The Impact of Stakeholder Management on Corporate International Diversification

• Author: Jijun Gao,Natalie Slawinski
• Published date: 01 September 2015
• DOI: http://doi.org/10.1111/basr.12061
• Date: 01 September 2015

The Impact of Stakeholder

Management on Corporate

International Diversification

JIJUN GAO AND NATALIE SLAWINSKI

ABSTRACT

This article explores the relationship between stake-

holder management and international diversification.

We differentiate between strengths and concerns in

stakeholder management to demonstrate the differential

effects of the two aspects of stakeholder management.

Previous research on stakeholder theory often focuses

on the importance of stakeholder relations, trying to

build a business case of relational capital that results

from strong stakeholder management. Such a relational

approach, however, overlooks the process of managing

stakeholders, a process that allows firms with strengths

in stakeholder management to develop an important

capability of managing tensions. In this study, we argue

that this capability, an inherent part of stakeholder man-

agement, can be critical when firms face increased com-

plexity during the process of international diversification.

We therefore propose that strengths in stakeholder man-

agement are positively related to international diversifi-

cation, while concerns in stakeholder management are

Note: Authors made equal contributions and are listed alphabetically.

Jijun Gao is Assistant Professor, Asper School of Business, University of Manitoba, Winnipeg,

MB, Canada. E-mail: jijun.gao@umanitoba.ca. Natalie Slawinski is Assistant Professor,

Faculty of Business Administration, Memorial University of Newfoundland, St. John’s, NL,

Canada. E-mail: nslawinski@mun.ca.

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Business and Society Review 120:3 409–433

© 2015 Center for Business Ethics at Bentley University. Published by Wiley Periodicals, Inc.,

350 Main Street, Malden, MA 02148, USA, and 9600 Garsington Road, Oxford OX4 2DQ, UK.

negatively related to international diversification. Using

panel data for 169 US multinational firms over a 10-year

period, we find support that strengths in stakeholder

management facilitate international diversification. We

discuss the contributions of our findings to stakeholder

theory and international business research.

INTRODUCTION

Stakeholder theory suggests that to be successful in the

long run, firms must look beyond their shareholders and

attend to other stakeholders’ needs and goals, such as

those of employees and customers (Clarkson 1995; Donaldson

and Preston 1995; Freeman 1984; Jones 1995; Wood 1991). The

instrumental value of stakeholder management, and more gener-

ally corporate social responsibility, has been well documented in

past studies, a large number of which reported a positive rela-

tionship between stakeholder management and corporate finan-

cial performance (see Aguinis and Glavas 2012; Orlitzky et al.

2003, for an overview). For example, Hillman and Keim (2001)

proposed that stakeholder management is a source of competitive

advantage for firms because building relationships with stake-

holders improves the reputation of firms and reduces conflicts

with stakeholders. They found that firms that attend to stake-

holder expectations—often reflected in social goals such as

employee diversity and community relations—do experience

increased value creation.

An implicit premise in the stakeholder literature is that firms

must manage tensions between different stakeholders who often

have competing interests (Donaldson and Preston 1995; Freeman

1984; Rowley 1997). Smith et al. (2013) have gone further and

systematically identified four types of tensions as firms attempt to

integrate social and business missions. These include performing

tensions that emerge from different goals, organizing tensions that

emerge from different cultures and practices, belonging tensions

that emerge from divergent identities, and learning tensions that

emerge from divergent time horizons (p. 410). As an example of

performing tensions, when firms provide donations to nongover n-

mental organizations (NGOs) such as the World Wildlife Fund,

410 BUSINESS AND SOCIETY REVIEW