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Abstract:
A central and contentious debate in many literatures concerns the relationship between financial and social performance. We advance this debate by measuring the financial-social performance link within mutual funds that practice socially responsible investing (SRI). SRI fund managers have an array of social screening strategies from which to choose. Prior studies have not addressed this heterogeneity within SRI funds. Combining modern portfolio and stakeholder theories, we hypothesize that the financial loss borne by an SRI fund due to poor diversification is offset as social screening intensifies because better managed and more stable firms are selected into its portfolio. We find support for this hypothesis through an empirical test on a panel of 61 SRI funds from 1972-2000. The results show that as the number of social screens used by an SRI fund increases, financial returns decline at first, but then rebound as the number of screens reaches a maximum. That is, we find a curvilinear relationship, suggesting that two long-competing viewpoints may be complementary. Furthermore, we find that financial performance varies with the types of social screens used. Community relations screening increased financial performance, but environmental and labor relations screening decreased financial performance. Based on our results, we suggest that literatures addressing the link between financial and social performance move toward in-depth examination of the merits of different social screening strategies, and away from the continuing debate on the financial merits of either being socially responsible or not.

stakeholder theory, modern portfolio theory, corporate social responsibility

Abstract:
Are financial and social performance negatively associated, positively associated, or are they simply unrelated? Common sense, theory, and a growing body of empirics have supported all of the above contradictory positions. Despite the importance of this body of research and the intensity of study directed at it, in the end, the relationship between social performance and financial performance remains in dispute. In this paper, we attempt to reconcile these divergent views through an empirical study of socially responsible investing (SRI) mutual funds. Many scholars have compared the financial performance of SRI mutual funds to those of funds that do not screen their holdings based on social criteria. The results have been mixed. Rather than comparing socially screened to unscreened mutual funds, we examine differences within socially screened funds. SRI funds vary greatly in the type and intensity of social screens they choose, as well as in the financial performance they achieve. Previous research has not accounted for this heterogeneity within social screening criteria.

Socially responsible investing, corporate social responsibility

Abstract:
Should corporations serve as agents of social change? For more than 30 years, scholars have attempted to make a "business case" that demonstrates that corporations should because they can earn positive financial returns from social responsibility. However, the business case remains unproven. This paper argues that research on the business case must account for the path dependent nature of firm-stakeholder relations, and develops the construct of stakeholder influence capacity (SIC) to fill this void. SIC helps explain why the effects of corporate social responsibility (CSR) on corporate financial performance (CFP) vary across firms and across time, and so provides a missing link in the study of the business case. This paper distinguishes CSR from related and confounded corporate resource allocations and from corporate social performance (CSP), then incorporates SIC into a conceptual framework that illustrates how acts of CSR are transformed into CFP through stakeholder relationships. This paper also develops a set of propositions to aid future research on the contingencies that produce variable financial returns to investments in CSR.

corporate social responsibility, corporate social performance, corporate financial performance, stakeholder influence capacity, stakeholder theory

Abstract:
While interest in the concept of corporate reputation has gained momentum in the last few years, a precise and commonly agreed upon definition is still lacking. This paper reviews the many definitions of corporate reputation present in the recent literature and categorizes these definitions based on their similarities and differences. The purpose of the study is to review, analyze, and evaluate prior definitional statements of corporate reputation. Our analysis led us to conclude that the cluster of meaning that looks most promising for future definitional work uses the language of assessment and specific terms such as judgment, estimation, evaluation or gauge. Based on this review work and a lexicological analysis of the concept of reputation, we propose a new definitional statement that we think adds theoretical clarity to this area of study. The statement defines corporate reputation more explicitly and narrowly, and distinguishes this concept from corporate identity, corporate image, and corporate reputation capital. It is our hope that this study and the resulting definition will provoke further scholarship devoted to developing one voice when it comes to corporate reputation as a concept.

corporate reputation, identity, image, reputation capital

Abstract:
In March of 2003, the publishers of two books with contrasting perspectives sponsored a public debate about the contents of these books, and the larger issues involved. The lead authors of each of the books participated in the debate: Chad Holliday, Chairman and Chief Executive Officer (CEO) of DuPont, for Walking the Talk: The Business Case for Sustainable Development; and John Cavanagh, Director of the Institute for Policy Studies, for Alternatives to Economic Globalization: A Better World Is Possible. These panelists represented not only their books, but also their organizations: Holliday represented the World Business Council for Sustainable Development (WBCSD), of which he is past chairman, while Cavanagh represented the International Forum on Globalization (IFG), of which he is Vice President and a member of its Board of Directors. A review of these two books and a discussion of the issues involved in the debate follow.

Sustainability, globalization

Abstract:
Finance's option theoretic framework has recently been extended into a prescriptive approach to corporate strategy. This "real options" approach has refocused managerial attention on the strategic value of holding flexible positions in increasingly turbulent environments. However, emerging descriptive research on real options has begun to reveal isolated examples of the problems inherent in doing so. I embed the real options approach within an organizational setting to gain a more general understanding of how the pursuit of firm-wide flexibility can carry with it unintended consequences. Drawing broadly from organization theory, I note how the normative implications of real options reasoning can sometimes lead to excessive flexibility that disrupts the internal operations of a firm and threatens its external legitimacy over time. I then discuss how a firm may alleviate some of these problems, allowing it to gain more of the benefits of a real options approach without suffering the pitfalls. I conclude with a brief summary and suggestions for future research.

Real options, flexibility, strategy, legitimacy

Abstract:
This paper primarily focuses on Entine's assertion that SRI research is hopelessly flawed. Although SRI researchers have primarily chosen to pluck the low-hanging fruit in this line of inquiry, it is possible to obtain unbiased higher level insight. SRI research best functions as a means of helping firms and investors identify what the market wants. As Entine points out, the definition of what is and is not moral behavior for a firm is a quagmire, and the ability to measure whether socially responsible investors have forced firms to become moral is suspect. The paper also agrees with Waddock that socially responsible investors have caused firms to take certain actions that, without such pressure, they would have taken much later or not at all. However, whether these actions have made firms moral is not a debate that SRI researchers should enter. Certainly, events of late would suggest that although firms, by and large, are now more responsive to a variety of social issues, they are not moral entities, and should not be viewed as such.

Corporate social responsible, socially responsible investing

Abstract:
Over the last decade, managers have placed increasing emphasis on the creation of tangible measures of intangible organizational properties. Many major corporations now include measures for intellectual capital, knowledge capital, reputational capital, and other such intangible assets on their financial ledgers. Counter to the rubric that "If it doesn't get measured, it doesn't get done", we argue that some intangibles are truly intangible, and attempts to force fit such measures on them creates undue organizational stress and harms the underlying asset. Instead, managers may better foster the growth of intangible assets by placing less emphasis on outcome measurement and more emphasis on the process. Using New York University's Office of Community Service as a case study, we illustrate how a Zen approach can augment tangible measures to create a truly "balanced" organizational strategy. American firms have widely adopted the strict measurement practices of Japanese firms, but have largely not adopted the Eastern practice of Zen. A Zen approach fosters trust and provides flexibility that allows organizations to better achieve success in the long run.

measurement, balance, intangibles, effectiveness, Zen

Abstract:
It is argued that no simple correlation can be established between corporate social performance and corporate financial performance. The activities that generate CSP do not directly impact the company's financial performance, but instead affect the bottom line via its stock of reputational capital - the financial value of its intangible assets. It is suggested that corporate citizenship programs can be designed to help companies address reputational threats and opportunities to achieve reputational gains while mitigating reputational losses.

Corporate citizenship, corporate social responsiblity, reputational capital

Abstract:
Firms within an industry often find themselves tarred by the same brush. When accidents occur, stakeholders often punish both the offending firm and the entire industry. In this way, a firm's reputation may be tied to other firms, and so reputation may be a common resource shared by all members of an industry - what we term a reputation commons. As with many shared resources, an industry's reputation may be overexploited. A firm can benefit from the favorable reputation of an industry even as it takes individual actions that may harm this shared reputation. In this chapter, we explore when a reputation commons is likely to occur and discuss how firms individually and collectively respond to the problems associated with it. We propose that firms can solve the reputation commons problem by reducing the sanctioning ability of stakeholders and by privatizing reputation.

Tragedy of the commons, reputation, collective action

Abstract:
We extend theories of self-regulation of physical commons to analyze self-regulation of intangible commons in modern industry. We posit that when the action of one firm can cause spillover harm to others, firms share a type of commons. We theorize that the need to protect this commons can motivate the formation of a self-regulatory institution. Using data from the US chemical industry, we find that spillover harm from industrial accidents increased after a major industry crisis and decreased following the formation of a new institution. Additionally, our findings suggest that the institution lessened spillovers from participants to the broader industry.

institutions, industry self-regulation, commons problems, cooperative strategy

Abstract:
A review of the documentary, The Corporation.

corporate social responsibility, sustainability, regulation

Abstract:
This paper combines economic, political, and sociological perspectives to present a dynamic framework for understanding how a firm strategically allocates its limited resources between competitive pursuits and industry-wide cooperation. Organizational field dynamics alter a firm's incentive to engage in industry-wide cooperation relative to competition. Periods of intensive industry-wide cooperation, in turn, alter the organizational field and thereby influence the competitive conditions facing a firm and its rivals. Periods of cooperation are unstable, varying in their duration and intensity according to the characteristics of the organizational field, industry, and firm. A set of propositions developed in this paper outlines these characteristics and illustrates how, even in the face of rivalry and the collective action problem, firm-level self-interest aggregates into patterns of industry-level collective action. Moreover, these propositions demonstrate how the interplay between factors exogenous and endogenous to an industry facilitates change within an organizational field and so determines the nature of the competitive environment facing a firm and its rivals over time.

Interorganizational cooperation, competitive dynamics, organizational field

Abstract:
Managers and management researchers tend to assume that learning from strategic events yields benefits. Although some firms have gained competitive advantages from learning, instances are infrequent and firms that have gained persistent advantages through learning are probably quite unusual. Learning from successes has short-run benefits but eventually makes firms less capable of surviving. Learning from failures disappears in clouds of rationalization and defensive behavior. Noisy feedback about results causes people to develop very heterogeneous and often highly erroneous perceptions of firms and their environments, so it should not be surprising that strategizing is harmful as often as it is helpful.

learning, cognitive learning, noncognitive learning, success, failure

Abstract:
Real options reasoning assumes timely and effective managerial decision-making yet does not address managers' ability to provide it. An attention-based view describes managerial behavior under varying structural conditions. I examine real options reasoning from an attention-based view. I develop several testable propositions regarding the effects of a firm's particular concrete and contextual attention structures on the ways in which its managers notice, champion, acquire, maintain, exercise, and abandon the various real options within its portfolio. I conclude with implications for future empirical research on real options reasoning.

real options reasoning, attention-based view, decision-making under uncertainty, strategic management

Abstract:
Guest editors' introduction of a special issue dedicated to advancing understanding of how a firm's reputation is influenced by the actions of other firms and advancing methods of managing this interdependence. It introduces the topic of reputational interdependence, summarizes the five articles and two book reviews that compose the special issue, synthesizes the findings of these articles and ties them to other literatures, and suggests directions for future research.

corporate reputation, reputation, legitimacy, interorganizational dynamics,

Abstract:
Firms pursue competitive advantage through both individual and collective strategic actions. Because of the difficulties of coordinating collective action, industries are characterized by extended periods of individual activity, punctuated by waves of collective activity. Rational and self-interested firms engage in individual activities unless disrupted by a force ample to overcome the collective action problem. At key points in the life of an industry, legitimacy challenges arise, presenting incentive to collectivize. In a legitimacy challenge, mobilized groups of constituents attempt to gain control of and change the institutional rules of the game. In order to regain control, firms gradually collectivize in a pattern akin to the resource mobilization perspective of social movement theory. I build a model and offer several testable propositions that trace the dynamic working balance between individual and collective activities within an industry during the emergence, maturity, and decline stages. Over the life of an industry, these ebbs and flows in collective activity take the form of waves of collectivizing.

collective strategy, competitive strategy, legitimacy, reputation

Abstract:
William H. Starbuck began his academic career in the late 1950s as a doctoral student at the Carnegie Institute of Technology, working alongside Herb Simon, Jim March, and Dick Cyert. Bill ends his academic career this year as the ITT Professor of Creative Management at the Stern School of Business at New York University. In the intervening decades, Bill has held faculty positions at 20 universities, taught classes on 32 different subjects, published more than 130 articles in a variety of disciplines, served on the editorial boards of 14 journals and as editor of Administrative Science Quarterly, been elected a fellow of 5 professional societies and held the position of President of the Academy of Management, and most recently, was selected as recipient of the 2005 Academy of Management Distinguished Scholarly Contributions Award. This interview draws forth the lessons Bill has learned through his personal experiences, teaching, and research over his many decades as a leading management scholar. Bill identifies several problems that confront learning and education within the Academy of Management and those it serves, as well as those it should attempt to serve, and he offers advice on how to address these problems.

William Starbuck, interview, learning, education

Abstract:
This paper presents a dynamic framework that describes how firms allocate limited resources between improving their competitive position relative to rivals and their communal position shared with rivals. This dynamic framework outlines how organizational field-level dynamics influence industry attractiveness and thereby alter a firm's incentive to engage in communal strategy relative to competitive strategy. Communal strategy, in turn, can influence the institutions governing an organizational field and thereby shape industry attractiveness. Overall, the interplay between factors exogenous and endogenous to an industry cause change in an organizational field and so determine the nature of the communal environment shared by a firm and its rivals over time. Analysis of this interplay provides insight into the micro-level drivers of macro-level change and furthers understanding of the conditions under which rivalrous firms voluntarily contribute to collective betterment of their industry despite collective rationality.

Abstract:
This paper presents a dynamic framework that describes how firms allocate limited resources between improving their competitive position relative to rivals and their communal position shared with rivals. This dynamic framework outlines how organizational field-level dynamics influence industry attractiveness and thereby alter a firm's incentive to engage in communal strategy relative to competitive strategy. Communal strategy, in turn, can influence the institutions governing an organizational field and thereby shape industry attractiveness. Overall, the interplay between factors exogenous and endogenous to an industry cause change in an organizational field and so determine the nature of the communal environment shared by a firm and its rivals over time. Analysis of this interplay provides insight into the micro-level drivers of macro-level change, and furthers understanding of the conditions under which rivalrous firms voluntarily contribute to collective betterment of their industry despite collective rationality.

Collective strategy, communal strategy, competitive strategy, institutional change, organizational field, social movements

Abstract:
Forecasts are plentiful. Accurate long-range forecasts are not. But some forecasts are more accurate than others are and a few are very accurate. In this paper, we first explore the case of Moore's Law, a forecast that has proven quite accurate for almost 40 years. We illustrate how expectations that Moore's Law will continue to be accurate actually make it accurate. Based on the insights of this case, we hypothesize that two factors facilitate such self-fulfilling forecasts and so make accuracy more possible. We test these hypotheses on a set of 3142 forecasts about US manufacturing industries during the 1970s. We find that high industry concentration and high control over the predicted variable tend to increase the accuracy of forecasts.

Forecasting, endogeneity, industry structure

Abstract:
This chapter traces the development of real options reasoning (ROR) and details how problems in assessing the value of real options have made ROR as initially proposed difficult to implement. The paper then describes how in practice, instead of focusing on explicit valuation, organizations usually use analogous reasoning to develop, select and implement options that enable strategic flexibility and so enhance value. An illustrative case demonstrates how financial options can help this process by buffering core operations from changing market environments. The same illustration also shows that ROR fails to simultaneously create future choices while limiting costs. Moreover, where it does generate future choices, it does not prevent decision-makers from making poor choices. Thus, the engine of choice that ROR suggests organizations should create may in fact backfire on those decision-makers who try to implement it.

real options reasoning

Abstract:
For those who are overly enamored of the MBA credential, this book is an overly lengthy but important wakeup call. Mintzberg is right that it is wrong to put a newly minted MBA, without prior management experience, directly into a significant management position. But this is not nearly as common a happenstance nor as large a threat to humanity as Mintzberg's drawn-out attack on it implies. Moreover, the IMPM, and his admittedly biased portrayal of it, serves as a great case study of an alternative means of providing management training to well-experienced managers, but it is neither an effective replacement for the analytical training in the conventional MBA, nor is it salvation for our "society of meanness" (p. 153), wherein we have "antisocial behavior below the surface of public awareness yet above the letter of the law" (p. 152). It is just an exciting but yet unproven way to develop experienced managers from those firms that can afford it, to be provided by those schools that can support it. Let's not read too much more into it just yet.

book review essay, MBA, education

Abstract:
The events of September 11, 2001, unified our nation. But how long can this unity last? I examine the dynamics of the national shift between individualism (me) and communalism (we) on the heels of September 11 through comparison with analogous patterns in interorganizational behavior. Based on these patterns, I conclude that, despite the severity of the crisis, the United States will again return to business as usual.

Crisis, rivalry, interorganizational relations, cooperation

Abstract:
When a firm suffers a major accident, its stock price is likely to become more volatile, but does this accident also increase the volatility of the stocks of rivals? Following a major accident, rivals sometimes unite through their trade association to implement an industry self-regulatory program. Do such collective efforts help to stabilize the stocks of firms in these threatened industries? This paper presents a longitudinal empirical study of the influence of a major accident by a single firm - Union Carbide's deadly poison gas leak in Bhopal, India - on the volatility of the stock prices of other chemical firms, and the influence of this industry's intensive collective efforts to recover from this major accident - the American Chemistry Council's Responsible Care Program - on the stock price volatility of these same firms. Results indicate that the volatility of the stocks of chemical firms increased after Union Carbide's tragic accident and that this volatility decreased for Responsible Care members but not for non-members. These findings suggest that a firm's stock price may be destabilized by the actions of a rival and that through cooperation with rivals, a firm may restabilize its stock price. Thus, this study provides empirical insight about the nature of the interdependent relationship among rivals and the benefits that trade associations and industry self-regulation may provide for participating, and non-participating, firms.

trade associations, collective strategy, communal strategy, industry self-regulation, reputation commons problems

Abstract:
I present a study of the US chemical industry's unified efforts to reverse an unfavorable institutional shift triggered by the transgressions of one of its members. I measure changes in the industry's institutional environment from 1980 to 2000. I find that the industry's collective efforts did not directly improve institutional conditions confronting individual firms, but did help buffer firms from financial losses that commonly arise when their rivals suffer crises.

Institutional change, industry self regulation, collective strategy

Abstract:
The strategy literature is increasingly focused on the need to create dynamic capabilities to respond with innovative product offerings in 'hypercompetitive' environments. The real options approach offers hope for managers facing such threatening environments by highlighting methods to hold options on a variety of possible future states, thereby reducing risk without bearing all the costs. However, extant real options literature, stemming from rational-based financial assumptions, does not consider attention as a limited resource. Real options are valued on the assumption that management can exploit the flexibility inherent in projects, and so require management attention to obtain their full theoretical value. This paper brings attentional constraints to bear on the real options framework and describes a conceptual framework that illustrates the real option value realization process.

Abstract:
Trade associations operate under the premise of advancing the shared interests of their member firms. How well do they fulfill this role? In this paper, I measure the activity of 148 major industry trade associations over time and relate this activity to the performance of the relevant industries and dominant firms within them. Findings suggest that trade association spending increases when the profitability of the four largest firms in an industry decreases but spending is unrelated to the profitability of the industry overall. This implies that large firms exert control over trade association agendas and may use these communal organizations to advance their own interests rather than the shared interests of the entire industry. Moreover, it points to the need for further development of the currently anemic management literature on the activities of trade associations.

trade associations, collective action, cooperative strategy, industry effects