Stakeholder engagement strategies, national institutions, and firm performance: A configurational perspective

• Author: Donal Crilly,Kamini Gupta,Thomas Greckhamer
• DOI: http://doi.org/10.1002/smj.3204
• Date: 01 October 2020
• Published date: 01 October 2020

RESEARCH ARTICLE

Stakeholder engagement strategies, national

institutions, and firm performance: A

configurational perspective

Kamini Gupta

1

| Donal Crilly

2

| Thomas Greckhamer

3

1

International Business & Comparative

Management, King's Business School,

King's College London, London, UK

2

Strategy and Entrepreneurship, London

Business School, London, UK

3

Rucks Department of Management, E.J.

Ourso College of Business, Louisiana

State University, Baton Rouge, Louisiana

Correspondence

Kamini Gupta, International Business &

Comparative Management, King's

Business School, King's College London,

30 Aldwych, London WC2B 4BG, UK.

Email: kamini.gupta@kcl.ac.uk

Abstract

Research summary: Research documents the perfor-

mance effects of attending to shareholders and treating

employees well but underplays national differences in

the relative power of labor and capital. We advance a

configurational perspective that acknowledges the fit

between stakeholder engagement, context, firm attri-

butes and performance. As a cornerstone of this per-

spective, we develop a typology of stakeholder

engagement strategies expressing how firms navigate

the tension between conforming with local expecta-

tions—by prioritizing shareholders or employees,

according to context—and being distinctive—by

diverging from their peers. Analyzing a cross-national

sample of firms from 2004 to 2011, we identify combi-

nations of engagement strategies, firm attributes, and

contexts linked to high performance. Our findings

highlight the multiple context-dependent paths, which

link stakeholder engagement to high firm performance.

Managerial summary: How do firms navigate pres-

sures from shareholders and employees across different

institutional environments? We develop a typology of

stakeholder engagement strategies based on how firms

in different countries strike a balance between confor-

mity (i.e., prioritizing locally important stakeholders)

Received: 16 July 2018 Revised: 13 March 2020 Accepted: 16 March 2020 Published on: 24 June 2020

DOI: 10.1002/smj.3204

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and

reproduction in any medium, provided the original work is properly cited.

© 2020 The Authors. Strategic Management Journal published by John Wiley & Sons, Ltd. on behalf of Strategic Management Society.

Strat Mgmt J. 2020;41:1869–1900. wileyonlinelibrary.com/journal/smj 1869

and differentiation (i.e., prioritizing stakeholders that

their local peers might neglect). Our findings show that

the engagement strategies associated with high perfor-

mance vary according to local institutional context and

firm characteristics. In particular, by not merely priori-

tizing stakeholders who are already locally important,

firms can use stakeholder engagement to differentiate

themselves from their peers, and such engagement

strategies are often linked to high performance.

KEYWORDS

configurational theory, institutional theory, qualitative comparative

analysis, stakeholder theory, varieties of capitalism

1|INTRODUCTION

Institutions—“the rules of the game in a society or….the humanly devised constraints that

shape human interaction”(North, 1990, p. 3)—both constrain and empower actors and activi-

ties (Scott, 2001). Institutions linked to the stakeholder groups of labor and capital are of high

importance for firms (Aguilera & Jackson, 2003; Ahmadjian & Robbins, 2005), and the relative

importance of these two stakeholder groups is the core distinction between market-driven and

coordinated institutional systems. In market-driven institutional systems, firms are reliant on

equity financing and have access to flexible labor markets, and the state enshrines firms' fidu-

ciary duty to their shareholders in law. In coordinated institutional systems, firms rely on long-

term bank-based financing, provide greater employment security for their employees, and the

state restricts employers' rights to unilaterally change employment terms. These cross-national

differences in labor relations and the working of capital markets shape firms' relationships with

their shareholders and employees (Coates, 2005; Hall & Soskice, 2001; Witt & Jackson, 2016).

It is common for competing interests to produce tensions between labor and capital (Coff, 1999;

Falato & Liang, 2016). Market-driven and coordinated institutional systems represent institutional

attempts to address these conflicts, but within both types of environments firms retain some discre-

tion in how they allocate resources among stakeholders (Mitchell, Agle, & Wood, 1997). For exam-

ple, firms might use employment quality initiatives to attract talent (Bode, Singh, & Rogan, 2015) or

governance initiatives to raise new capital (Gompers, Ishii, & Metrick, 2003). Firms with limited

resources must typically choose between such initiatives, and performance outcomes are likely to

be sensitive to the institutional context in which a firm operates (Barnett, 2007). Prior research has

assessed the consequences of employee treatment (Edmans, 2011) or governance reform (Tuschke

& Sanders, 2003) on firm performance. Although this research has provided important insights, it

has generally studied each aspect in isolation (e.g., initiatives for labor or capital) and in a single

institutional setting (e.g., the United States or Germany). Therefore, the existing literature does not

enable insights into how firms across different contexts simultaneously address pressures from labor

and capital, and how doing so impacts their performance.

Addressing this gap in the literature, our study's research question is as follows: under

which institutional and firm-level conditions are different stakeholder engagement strategies

1870 GUPTA ET AL.

linked to high financial performance? Our point of departure is the importance of fit between

strategy and context. We develop a typology of engagement strategies that combines two theo-

retical premises: (a) that institutional contexts generate rules and norms that shape stakeholder

engagement and (b) that these norms create opportunities for distinct strategies. The combina-

tion of these two premises is vital because firms perform well when they are sufficiently differ-

ent from competitors while also conforming to local expectations (e.g., Deephouse, 1999;

Phillips & Zuckerman, 2001; Zhao, Fisher, Lounsbury, & Miller, 2017). Accordingly, our typol-

ogy holds that firms can focus their stakeholder engagement: (a) on activities that complement

local institutional arrangements (“complementary engagement”), (b) on stakeholders that are

of lesser importance locally (“substitutionary engagement”), (c) on adhering to minimal institu-

tional requirements (“minimalist engagement”), or (d) on activities that both complement and

substitute for their institutional environments (“encompassing engagement”). Building on this

typology, we develop a configurational model that recognizes that firm's stakeholder engage-

ment strategies are linked to performance in combination with firm-level factors, such as the

degree to which maintaining the firm's business is dependent on support from employees and

from shareholders.

To study this configurational model, we use fuzzy-set qualitative comparative analysis

(fsQCA; Ragin, 2000, 2008). This approach enables us to assess how distinct stakeholder

engagement strategies are linked to firm performance under different firm-level and institu-

tional conditions. With a data set of 122 firms across 13 countries for the period from 2004 to

2011, we identify five configurations of stakeholder engagement and institutional context that

are consistently linked with high performance. These configurations capture different condi-

tions in which substitutionary, minimalist, or encompassing engagement strategies are linked

to high performance, whereas no configuration linked to high performance involves a comple-

mentary engagement strategy. Accordingly, our central contribution is to demonstrate that,

beyond the normative stakeholder management defined by national institutions, firms may pur-

sue one of a number of engagement strategies. Our findings highlight a key role for strategy,

contingent on institutional context and firm-level factors, in linking stakeholder engagement to

financial performance. Scholars have called for researchers to take into account environmental

complexity in order to understand how firms manage the tension between conformity and dif-

ferentiation (Zhao et al., 2017). By assessing a range of environments, we find that, rather than

pursuing a single “optimally distinct”strategy that strikes a balance between conformity and

differentiation, firms can pursue other engagement strategies that fit their particular context.

2|THEORETICAL BACKGROUND

The management of stakeholders—groups or individuals “who can affect or [are] affected by

the achievement of the organization's objectives”(Freeman, 1984, p. 46)—is a crucial element

of strategy. Research on the relationship between stakeholder management and firm perfor-

mance (Margolis, Elfenbein, & Walsh, 2007; McWilliams & Siegel, 2001; Orlitzky, Schmidt, &

Rynes, 2003) is inconclusive, which suggests that it is neither simple nor universal. Accordingly,

we build on recent research emphasizing firm performance as the outcome of a complex, multi-

level process (Fiss, 2007, 2011; Misangyi et al., 2017), dependent on both firm strategy and its

institutional environment. The resulting configurational model considers the joint effects of

country- and firm-level dimensions to explore the implications of how firms attend to stake-

holder groups representing labor and capital. We focus on employees and shareholders as the

GUPTA ET AL.1871