Do LGBT‐supportive corporate policies enhance firm performance?

• Author: Shaun Pichler,Janell L. Blazovich,Janet M. Huston,Kirsten A. Cook,William R. Strawser
• Published date: 01 January 2018
• Date: 01 January 2018
• DOI: http://doi.org/10.1002/hrm.21831

HR SCIENCE FORUM

Do LGBT-supportive corporate policies enhance firm

performance?

Shaun Pichler

1

| Janell L. Blazovich

2

| Kirsten A. Cook

3

| Janet M. Huston

4

|

William R. Strawser

5

1

California State University, Fullerton, CA

2

University of St. Thomas, St. Paul, MN

3

Texas Tech University, Lubbock, TX

4

Arizona State University, Tempe, AZ

5

University of Colorado Denver, Denver, CO

Correspondence

Kirsten Cook, School of Accounting, Rawls

College of Business, Texas Tech University,

703 Flint Avenue, Lubbock, TX 79409-2101.

Email: kirsten.cook@ttu.edu

Prior research provides evidence that lesbian, gay, bisexual, and transgender (LGBT)-supportive

corporate policies are related to important human resource functions, such as enhanced

recruitment and retention. In addition, prior research indicates that investors view the adoption

of such policies positively. We examine the firm-performance mechanisms underlying favorable

stock-market reactions based on an integration of perspectives from corporate social responsi-

bility and the business case for diversity. Specifically, we estimate a hierarchical linear model

(HLM) to account for the nested nature of our data (firms nested within states) and find that

(1) the presence of LGBT-supportive policies is associated with higher firm value, productivity,

and profitability; (2) the firm-value and profitability benefits associated with LGBT-supportive

policies are larger for companies engaged in research and development (R&D) activities; and

(3) the firm-value and profitability benefits of LGBT-supportive policies persist in the presence

of state antidiscrimination laws. In supplemental analyses, we find that firms implementing (dis-

continuing) LGBT-supportive policies experience increases (decreases) in firm value, productiv-

ity, and profitability. We are among the first to link LGBT-supportive policies specifically to

financial performance outcomes as well as to develop and test a multilevel model of these rela-

tionships. Our results have important implications for theory and research on LGBT issues in

organizations, human resource managers, and policymakers.

KEYWORDS

corporate social responsibility, diversity, firm performance, LGBT, resource-based view

1|INTRODUCTION

Significant advances have been made in recent history in the United

States for the lesbian, gay, bisexual, and transgender (LGBT) commu-

nity. In 2011, “Don’t Ask, Don’t Tell”was repealed, effectively allow-

ing gay men and lesbians to serve openly in the military. In 2013, the

US Supreme Court handed down two key rulings related to same-sex

marriage. The Defense of Marriage Act (DOMA), which defined mar-

riage as a union between a man and a woman, was repealed in a 5–4

decision (United States v. Windsor, 2013). In another 5–4 decision

(Hollingsworth v. Perry, 2013), the court dismissed an appeal from pro-

ponents of California’s Proposition 8, which had banned same-sex

marriages in that state, on jurisdictional grounds—returning the case

to the Ninth Circuit and effectively allowing same-sex marriages in

that state to resume. There is also increased public and political sup-

port for the passage of federal nondiscrimination employment legisla-

tion known as the Employment Nondiscrimination Act of 2013, and

the US Senate recently voted to approve the act in a 64–32 vote.

Historically, public opinion of homosexuality has been negative.

In 1965, 70 percent of respondents in a public opinion poll indicated

that homosexuals were harmful to American life (Herek, 2002). Since

that time, public opinion of homosexuality has changed significantly,

becoming more positive (Hicks & Lee, 2006). Today, while approxi-

mately 40 percent of Americans feel that homosexuality is “always

wrong”(Bowman, Rugg, & Marisco, 2013), most Americans (63 per-

cent) feel that discrimination against gay men and lesbians is some-

what serious or very serious (Gallup, 2014), and 67 percent favor

expanding federal hate crime laws to include sexual orientation

DOI: 10.1002/hrm.21831

Hum Resour Manage. 2018;57:263–278. wileyonlinelibrary.com/journal/hrm © 2017 Wiley Periodicals, Inc. 263

(Gallup, 2014). Organizational support for LGBT workers also has

risen noticeably in recent years. Whereas 61 percent of the Fortune

500 had nondiscrimination policies in 2002, 88 percent did in 2013

(Human Rights Campaign, 2014).

Management and organization researchers have become increas-

ingly interested in organizational support for LGBT workers

(e.g., Anteby & Anderson, 2014; Creed, Scully, & Austin, 2002; Day &

Schoenrade, 1997; Griffith & Hebl, 2002; Kaplan, 2006; King & Cor-

tina, 2010; Pichler & Ruggs, 2015; Theodorakopolous & Budhwar,

2015; Trau & Härtel, 2007). Recent research at the organizational

level has focused on potential financial benefits to organizations for

adopting LGBT-supportive policies and practices. For instance, John-

ston and Malina (2008), Wang and Schwarz (2010), and Li and Nagar

(2013) examine company-level data to determine whether investors

appreciate LGBT-supportive policies, and each of these studies docu-

ments at least some support for the hypothesized positive association

between these policies and stock prices. However, these studies rely

on stock market return data to provide evidence of this positive asso-

ciation and call for additional research examining the fundamental

performance improvements yielding their results.

We address these calls by developing and testing a cross-level

theoretical model of firm-performance outcomes associated with

LGBT-supportive policies (Figure 1), which is the overarching purpose

of our study. We do so using a more generalizable dataset than has

been used in previous research, offering a number of important and

unique benefits, which we describe in the methods section. We

therefore provide a robust and valid test of the proposition that orga-

nizations adopting LGBT-supportive policies perform better than

nonadopters. To our knowledge, ours is the most sophisticated test

of this proposition to date. In so doing, we address calls for more

research on the economic imperative organizations face in terms of

adopting LGBT-supportive policies, as well as the role of state laws

as related to the protection of LGBT workers (e.g., King & Cortina,

2010; Pichler & Ruggs, 2015). Results of our research have important

implications for organizations, policymakers, and human resource

management.

2|THEORY AND HYPOTHESES

2.1 |Integrating Corporate Social Responsibility and

the Business Case for LGBT-Supportive Policies

2.1.1 |Corporate Social Responsibility (CSR) Theory

Howard Bowen, a pioneer of social responsibility theory, described

CSR as a reference “to the obligations of businessmen to pursue

those policies, to make those decisions, or to follow those lines of

actions which are desirable in terms of the objectives and values of

society”(Bowen, 1953, p. 6). Although there are a variety of theoreti-

cal perspectives of CSR (Carroll, 1994; Garriga & Melé, 2013; McWil-

liams & Siegel, 2001), the prevailing framework is that of corporate

social performance (CSP; Carroll, 1979; Preston, 1978), which is

closely tied to stakeholder theory (Donaldson & Preston, 1995). The

key proposition of stakeholder theory as it applies to CSR is that

firms have varied stakeholders who are affected by and affect the

firm in terms of, for instance, its performance (Freeman, 1984). Thus,

the CSP model posits that firms respond to social issues and social

responsibility, in part, due to an economic imperative (e.g., M. B. E.

Clarkson, 1995; Garriga & Melé, 2013; Wartick & Cochran, 1985).

Simply put, firms attempt to behave in a socially responsive way so

as to engage stakeholders in a manner that improves performance.

Numerous studies document a positive association between CSR,

broadly defined, and firm performance (Blazovich & Smith, 2011;

Chung, Eneroth, & Schneeweis, 2003; Rushton, 2002; Waddock &

Graves, 1997). Findings suggest that firm performance is positively

State Level

Firm Level

LGBT-

Supportive

Policies

Firm Financial

Performance

Engagement in

R&D Activities

State Anti-

Discrimination

Law

Stock Market

Reactions

Previous Research –Dotted LinesCurrent Study –Solid Lines

Proposition 2

Proposition 1

Hypothesis 1

Hypothesis 3

Hypothesis 2

FIGURE 1 Cross-Level Theoretical Model of Firm Performance Outcomes of LGBT-Supportive Policies

264 PICHLER ET AL.