low cost health care for
employees, reducing or eliminating pollutants or hazards in the work
environment.

. employment of minorities or women - disclosing °/o of minorities or women in
workforce or at management level, apprenticeship programs

. employee training - in-house programs, ﬁnancial assistance for continuing

146

education, establishment of trainee centers

. employee assistance/beneﬁts - guidance for employees retiring or severed,
providing staff accommodations/housing, providing scholarships for employees'
children, providing recreational activities/facilities, day-care, maternity and
paternity leave.

. Employee communication: programs for providing information to employees."

Code: regulatory

"Phrases that demonstrate attention to regulatory and governmental agencies, including
the importance of the complying with legal regulations, partnering with the local
government to address concerns, desire to meet their requirements.

Regulatory refers to agencies in the local, country, and world level - such as FDA, FI'C,
SEC, and other applicable regulatory agencies in the US and international markets (EU
requirements/regulations for product registration, safety).

For example: Partnering with regulatory agencies to develop guidelines or meet
requirements, recognizing the role of agencies and the inﬂuence on business operations,
paying attention to the agency/government attitudes - anticipating changes in tactics or
goals."

Code: shareholder

"Phrases the demonstrate attention to shareholders, including the importance of
providing a return on investment, addressing their concerns, willingness to share
information/transparency.

Shareholder refers to owners, investors, stockholders - any person or group of persons
that have a ﬁnancial interest in the company.

For example: Producing long-term results for shareholders, improving shareholder value,
responsibility to shareholders, communicating with/to and listening to shareholders."

Code: supplier
"Phrases that demonstrate attention to the suppliers to the company, including the
importance of the suppliers, listening to suppliers, desire to meet their needs.

Suppliers refer to individuals, ﬁrms, or industries that provide materials, services, and/or
assembly/manufacturing to the company. Suppliers may also be referenced as the
supply chain, fanners/growers, manufacturing partners (be careful - many stakeholder
groups can be called "partners"), sources.

Examples: Expressing appreciation or recognition of the suppliers, seeking supplier
opinions and input to planning, establishing relationship with suppliers, working with
improving quality of supply, providing assistance to suppliers - ﬁnancially or knowledge,
training suppliers, addressing supplier concerns."

147

Globalness

Code: intlcountry
“’passages identiﬁ/ing countries or areas of operations — must be used in conjunction
with other “globalness" indicator”

Code: intlmfgr
"passages indicating manufacturing in countries other than US, owned facilities outside
of the US"

Code: intlsales
"passages indicating sales in countries other than US"

Code: intlstaff
"passages indicating number of employees outside of the US”

Code: intlsupply %1
"mentions suppliers outside of US but not as main focus of passage"

Code: intlsupply %2
"suppliers outside of US are referenced speciﬁcally with no value statement"

Code: intlsupply %3
"suppliers outside of US are typical for business"

Code: intlsupply %4
"suppliers outside of US are important to business"

Code: intlsupply °/o5
"suppliers outside of US are critical to business"

Miscellaneous codes

Code: QUOTE

"For use to ﬂag quotations that you think are particularly interesting and relevant to the
study - for possible inclusion in the write-up of the results. This code should only be used
in conjunction with a speciﬁc stakeholder code."

Code: DISCUSS

"Use this code if you want to discuss this quote with the team. Enter a comment with the
reasons for coding the quotation as Discuss for remembering. To enter a comment on a
quotation, highlight the quotation and "right click" to edit comment."

Code: SOCIETY
"For use when there is a general statement about corporate social responsibility or
corporate citizenship, including responsibility to society in general.

Will not be used in dissertation, but can be a code for those quotations that are "all

inclusive" but do not specify a specific stakeholder group. Should not be used if a
specific stakeholder group is coded."

148

Appendix B: List of Companies in Sample

 

 

Ticker Word Pages
Symbol Company Name Count

AA Alcoa, Inc. 8761 11.7
AAPL Apple Computer, Inc. 33800 45.1
ABS Albertson's, Inc. 9599 12.8
ABT Abbott Laboratories 10960 14.6
ADM Archer-Daniels-Midland Company 4401 5.9
AEP American Electric Power Company, Inc. 8958 11.9
AET Aetna, Inc. 19599 26.1
ALL Allstate Corporation (The) 4615 6.2
AMR AMR Corporation 9375 12.5
AMZN Amazon.com, Inc. 13587 18.1
AN AutoNation, Inc. 10679 14.2
AXP American Express Company 7079 9.4
BA Boeing Company 9153 12.2
BAC Bank of America Corporation 8537 11.4
BBY Best Buy Company, Inc. 18810 25.1
BLS BellSouth Corporation 10878 14.5
BMY Bristol-Myers Squibb Company 22771 30.4
BUD Anheuser-Busch Companies, Inc. 10091 13.5
C Citigroup Inc. 10783 14.4
CAG ConAgra Foods, Inc. 11473 15.3
CAL Continental Airlines, Inc. 3647 4.9
CAT Caterpillar Inc. 14279 19.0
CBS CBS Corporation 15771 21.0
CC Circuit City Stores, Inc. 5039 6.7
CI CIGNA Corporation 4574 6.1
CL Colgate-Palmolive Company 6987 9.3
CLX Clorox Company (The) 4499 6.0
CNP CenterPoint Energy, Inc. 7757 10.3
COP ConocoPhillips 12088 16.1
COST Costco Wholesale Corporation 3637 4.8
CSCO Cisco Systems, Inc. 4073 5.4
CVS CVS Corporation 3425 4.6
CVX Chevron Corporation (& Texaco) 5916 7.9
D Dominion Resources, Inc. 5012 6.7
DD DuPont Company 11079 14.8
DDS Dillard's, Inc. 7936 10.6
DE Deere & Company 3338 4.5
DELL Dell Inc. 10825 14.4
DIS Disney, Walt Company (The) 21329 28.4
DJ Dow Jones & Company 9702 12.9
DOW Dow Chemical Company 9991 13.3
DTV DIRECTV Group, Inc (The) 13047 17.4
DUK Duke Energy Corporation 7325 9.8
EBAY eBay, Inc. 18352 24.5
EDS Electronic Data Systems Corporation 8282 11.0

 

149

 

 

Ticker Word Pages
Symbol Company Name Count

EIX Edison International 6004 8.0
EMR Emerson Electric Co. 3236 4.3
ET E*Trade Financial Corporation 8680 11.6
ETR Entergy Corporation 7243 9.7
EXC Exelon Corporation 4650 6.2
F Ford Motor Company 7031 9.4
FD Federated Department Stores, Inc. 6292 8.4
FDX FedEx Corporation 4531 6.0
FE FirstEnergy Corporation 2538 3.4
FPL FPL Group, Inc. 25536 34.0
GCI Gannett Co., Inc. 9184 12.2
GE General Electric Company 11058 14.7
GM General Motors Corporation 6020 8.0
GOOG Google, Inc. 12424 16.6
GS Goldman Sachs Group, Inc. (The) 12781 17.0
GT Goodyear Tire & Rubber Company 2346 3.1
GTW Gateway, Inc. 13174 17.6
HAL Halliburton Company 6445 8.6
HD Home Depot, Inc. (The) 7514 10.0
HLT Hilton Hotels Corporation 12104 16.1
HNZ Heinz (H.J.) Company 5123 6.8
HON Honeywell International, Inc. 6598 8.8
HOT Starvvood Hotels and Resorts Worldwide, Inc. 11144 14.9
HPQ Hewlett-Packard Company 18312 24.4
IACI IAC/InterActiveCorp 22292 29.7
IBM International Business Machines Corporation 11603 15.5
INTC Intel Corporation 17377 23.2
IP International Paper Company 13454 17.9
JCP Penney (J.C.) Company, Inc. 2820 3.8
JNJ Johnson & Johnson 10681 14.2
JNY Jones Apparel Group, Inc. 9742 13.0
JWN Nordstrom, Inc. 4861 6.5
K Kellogg Company 9425 12.6
KEY KeyCorp 4781 6.4
KO Coca-Cola Company 19044 25.4
KR Kroger Co. 3642 4.9
KSS Kohl's Corporation 5496 7.3
LIZ Liz Claiborne, Inc. 11066 14.8
LMT Lockheed Martin Corporation 6205 8.3
LOW Lowe's Companies, Inc. 7108 9.5
LUV Southwest Airlines Co. 8196 10.9
MAR Marriott International, Inc. 10895 14.5
MCD McDonald's Corporation 1908 2.5
MER Merrill Lynch & Co., Inc. 6444 8.6
MET Metlife, Inc. 2488 3.3
MMM 3M Company 10709 14.3
MO Altria Group, Inc. 6769 9.0
MOT Motorola, Inc. 17554 23.4

 

150

 

 

Ticker Word Pages
Symbol Company Name Count

MRK Merck & Co.. Inc. 7938 10.6
MSFT Microsoft Corporation 10565 14.1
NKE NIKE, Inc. 7802 10.4
NOC Northrop Grumman Corporation 3529 4.7
NYT New York Times Company 3112 4.1
PCG PG&E Corporation 5549 7.4
PEG Public Service Enterprise Group, Incorporated 17273 23.0
PEP PepsiCo, Inc. 20550 27.4
PFE Pfizer, Inc. 10469 14.0
PG Procter 8. Gamble Company 11457 15.3
PGR Progressive Corporation (The) 5498 7.3
PNC PNC Financial Services Group 4935 6.6
Q Qwest Communications lntemational, Inc. 13727 18.3
RAD Rite Aid Corporation 6234 8.3
RAI Reynolds American, Inc. 27269 36.4
RRI Reliant Energy, Inc. 7767 10.4
RTN Raytheon Company 13129 17.5
S Sprint Nextel Corporation 4801 6.4
SBUX Starbucks Corporation 5230 7.0
SHLD Sears Holdings Corporation 5363 7.2
SLE Sara Lee Corporation 4981 6.6
80 Southern Company 4542 6.1
STA St. Paul Travelers Companies, Inc. (The) 25825 34.4
SUN Sunoco, Inc. 16653 22.2
SVU SUPERVALU Inc. 8600 11.5
SWY Safeway Inc. 5956 7.9
T AT&T Inc. 2316 3.1
TAP Molson Coors Brewing Company 5496 7.3
TGT Target Corporation 5821 7.8
TRB Tribune Company 11543 15.4
TSG Sabre Holdings Corporation 9682 12.9
TSN Tyson Foods, Inc. 8070 10.8
TWX Time Warner, Inc. 13968 18.6
TXU TXU Corporation 9739 13.0
UNH UnitedHealth Group, Inc. 8562 11.4
UPS United Parcel Service, Inc. 4614 6.2
VFC VF Corporation 8429 11.2
VLO Valero Energy Corporation 6077 8.1
V2 Verizon Communications 5570 7.4
WAG Walgreen Company 5206 6.9
WB Wachovia Corporation 7595 10.1
WEN Wendy's International, Inc. 8474 11.3
WFC Wells Fargo & Company 10178 13.6
WHR Whirlpool Corporation 8431 1 1.2
WMT Wal-Mart Stores, Inc. 8073 10.8
XOM Exxon Mobil Corporation 13139 17.5
YHOO Yahoo! Inc. 17774 23.7
YUM Yum! Brands, Inc. 6722 9.0

 

151

Appendix C: Sample of Quotations from Coding
Code: community

We provide sponsorships, grants and assistance for education, economic development
and family programs.

In 2004, we also introduced a new program giving employees a paid day off to volunteer
at an eligible nonproﬁt organization of their choice.

We helped build critical community-based health care infrastructure as part of the
company’s larger initiative to address the HIV/AIDS pandemic in southern and West
Africa.

We also scored the highest ranking in the US. and second globally in a World Wildlife
Fund report that analyzed 72 of the world’s leading power companies on current use of
available technologies to reduce carbon dioxide emissions, as well as clear commitments
made for future improvements.

We partner with organizations to make the community a better place.

Counseling and HIV testing services and facilities have been introduced at 77 urban and
rural locations throughout Tanzania.

In 2004, the Citigroup Foundation provided $21.6 million in grants in 42 countries and
territories to prepare the next generation for personal and professional success.

We are partnering with a nonproﬁt pediatric hospital in Venezuela to provide health and
dental care to youngsters, such as Alicia Fernandez, who live in Zulia State.

Our $12 million investment strengthens the educational programming of participating
museums and helps expose families to new forms of art and culture.

Victims of the Asian tsunami in Thailand ﬁnd a glimmer of hope and happiness in
receiving toys and care from Ford volunteers, organized through Ford’s disaster relief

initiative.

The company believes in giving back to the communities from which it draws strength
and sustenance.

Marriott’s “spirit to serve” philosophy extends to critical environmental issues.
Spreading magic through charitable activities has also been an integral part of the

Company’s heritage from its earliest days, when Walt Disney and his employees donated
toys and funds to hospitalized children and designed the ﬁrst Toys for Tots train logo.

152

Code: customer

We’re connecting with customers by proactively soliciting their opinions, carefully
analyzing the feedback, then taking appropriate action.

We simply deliver what our customers want.

We concentrate on businesses that enable us to build relationships with our clients.
Sales associates regularly contact our top customers personally to announce new
merchandise of interest, invite them to store events and follow-up to ensure satisfaction
with purchases

Kroger’s plan starts with the customer.

Our technological capabilities, coupled with modern business models and an evolving
supply chain, enable us to partner with our customers to quickly identify and replenish
those items that are trending well with consumers.

As a result, we are seeing increases in important measures, such as the number of new
clients we attract, and our ability to retain clients and to build deeper relationships with

them.

Being local allows us to respond to our agents and brokers quickly and enables our ﬁeld
leadership to develop meaningful relationships with them.

We proactively reach out to members to educate them on their conditions, and enroll
them in case and disease management programs that help ensure they get the care they
need.

Code: Employee

_It is imperative that we do all we can to nurture the career of each of our employees.

As always, I want to thank our extraordinary employees for their ongoing commitment to
our customers, for striving always to do the right things, for their outstanding
performance and for continually looking for ways to improve.

We believe the people of Goldman Sachs are second to none in the industry.

Presently we’re training over 750 active apprentices, almost half of whom are training to
become electrical line workers.

We work hard to provide an environment where these talented people can have fulﬁlling

jobs and produce technological innovations that have a positive effect on the world
through daily use by millions of people.

153

Developing Colgate people is an important part of providing stimulating career paths and
a motivating environment that will attract and retain the best employees for Colgate’s
continued success.

Our history is ﬁlled with families who have, generation after generation, found Ford to be
a great place to work.

Our associates received 21 million hours of training through delivery vehicles such as e-
leaming and learning forums

We believe that our new training initiatives provide every employee with opportunity for
advancement and to learn skills that help them do their job better, which in turn improves
our customer service and the shopping experience for our customers.

Deere people are united in their pursuit of our goals - and a new compensation system
that became fully effective in 2004 further aligns employee, customer, and investor
interests.

Code: regulatory

We are participating in the proceeding and encouraging the adoption of a methodology
that allows appropriate recovery of the costs of operating an actual network.

The Company and several other companies have asked the FCC to reconsider this rule.
The elimination of quota will change our supply chain practices.

The National Do Not Call Registry had a profound impact on the way newspapers sell
home-delivery circulation, particularly for the larger newspapers which historically have
relied heavily on telemarketing.

The Company is engaged in enforcement and other activities to protect its intellectual
property and is an active participant in various industry-wide litigations, education and
public relations programs and legislative activity on a worldwide basis.

In addition, the company made strides on its major gas pipeline projects in 2004, ﬁling
applications for regulatory approval on a proposed Canadian pipeline and securing
federal enabling legislation on an Alaskan pipeline.

Each is an advocate for meaningful and effective government regulation of all tobacco

products and is focused on reducing the harm caused by cigarettes through the
development of new processes and technologies.

154

 

The company’s goal is to ensure its facilities comply with federal, state, local and foreign
environmental laws and to incorporate appropriate environmental practices and standards
in its operations.

Code: shareholder

By executing a keen investment strategy, we’re leveraging our experience and expertise
to offer investors superior results.

In 2002, shareholders asked PepsiCo to include 10% recycled content in our carbonated
soft drink bottles

Through an appropriate mix of both common stock repurchases and debt retirements, we
will seek to deliver value to our shareholders and support our long-term objective of

improving our bond credit ratings.

We believe this strategy of prioritizing top-line grth with eBay's cost leverage will
translate into higher cash ﬂows and value for our stockholders.

We have generated long-term ﬁnancial value for shareholders by managing and investing
our capital responsibly.

Our 2004 ﬁnancial results were outstanding by every measure and allowed us to invest
for the future, strengthen our balance sheet and return more cash to shareholders.

Our goal is to improve our ﬁnancial performance, which we expect will translate into
stock price improvement and greater value for shareholders.

Instead, we invest to build ﬁnancial security, meet our long- term aspiration of ﬁve to six
percent average annual earnings growth, and deliver top-quartile total shareholder return.

We begin with that simply because being the leader in generating consistent shareholder
returns is one of our overarching long-term aspirations.

Our priority, and our commitment, is to carefully evaluate and then act on opportunities
for using our excess cash to bring maximum beneﬁt to you, our shareholders.

155

Code: supplier

As we gain insight into the challenges our external suppliers face, we learn how to work
toward our common beneﬁt

We owe our suppliers the same type of respect that we show to our customers.
Our suppliers and distributors must have an opportunity to make a fair proﬁt.

In China, we funded a mobile training van program run by an independent monitoring
ﬁrm, in which approximately 20 factories were visited several times during the year,
providing worker training in the following topics: nutrition, reproductive health for
female workers, psychology and interpersonal relationships, social skills, our Factory
Standards, prevention and cure of SARS, calculation of wage and working hours
entitlements, and occupational health and safety.

In 2003, we funded remediation training for approximately ten factories in Guatemala to
address previously unfavorable audit results, speciﬁcally verbal harassment of workers.

We set expectations for supplier performance and reinforce those expectations with
periodic assessments.

It takes a company that is actively pursuing partnerships and applying its own intellectual
property to make the whole system come together with elegance and simplicity-a system
that relies on a network of players and partners, from service providers, to media
companies, to content creators, to online services and more.

We also support the use and development of minority and women-owned business
enterprises, and in 2004, spending with these diverse suppliers was nearly 12 percent of
our total qualiﬁed procurement dollars, excluding fuel and certain other expenses.

We also continued to develop a more disciplined business planning process that utilizes

stronger collaborations with key vendors to execute national promotions that capture the
full power of consistent execution at our more than 2,500 stores.

156

Appendix D: KLD Ratings

 

Qualitative Social Issue Areas

Stakeholder

 

COMMUNITY STRENGTHS

 

Charitable Giving (COM-str-A). The company has consistently given over
1.5% of trailing three-year net earnings before taxes (NEBT) to charity, or
has otherwise been notably generous in its giving.

Community

 

Innovative Giving (COM-str-B). The company has a notably innovative
giving program that supports nonproﬁt organizations, particularly those
promoting self-sufﬁciency among the economically disadvantaged.
Companies that permit nontraditional federated charitable giving drives in
the workplace are often noted in this section as well.

Community

 

Non-US Charitable Giving (COM-str-F). The company has made a
substantial effort to make charitable contributions abroad, as well as in the
US. To qualify, a company must make at least 20% of its giving, or have
taken notably innovative initiatives in its giving program, outside the US.

Community

 

Support for Housing (COM-str-C). The company is a prominent
participant in public/private partnerships that support housing initiatives for
the economically disadvantaged, e. g., the National Equity Fund or the
Enterprise Foundation.

Community

 

Support for Education (COM-str-D). The company has either been

notably innovative in its support for primary or secondary school education,
particularly for those programs that beneﬁt the economically disadvantaged,
or the company hasprominently supported job-training programs for youth.

Community

 

Volunteer Programs (COM-str—G). The company has an exceptionally
strong volunteer program.

Community

 

Other Strength (COM-str-X). The company either has an exceptionally
strong in-kind giving program or engages in other notably positive
community activities.

Community

 

COMMUNITY CONCERNS

 

Investment Controversies (COM-con-A). The company is a ﬁnancial
institution whose lending or investment practices have led to controversies,
articularly ones related to the Community Reinvestment Act.

Community

 

Negative Economic Impact (COM-con-B). The company’s actions have
resulted in major controversies concerning its economic impact on the
community. These controversies can include issues related to environmental
contamination, water rights disputes, plant closings, "put-or-pay" contracts
with trash incinerators, or other company actions that adversely affect the
quality of life, tax base, or property values in the community.

Community

 

Tax Disputes (COM-con-D). The company has recently been involved in
major tax disputes involving Federal, state, local or non-US. government
authorities, or is involved in controversies over its tax obligations to the
community.

Regulatory
Community

 

 

Other Concern (COM-con-X). The company is involved with a
controversy that has mobilized community opposition, or is engaged in
other noteworthy community controversies.

 

Community

 

157

 

 

Qualitative Social Issue Areas

Stakeholder

 

CORPORA TE GOVERNANCE STRENGTHS

 

Limited Compensation (CGOV-str-A). The company has recently
awarded notably low levels of compensation to its top management or its
board members. The limit for a rating is total compensation of less than
$500,000 per year for a CEO or $30,000 161' year for outside directors.

Shareholder

 

Ownership Strength (CGOV—str-C). The company owns between 20% and
50% of another company KLD has cited as having an area of social
strength, or is more than 20% owned by a ﬁrm that KLD has rated as
having social strengths. When a company owns more than 50% of another
ﬁrm, it has a controlling interest, and KLD treats the second ﬁrm as if it is a
division of the ﬁrst.

Shareholder

 

Transparency Strength (CGOV-str-D). The company is particularly
effective in reporting on a wide range of social and environmental
performance measures, or is exceptional in reporting on one particular
measure.

Shareholder

 

Political Accountability Strength (CGOV-str-E). The company has shown
markedly responsible leadership on public policy issues and/or has an
exceptional record of transparency and accountability concerning its
political involvement in state or federal-level US. politics, or in non-US.
politics.

Regulatory

 

Other Strength (CGOV-str-X). The company has a unique and positive
corporate culture, or has undertaken a noteworthy initiative not covered by
KLD’s other corporate governance ratings.

Shareholder

 

CORPORATE GOVERNANCE CONCERNS

 

High Compensation (CGOV-con-B). The company has recently awarded
notably high levels of compensation to its top management or its board
members. The limit for a rating is total compensation of more than $10
million per year for a CEO or $100,000 per year for outside directors.

Shareholder

 

Ownership Concern (CGOV-con-F). The company owns between 20%
and 50% of a company KLD has cited as having an area of social concern,
or is more than 20% owned by a ﬁrm KLD has rated as having areas of
concern. When a company owns more than 50% of another ﬁrm, it has a
controlling interest, and KLD treats the second ﬁrm as if it is a division of
the ﬁrst.

Shareholder

 

Accounting Concern (CGOV-con-G). The company is involved in
signiﬁcant accounting-related controversies.

Shareholder

 

Transparency Concern (CGOV-con-H). The company is distinctly weak
in reporting on a wide range of social and environmental performance
measures.

Shareholder

 

Political Accountability Concern (CGOV-con-I). The company has been
involved in noteworthy controversies on public policy issues and/or has a
very poor record of transparency and accountability concerning its political
involvement in state or federal-level US. politics, or in non-US. politics.

Regulatory
Shareholder

 

 

Other Concern (CGOV-con-X). The company is involved with a
controversy not covered by KLD’s other comorate governance ratings.

 

 

158

 

 

Qualitative Social Issue Areas

Stakeholder

 

DIVERSITY STRENGTHS

 

CEO (DIV -str-A). The company's chief executive ofﬁcer is a woman or a
member of a minority group.

Employee

 

Promotion (DIV-str-B). The company has made notable progress in the
promotion of women and minorities, particularly to line positions with
proﬁt-and-loss responsibilities in the corporation.

Employee

 

Board of Directors (DIV-str-C). Women, minorities, and/or the disabled
hold four seats or more (with no double counting) on the board of directors,
or one-third or more of the board seats if the board numbers less than 12.

Employee

 

Work/Life Benefits (DIV-str-D). The company has outstanding employee
beneﬁts or other programs addressing work/life concerns, e.g., childcare,
elder care, or ﬂextime.

Employee

 

Women & Minority Contracting (DIV-str-E). The company does at least
5% of its subcontracting, or otherwise has a demonstrably strong record on
purchasing or contracting, with women-and/or minority-owned businesses.

Supplier

 

Employment of the Disabled (DIV-str—F). The company has implemented
innovative hiring programs; other innovative human resource programs for

the disabled, or otherwise has a superior reputation as an employer of the
disabled.

Employee

 

Gay & Lesbian Policies (DIV-str-G). The company has implemented
notably progressive policies toward its gay and lesbian employees. In
particular, it provides beneﬁts to the domestic partners of its employees.

Employee

 

Other Strength (DIV-str-X). The company has made a notable
commitment to diversity that is not covered by other KLD ratings.

 

DIVERSITY CONCERNS

 

Controversies (DIV -con-A). The company has either paid substantial ﬁnes
or civil penalties as a result of afﬁrmative action controversies, or has
otherwise been involved in major controversies related to afﬁrmative action
issues.

Regulatory
Employee

 

N on-Representation (DIV-con-B). The company has no women on its
board of directors or among its senior line managers.

Employee

 

Other Concern (DIV -con-X). The company is involved in diversity
controversies not covered by other KLD ratings.

 

EMPLOYEE RELA T IONS STRENGTHS

 

Union Relations (EMP-str-A). The company has taken exceptional steps to
treat its unionized workforce fairly. KLD renamed this strength from Strong
Union Relations.

Employee

 

Cash Proﬁt Sharing (EMP-str-C). The company has a cash proﬁt-sharing
program through which it has recently made distributions to a majority of
its workforce.

Employee

 

 

Employee Involvement (EMP-str-D). The company strongly encourages
worker involvement and/or ownership through stock options available to a
majority of its employees; gain sharing, stock ownership, sharing of
ﬁnancial information, or participation in management decision-making.

 

Employee

 

159

 

 

Qualitative Social Issue Areas

Stakeholder

 

Retirement Beneﬁts Strength (EMP-str-F). The company has a notably
strong retirement beneﬁts program. KLD renamed this strength from Strong
Retirement Beneﬁts.

Employee

 

Health and Safety Strength (EMP-str-G). The company has strong health
and safety programs.

Employee

 

Other Strength (EMP—str—X). The company has strong employee relations
initiatives not covered by other KLD ratings.

Employee

 

EMPLOYEE RELA T IONS CONCERNS

 

Union Relations (EMP-con-A). The company has a history of notably poor
union relations. KLD renamed this concern from Poor Union Relations.

Employee

 

Health and Safety Concern (EMP-con-B). The company recently has
either paid substantial ﬁnes or civil penalties for willful violations of
employee health and safety standards, or has been otherwise involved in
major health and safety controversies.

Regulatory
Employee

 

Workforce Reductions (EMP-con-C). The company has made signiﬁcant
reductions in its workforce in recent £318.

Employee

 

Retirement Beneﬁts Concern (EMP—con-D). The company has either a
substantially under funded deﬁned beneﬁt pension plan, or an inadequate
retirement beneﬁts program.

Employee

 

Other Concern (EMP—con-X). The company is involved in an employee
relations controversy that is not covered by other KLD ratings.

Employee

 

ENVIRONMENT STRENGTHS

 

Beneﬁcial Products and Services (ENV-str-A) The company derives
substantial revenues from innovative remediation products, environmental
services, or products that promote the efﬁcient use of energy, or it has
developed innovative products with environmental beneﬁts. (The term
“environmental service” does not include services with questionable
environmental effects, such as landﬁlls, incinerators, waste-to-energy
plants, and deep inﬂtion wells.)

Community
Customer

 

Pollution Prevention (ENV-str-B). The company has notably strong
pollution prevention programs including both emissions reductions and
toxic-use reduction programs.

Community

 

Recycling (ENV-str-C). The company either is a substantial user of
recycled materials as raw materials in its manufacturing processes, or a
major factor in the recycling industry.

Community

 

Clean Energy (ENV-str-D). The company has taken signiﬁcant measures
to reduce its impact on climate change and air pollution through use of
renewable energy and clean fuels or through energy efﬁciency. The
company has demonstrated a commitment to promoting climate-ﬁiendly
policies and practices outside its own operations.

Community

 

 

Other Strength (ENV-str-X). The company has demonstrated a superior
commitment to management systems, voluntary programs, or other
environmentally proactive activities.

 

 

160

 

 

Qualitative Social Issue Areas

Stakeholder

 

ENVIRONMENT CONCERNS

 

Hazardous Waste (ENV-con-A). The company's liabilities for hazardous
waste sites exceed $50 million, or the company has recently paid substantial
ﬁnes or civil penalties for waste management violations.

Regulatory

 

Regulatory Problems (ENV-con-B). The company has recently paid
substantial ﬁnes or civil penalties for violations of air, water, or other
environmental regulations, or it has a pattern of regulatory controversies
under the Clean Air Act, Clean Water Act or other major environmental
regulations.

Regulatory

 

Ozone Depleting Chemicals (ENV-con-C). The company is among the top
manufacturers of ozone depleting chemicals such as HCFCs, methyl
chloroform, methylene chloride, or bromines.

Community

 

Substantial Emissions (ENV-con-D). The company's legal emissions of
toxic chemicals (as deﬁned by and reported to the EPA) from individual
plants into the air and water are among the highest of the companies
followed by KLD.

Community

 

Agricultural Chemicals (ENV-con-E). The company is a substantial
producer of agricultural chemicals, i.e., pesticides or chemical fertilizers.

 

Climate Change (ENV-con-F). The company derives substantial revenues
from the sale of coal or oil and its derivative fuel products, or the company
derives substantial revenues indirectly from the combustion of coal or oil
and its derivative fuel products. Such companies include electric utilities,
transportation companies with ﬂeets of vehicles, auto and truck
manufacturers, and other transportation equipment companies.

 

Other Concern (ENV-con-X). The company has been involved in an
environmental controversy that is not covered by other KLD ratings.

 

HUMAN RIGHTS STRENGTHS

 

Indigenous Peoples Relations Strength (HUM-str-D). The company has
established relations with indigenous peoples near its proposed or current
operations (either in or outside the US.) that respect the sovereignty, land,
culture, human rights, and intellectual property of indigenous peoples.

Community

 

Labor Rights Strength (HUM-str-G). The company has outstanding
transparency on overseas sourcing disclosure and monitoring, or has
particularly good union relations outside the US, or has undertaken labor
rights-related initiatives that KLD considers outstandingor innovative.

Employee
Supplier

 

 

Other Strength (HUM-str-X). The company has undertaken exceptional
human rights initiatives, including outstanding transparency or disclosure
on human rights issues, or has otherwise shown industry leadership on
human rights issues not covered by other KLD human rights ratings.

 

 

161

 

 

Qualitative Social Issue Areas

Stakeholder

 

HUMAN RIGHTS CONCERNS

 

Labor Rights Concern (HUM-con-F). The company's operations have had
major recent controversies primarily related to labor standards in its supply
chain.

Supplier

 

Indigenous Peoples Relations Concern (HUM-con-G). The company has
been involved in serious controversies with indigenous peoples (either in or
outside the US.) that indicate the company has not respected the
sovereignty, land, culture, human rights, and intellectual property of
indigenous peoples.

Community

 

Other Concern (HUM-con-X). The company’s operations have been the
subject of major recent human rights controversies not covered by other
KLD ratings.

 

PRODUCT STRENGTHS

 

Quality (PRO-str-A). The company has a long-term, well-developed,
company-wide quality program, or it has a quality program recognized as
exceptional in US. industry.

Customer

 

R&D/Innovation (PRO-str-B). The company is a leader in its industry for
research and development (R&D), particularly by bringing notably
innovative products to market.

Customer

 

Beneﬁts to Economically Disadvantaged (PRO-str-C). The company has
as part of its basic mission the provision of products or services for the
economically disadvantaged.

Customer

 

Other Strength (PRO-str-X). The company's products have notable social
beneﬁts that are highly unusual or unique for its industry.

Customer

 

PRODUCT CONCERNS

 

Product Safety (PRO-con-A). The company has recently paid substantial
ﬁnes or civil penalties, or is involved in major recent controversies or
regulatory actions, relating to the safety of its products and services.

Customer
Regulatory

 

Marketing/Contracting Concern (PRO-con-D). The company has
recently been involved in major marketing or contracting controversies, or
has paid substantial ﬁnes or civil penalties relating to advertising practices,
consumer fraud, or government contracting.

Customer
Regulatory

 

Antitrust (PRO-con-E). The company has recently paid substantial ﬁnes or
civil penalties for antitrust violations such as price ﬁxing, collusion, or
predatory pricing, or is involved in recent major controversies or regulatory
actions relating to antitrust allegations.

Regulatory

 

 

Other Concern (PRO-con-X). The company has major controversies with
its franchises, is an electric utility with nuclear safety problems, defective
product issues, or is involved in other product-related controversies not
covered by other KLD ratings.

 

 

162

 

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