Stepping beyond market concerns: How should firms engage with non-profit stakeholders to create value?

Should firms care about resolving social issues beyond their market boundaries? How can they create value by doing so? Concerns outside the boundaries of firms’ markets, such as environmental sustainability, infrastructure gaps, climate change, the rise of nationalism and protectionism around the world among many others, have an increasingly clear impact on firms’strategy. This is not only because firms are more and more expected to have asocial responsibility towards their stakeholders, but also because overlooking their concerns might hurt firm value. In particular, it seems that neither firms nor governments and other interested actors are able to address complex non-market issues alone and might have to engage in collaboration. This highlights the need for management scholars to investigate when and how novel governance forms benefit firms and other stakeholders. Two recent papers on SMJ provide an insightful take on different aspects of these cross-sectoral governance arrangements.

Olivier Chatain and Elena Plaksenkova (2018) examine value creation in firm-NGO partnerships that aim to deal with activities the firm could potentially internalize. Why would firms enter these relationships and in what cases would they boost the firm’s outcomes? Using a formal model, the authors show that an NGO can facilitate a collaboration between a firm and a supplier, thus leading to higher value creation. At the same time, they also find that, depending on the NGO’s capabilities and on the firm’s bargaining power, the firm may find itself in a situation where it earns only minimal profits from the collaboration. This in spite of the NGO’s effort to make a number of concessions to enter the partnership. The models highlight the role of non-profit actors in shaping the behavior of for-profit actors by affecting value creation and value capture. In particular,though non-profit actors have interests not entirely aligned with firms, they seem able to facilitate value creation, thus directly affecting a firm’s profit, rather than only affecting firm’s outcomes indirectly, for instance, by influencing its reputation or access to capital. By relying on formal modeling, Chatain and Plaksenkova (2018) were able to underscore the most important aspects of the relationships between firms and NGOs and assess the implications of different types of firm-NGO matching, which may not be possible through more standard empirical analyses.

These findings link very well with the second study, by Sinziana Dorobantu and Kate Odziemkovska (2017). The authors delve in the question of how contractual relationships with stakeholders affect firm value, by empirically examining large scale projects that have the potential to substantially affect local communities. When is the establishment of formal contractual relationships with such local communities valuable for firms? Their study indicates that value is created when the local communities have strong property rights over resources relevant to the firm or substantial history of conflicts. Similar to Chatain and Plaksenkova (2018), this study indicates that local communities,an important non-market stakeholder to the firms in their study, shape firms’activities and might have direct financial implications for firms. Dorobantu and Odziemkovska (2017) also seem to confirm the idea that firm value is created when the non-profit actors with better capabilities partner with firms with better bargaining power.

I believe researchers on non-market strategies, stakeholder management,cooperative strategy, global strategy or any person interested in how firms can participate in the resolution of complex social issues would benefit immensely from reading these studies. Overall, both papers suggest numerous avenues for future research on novel ways firms relate with non-market actors, such as NGOs, local communities, social movements and the government, the implications of these relationships for value creation and value capture, as well as their potential to help address some of the most important current global issues. I’m looking forward to reading more studies that advance the ideas brought up by these two insightful papers.

References:

Chatain O, Plaksenkova E. 2018. NGOs and the creationof value in supply chains. Strategic Management Journal.

Dorobantu S, Odziemkowska K. 2017. Valuing stakeholder governance: Property rights, community mobilization, and firm value. Strategic Management Journal 38(13): 2682–2703.


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