From stakeholder information to strategic value creation : the role of stakeholders and knowledge in corporate sustainability performance

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From stakeholder information to strategic value creation: the role of

stakeholders and knowledge in corporate sustainability performance

MSc Business Studies – Strategy – Master Thesis

Harm Heutink 10617175

University of Amsterdam

Amsterdam Business School - Faculty of Economics and Business Supervisor: Sebastian Kortmann

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3.1 Corporate Sustainability Performance ... 8

3.2 Stakeholder management... 10

3.3 The role of knowledge ... 13

3.3.1 Knowledge acquisition ... 14

3.3.2 Knowledge development ... 15

3.3.3 Absorptive capacity ... 16

3.4 From stakeholder information to corporate sustainability performance ... 17

3.5 Conceptual Framework ... 18

4 Methodology ... 19

4.1 Research design ... 19

4.2 Dependent variable ... 19

4.2.1 Corporate Sustainability Performance ... 19

4.3 Independent variables ... 22 4.3.1 Stakeholder Management ... 22 4.3.2 Absorptive Capacity ... 24 4.4 Control variables ... 25 4.4.1 Industry ... 25 4.4.2 Size ... 25 4.5 Sample ... 25 5 Results ... 27

5.1 Descriptive statistics and Correlation analysis ... 27

5.2 Regression analyses ... 28

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5.2.2 Moderating effect ... 29

5.2.3 Specific stakeholder effects ... 31

6 Discussion ... 33

6.1 Stakeholder management, Absorptive capacity and CSP ... 33

6.2 implications ... 37

6.3 Limitations and future research ... 38

7 Conclusion ... 41

8 References ... 42

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This study addresses the underlying factors that lead to high levels of corporate sustainability performance. Corporate sustainability incorporates both economic, social and environmental objectives. Economic profits only are no longer sufficient for firms to succeed, social and environmental objectives need to be included in their business approach. In order to achieve that goal, firms need to obtain information and knowledge that often resides in their stakeholders. In this study, it is hypothesized that firms that are more actively engaged with their stakeholders, are more apt to obtain information that can be transformed to strategic knowledge. This requires mechanisms, and high absorptive capacity of a firm is hypothesized to be such a mechanism that enables firm to absorb and transform stakeholder information to value creating strategic knowledge. A sample of 51 U.S. firms was quantitatively analysed, but results with regard to the proposed relation proved to be insignificant. However, more fine grained analyses revealed capital suppliers as the most important stakeholder group. This implies that long term financial sustenance fulfils a crucial role in strategies that lead to high corporate sustainability performance. This study provides a solid theoretical framework for further analysis of underlying factors that lead to high corporate sustainability performance, which in the end brings broad societal welfare and value creation.

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‘’Meet the needs of the present without comprising the ability of future generations to meet their own needs’’ was the definition of sustainable development introduced in 1987 by the UN World Commission on Environment and Development (Brundtland, 1987). This commission was set up to address growing concerns regarding the consequences of increasing economic and social developments for the human environment and natural resources. Over the past decades, these issues have become more prominent as many emerging countries have developed a major influence in the world economy (Myers & Kent, 2003). Countries like the Peoples Republic of China need more resources than ever before, but in general environmental considerations are of minor interest. There is huge market growth in emerging economies, and for corporations it is increasingly important to be present in these markets in order to gain from this growth. As a consequence, internationalization strategies are the main growth driver for these corporations. Not only environmental and economic issues are of concern, but also societal issues like poverty, environment and welfare are increasingly important. This not only because people are better informed about these issues, but also because there is increasing interaction as a result of globalization. Major corporations are at the heart of these issues, but also at the heart of the solutions (The Economist, 2009). Despite the importance, corporations have problems in addressing all stakeholders: “our consumers won't buy our sustainable products; our investors demand next-quarter profits; the legislation is inconsistent and our global competitors can produce goods with little or no regard for the environment; or there is no business case for sustainability” (The Economist, 2009). This suggests that there is an inevitable trade-off between different stakeholder interests. There is however an increasingly stronger case for so called Corporate Social Responsibility (CSR) or Corporate Sustainability (CS) practices, in which firms address these different problems and stakeholder interests. Research shows that these practices, albeit meticulously executed and well developed (Hart, Milstein, & Caggiano, 2003), can have positive effects on firm performance (Porter & Kramer, 2006) and can create value for all stakeholders involved (Parmar et al., 2010).

Stakeholder-based reasoning provides a practical motivation for firms with regard to their practices and stakeholder interests, as this includes both economic interests, as well as ethical and socio-economic concerns (Parmar et al., 2010). Knowledge is an important part in CS(R) practices, and studies have shown that research & development plays an important factor in successfully developing such practices (Chakrabarty & Wang, 2013), and that stakeholders

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can provide a learning context regarding CS(R) practices (Reuter, Foerstl, Hartmann, & Blome, 2010). Managing-for-stakeholders is said to reveal important knowledge that resides in stakeholders, and information such as their utility functions and preferences (Harrison, Bosse, & Phillips, 2010). Moreover, there are interrelated ties between all these stakeholders, but most empirical research is focused on dyadic relations. To assess the influence of different stakeholders, a better perception and a holistic view on the incorporation of these stakeholders is necessary (Parmar et al., 2010).

This study seeks to investigate the way in which MNEs incorporate stakeholders and how they acquire and manage the knowledge needed for successfully developing and deploying corporate sustainability practices, resulting in Corporate Sustainability Performance (CSP). MNEs are on the forefront of broad implementation of CS practices and make an interesting subject because they are often involved with many different stakeholders, and have access to a broad and distant sources of knowledge (Ahuja & Katila, 2004; Miller, Fern, & Cardinal, 2007) The research aims to fill a gap in the literature by taking on a holistic approach to stakeholders’ roles in the process of developing and implementing sustainability strategies of MNEs. Previous research is mostly focused on dyadic relationships, despite the importance of a holistic approach in the broad perception of CS practices. Also, the utilization of knowledge transfer and diffusion in this process has been largely neglected in the literature despite the fact that sustainability practices incorporate multiple disciplines and should therefore require intensive use of different knowledge processes (Cash et al., 2003; van Kerkhoff & Lebel, 2006). This research aims to clarify these aspects of sustainability strategies. The practical implications of this research can be used by MNEs to: a.) adjust and improve both their stakeholder management and knowledge processes and their corporate sustainability practices up to a level where all stakeholders may benefit, b) gain a competitive advantage in this process and outperform competition (Porter & Kramer, 2006). Managers could gain insights in best practices regarding their strategies and their effects on value creation on a broad societal scale (Parmar et al., 2010). Furthermore, policy makers might be able to adapt their national and international policies to facilitate the implementation of successful sustainability strategies that, in the end, improve a nation’s wealth, prosperity and long term sustainability.

7 2.1 RESEARCH QUESTION

MNEs are a major hub in obtaining and diffusing the knowledge that is necessary to adequately develop and implement CS(R) strategies, and there is an substantial amount of literature on the different CS(R) activities that these corporations undertake and what their effects should be (Perrini, Russo, & Tencati, 2007; Porter & Kramer, 2006). However, the way in which MNEs acquire and use the necessary knowledge is not broadly investigated. Research has shown that learning, cross-functional collaboration, practical experience and expansion of company knowledge systems are important factors with regard to awareness regarding sustainability inside an organization (Haugh & Talwar, 2010). This however relates only to a small part of the stakeholders, and gives rise to the question on how other stakeholders are involved. To assess the influence of different stakeholders and the way their knowledge is used, a better perception and a holistic view on the incorporation of these stakeholders is necessary. Not in the least because excluding stakeholders from this process may result in preferable outcome or result for certain stakeholders, while diminishing overall wealth creation, affecting CSP. Parmar et al. (2010), suggest that future studies should focus on strategies the address a broad range of stakeholder interests, rather than defining some stakeholders as non-economic and others as economic. Stakeholder-based reasoning provides a practical motivation for firms with regard to their practices and stakeholder interests, as this includes both economic interests, as well as ethical concerns (Parmar et al., 2010). Furthermore, the underlying processes and factors that guide the successful fruition of a managing-for-stakeholder approach remain unclear in the current literature and need to be investigated (Harrison et al., 2010) This leads to the following research question:

How do MNEs manage and incorporate stakeholders’ knowledge in and what is the effect on Corporate Sustainability Performance?

The paper is structured as follows; first a critical review of the existing literature is outlined, forming the theoretical framework and hypotheses. This is followed by the research methodology and elaboration on the measurements of variables and the sample. Thirdly, I will outline the results of the analyses. Henceforth I will elaborate on the results in a discussion section, including implications and limitations of the study as well as suggestions for future research. A concluding paragraph will summarize this study.

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3.1 CORPORATE SUSTAINABILITY PERFORMANCE

Sustainability is associated with the equal consideration of environmental, social and economic goals (Closs, Speier, & Meacham, 2011; Walker, Miemczyk, Johnsen, & Spencer, 2012). Instead of solely focusing on economic metrics and maximizing shareholder value, sustainability-oriented organizations have to formulate and implement strategies that simultaneously yield economic, ecological and social performance. Van Marrewijk (2003) examined the concepts en definitions of CS(R) and formulated a hierarchical relationship in which Corporate Sustainability (CS), defined by the WCED as ‘’Meet the needs of the present without comprising the ability of future generations to meet their own needs’’ (Brundtland, 1987) is the ultimate goal, and is based on three pillars; 3Ps: profit, people, planet (Marrewijk, 2003). This was previously dubbed the ‘triple bottom line’ by Elkington (1998), although he depicted an economic, social and environmental dimension (Elkington, 1998). Over the past decades, research on this broader conception of CS(R) has shown that it contains five main dimensions: 1) the environmental dimension; 2) the social dimension, that is the relation between business and society; 3) the economic dimension, which is the operational side including socio-economic or financial aspects; 4) the stakeholder dimension, assessing the extent to which stakeholder are included; 5) the voluntariness dimension, which is about actions that are not prescribed by law (e.g. ethical values) (Dahlsrud, 2008). There are many definitions to be found in the literature, but they are consistently referring to (parts of) these five dimensions and are predominantly congruent. Due to this, it is argued that the lack of a clear definition is not very problematic (Dahlsrud, 2008). Van Marrewijk (2003) also stressed that the definition was a broad one and he added the assertion that the ambition to pursue these strategies are context dependent; he narrowed this down to five interpretations: 1) compliance-driven 2) profit-driven 3) caring 4) synergistic and 5) holistic, and that self-determination allows everyone to respond in its own way, although this is influenced by stakeholders. With these interpretations he argued that the "one solution fits all"-definition for CS(R) should be abandoned in favour of more context specific definitions (Marrewijk, 2003), although the holistic dimension does approach the idea behind the broad conception of CS(R) and the ‘triple bottom line’ strategies.

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In general, the environmental dimension regards the natural environment and involves issues like pollution and the use of resources. Initially though, this dimension was significantly less used in defining CS(R), most likely because early definitions saw environmental issues as a separate entity with regard to CS(R) concerns and treated it as such, although nowadays it is equally important in the general perception of CS(R) (Dahlsrud, 2008). The economic dimension of CS(R) in general, is to be broadly interpreted as it may refer to overall economic prosperity, but may also be more context dependent when specific stakeholders are involved. It can regard the profitability of a firm, the shareholders return-on-investments or other financial measures, but may also refer to benefits to society as a whole or overall wealth creation (Dahlsrud, 2008; Hart et al., 2003; Porter & Kramer, 2006). With regard to the social dimension, we can see larger increase in importance. Social issues have been paid the least attention in the early sustainability issues, but are becoming more important. There are different pressures, such as customers, governments, and employees that increasingly demand that corporations address these issues (Ehrgott, Reimann, Kaufmann, & Carter, 2011). Contributing to a better society is the main goal. Integrating social concerns in business operations corporations can help reducing their impact on communities, and help generate societal welfare and improve quality of life (Dahlsrud, 2008).

Corporations such as MNEs are increasingly involved in sustainability issues, not only because governments, activists and the media increasingly holding them accountable for the consequences of their activities, but also because they are on the forefront of these developments (Porter & Kramer, 2006; Rondinelli & Berry, 2000). Addressing these issues does not necessarily have to be costly and research on CS(R) practices in the past years shows that the these practices may indeed create value for all stakeholders, such as customers, suppliers, employees, the community and owners. It is shown that environmental leaders in eco-efficiency typically outperform laggards with regard to financial performance (Kiernan, 2001) and overall corporate sustainability performance has a positive influence on economic performance (Wagner, 2010). Moreover, research has shown that CS(R) strategies might even lead to a competitive advantage for firms when the these are adequately developed and deployed (Porter & Kramer, 2006). The process of pursuing strategies that contribute to a more sustainable world, while at the same time creating shareholder value is called creating sustainable value, and the potential is huge, but the implementation of these strategies is still

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stagnant possibly due to the complexity and lack of understanding of these processes (Hart et al., 2003).

The conception of sustainability requires a broader perspective than is traditionally addressed, and although the phenomenon of CS(R) and its definition are quite clearly understood, there is less clarity and guidance on how to manage these practices (Dahlsrud, 2008), even though it is clear that it does require the interrelation between multiple stakeholders and incorporating them in CS(R) strategies (Porter and Kramer, 2006). To create value for all stakeholders and to incorporate their different goals and objectives, it is necessary to connect them in networks and to learn and act together in the creation and appreciation of sustainable value (Hart & Milstein, 2003). In this context MNEs are the binding element and adequately managing these relations could lead to higher Corporate Sustainability Performance (CSP). However, it is less clear how MNEs incorporate these aspects in their CS(R) strategies. Furthermore, Porter & Kramer (2006) acknowledge that simply addressing sustainability problems by allocating financial resources to CS issues, is not a sustainable solution. Firms need to bear in mind that when dealing with these problems, the financial aspects should be accounted for in order to be durable over the long-term. The solutions can be sustainable only because the strategy on sustainability problems is financially durable or profitable as well. Therefore, firms need to be performing on the very top with regard to CSP in order to ensure the upkeep of performance. For this study, the basic reasoning of Marrewijk (2003) will be followed and the term corporate sustainability, which should lead to sustainable value (Hart et al., 2003; Porter & Kramer, 2006), will be used. Hence, the definition used in this study for corporate sustainability performance is a business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments. This is the definition used for the dependent variable. It represents the critical criteria to which successful corporate sustainability strategies need to conform to, while at the same, the main dimensions discussed in the literature are taken into account.

3.2 STAKEHOLDER MANAGEMENT

Companies increasingly incorporate the needs of multiple stakeholders, other than focusing on shareholder value only. A multitude of stakeholders can be involved and can put pressure on development of these strategies, such as governments, consumers and suppliers, but they can provide a learning context regarding CS practices as well (Reuter et al., 2010). The focus on CS strategies and successful resolution of issues that accompany these strategies, require the

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incorporation of all stakeholders. Stakeholders are defined as "any group or individual [in the organization's environment] who can affect or are affected by the achievement of the organization's objectives" (Freeman & McVea, 2001, p. 4). A broad categorization can be made within the stakeholder perspective, including their respective influences and interests: 1) government, interested in taxes, diversity, environmental and societal issues 2) employees wanting a good salary and job security, 3) customers demanding quality and service, 4) suppliers that need long-term relations and demand security, 5) the community in which the corporation plays a role in providing jobs and being socially involved, 6) the owners or shareholders, seeking profitability and growth, 7) investors, who seek return on their investments and a good income, but also 8) independent stakeholders such as different NGOs and the media, focusing on a wide range of environmental and societal issues (Frooman, 1999; Sharma & Henriques, 2005).

Stakeholders have varying interdependencies with their focal firms, that can lead to different influences on the firms’ strategy (Sharma & Henriques, 2005). Consumers for instance are becoming more aware of sustainability issues: they put pressure on firms to make these a fundamental part of their strategies (McDonald & Oates, 2006), but at the same time they demand the same quality and price for their products. Satisfying these demands is important to keep performing (Ittner & Larcker, 1998). Suppliers are involved as well because they are involved throughout the value creation chain, and more so because they are often situated in the countries where sustainability issues are most urgent (Ehrgott et al., 2011). Employees and their communities need support regarding their jobs and other social issues, which are important to address, not only because it involves their own stakeholder interests, but also because it is shown that their satisfaction is of positive influence on business outcomes (Loveman, 1998). Moreover, employee satisfaction is related to customer satisfaction as well, which is important in overall business performance (Harter, Schmidt, & Hayes, 2002; Koys, 2001). Still, owners and shareholders want to see high profits, and rather not see expenditures on sustainability practices that incur costs influencing short term financial results. At the same time, governments put pressure on organizations to address different sustainability issues by implementing legislation and regulations. These however vary globally, and the continuous change in the regulatory field is making long term implementation a complex task, often leading to market failure (Bromley, 2007). These stakeholder interdependencies converge in the concept of corporate sustainability.

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The success of sustainability-oriented organizations is determined by the created stakeholder value. Instead of solely maximizing economic profit and, thus, shareholder value, sustainable competitive advantage can only be achieved if organizations create stakeholder value (Harrison et al., 2010). The literature on stakeholder management has primarily focused on financial performance (Parmar et al., 2010). Stakeholder interests relating to e.g. ecological and social objectives, including pollution prevention (Buysse & Verbeke, 2003), sustainable sourcing (Walker et al., 2012), employee education and safety (Luo & Bhattacharya, 2006), often conflict with economic objectives, such as increased cash flows and risks (Gruca & Rego, 2005). Other studies tried to decompose the stakeholder and social dimensions, suggesting that stakeholder management is of positive influence on shareholder value, but social issue participation on the other hand is of negative influence on shareholder value creation (Hillman & Keim, 2001). Throughout the literature there is a continuous tendency to either separate the dimensions of corporate sustainability, or to separate the stakeholders instead of taking the much needed holistic approach. However, it is argued that the key to successful CS strategies lies in addressing the stakeholders and their goals as a whole. Moreover, a categorization between stakeholders cannot not be made since their roles and impact are context depended continuously varying over time and place. It is suggested that future studies should focus on strategies that address a broad range of stakeholder interests, rather than defining some stakeholders as non-economic and others as economic (Parmar et al., 2010). The studies that do asses the role of corporate sustainability suffer from other biases as well. Most studies imply that the relation between stakeholder management and corporate sustainability performance is de facto positive, or even used assonant to each other as stakeholder management equals corporate sustainability performance. The value needs to be created, though this is not necessarily the resultant of stakeholder management. Still, the basic premises is that proactively engaging with stakeholders does lead to a certain amount of value creation on a broader scale because firms get a feeling of what stakeholders want and are trying to achieve. They get a better mutual understanding and appreciation, which might even be a form of value by itself. The extent to which all stakeholders are managed then, should lead to broader value creation, defined in corporate sustainability performance. Hence the hypothesis;

13 3.3 THE ROLE OF KNOWLEDGE

The central propositions of theories such as the resource based view (RBV), core competencies, dynamic capabilities and knowledge based view (Barney, 1991; Grant, 1996; Helfat & Peteraf, 2003; Prahalad & Hamel, 1990; Teece, Pisano, & Shuen, 1997) is that if firms want to achieve sustained competitive advantage, they must accumulate and utilize resources and capabilities. In response to initial criticism on the static nature of the RBV, more evolutionary theories were developed which brought forward organizational learning and gaining knowledge as a key capability to gain a competitive advantage. A crucial part in all innovations, developments and strategies, whether these are of a technical, organizational or strategic nature is obtaining knowledge and using this knowledge to achieve the desired result. Although this seems obvious in traditional business operations, only few companies are actively engaged in managing the processes that identify corporate sustainability issues, and even less include these issues in their core value propositions (Porter & Kramer, 2006). While this seems straightforward, the research on the role of knowledge with regard to sustainability issues is scant. Some studies acknowledge the role of knowledge processes in developing corporate sustainability strategies, and indeed found that research & development plays an important factor in successfully developing them (Chakrabarty & Wang, 2013). The true nature and essence of knowledge processes in a firm however, does not only lie in the development of savvy innovations which reduce pollution, or the introduction of learning systems for employees. The true nature should be sought in the ability of a firm to use the information that resides in its environment, including their stakeholders, and using this information to the greater good and create additional value for the society as a whole. INSEAD business school awarded the fast growing firm Salesforce.com, the award for most innovative company for the third time in a row in 2014. The importance of a creative and holistic way of thinking is emphasized by the Salesforce.com founder and CEO Marc Benioff: ‘’I don’t care if it’s my idea, an employee’s idea, a competitor’s idea, a partner’s idea or some other associate’s idea,” he says. “My job is to build a culture of innovation. That’s something that we try to enforce. We encourage it. We value it. We notice it. We compensate for it. We require it.” This crucial distinction is what separates the firm that starts to use external renewable resources, to the firm that generates resources from its waste and supplying this to its suppliers and its customers or vice-versa, just as Google seeks to develop an industry wide standard for energy efficiency and renewable energy use that benefits the society in both an environmental and economical way.

14 3.3.1 Knowledge acquisition

Research has shown that seeking radically new solutions may require non-local search (Hargadon, 1998), but geographical expansion incurs problems in accessing and integration of local knowledge (Ahuja and Katila, 2004), MNEs however, have the possibility to tap broad and distant sources of knowledge with relative ease as they have intradivisional access (Miller, 2007). Also, being successful in resolving sustainability issues requires addressing the entire value chain (Closs et al., 2011). Sustainable global supplier management capabilities are found to be a source of competitive advantage, and early movers in this field seem to reap benefits of learning processes over time (Reuter et al., 2010). These results imply the importance of knowledge acquisition from different stakeholders regarding sustainability practices (Chesbrough, 2003; Enkel, Gassmann, & Chesbrough, 2009; Reuter et al., 2010). An application of these mechanisms can be found in the results of Chakrabarty and Wang (2013); they found that MNEs with high R&D intensity as well as high internationalization, suggesting access to distant knowledge, are more successful in corporate sustainability practices (Chakrabarty & Wang, 2013). What is important to notice, despite it being seemingly straightforward, is that this process requires both stakeholders and knowledge to be included. Chakrabarty & Wang (2013), for example found that either R&D or internationalization were not sufficient as such to result in successful sustainability practices, but were successful when combined. Therefore, it seems that successful resolution of sustainability practices requires a combination of both stakeholders approach and certain knowledge processes. There is more evidence on this to be found in new strategic approaches, as well as in several theoretical developments with regard to the management of stakeholders.

Instead of only relying on a closed innovation approach, in which firms solely turn their own ideas into products or services, organizations e.g. increasingly integrate external stakeholders (Chesbrough, 2003; Enkel et al., 2009), such as customers (Franke & Piller, 2004), suppliers (Perols et al., 2013) or various alliance partners (Dittrich & Duysters, 2007; Eisenhardt & Schoonhoven, 1996) into their value creation process. Building these stakeholder networks is an important factor as these provide personal information that enables to understand patterns of public info without noise, and further give access to diverse skills and perceptions that help approach problems from different angles (Uzzi & Dunlap, 2005). There are however issues in costs and benefits of these practices; by including different stakeholders more value can be created and for instance save costs in parts of the value chain (Franke and Piller, 2004),

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but previous research has shown that increasing complexity of a network makes it harder to coordinate and align all stakeholders, up to a point where costs might outweigh the benefits (Coase, 1937; Miller et al., 2007; Palich, Carini, & Seaman, 2000). This may imply that a firm is only able to absorb information up to a point where it is no longer able to process the information adequately and where the costs of trying to do so might eventually outweigh the benefits received from having this information. From this perspective, there are possible diminishing returns, or there might even be a curvilinear relation between the intensity of stakeholder contact and the subsequent acquisition of their information, albeit depending on the way this is managed.

Trust and building relations are also important aspects with regard to exchange of knowledge and information (Harrison et al., 2010) and in order to improve stakeholder networks (Uzzi & Dunlap, 2005). Also, there are vast differences in social, economic and cultural perceptions between countries which might be of influence in these relations (Chakrabarty & Wang, 2013), especially between developed and emerging economies. Also, there might be a possible trade-off between the diversity and trust within a network (Uzzi & Dunlap, 2005). The way in which relations with stakeholders are managed is crucial for the successful acquisition and accumulation of knowledge. From a knowledge perspective the aspects of the stakeholder/knowledge relation are mutually beneficial; the extent to which a firm is able to manage their relations depends on their available knowledge on how to do this, and this affects the subsequent knowledge accumulation. This explains the results of Chakrabarty & Wang (2013), as R&D, which is a measure for knowledge intensity, and internationalization, in other words: expansion of stakeholder networks, both need to be high in order to be successful. This subsequently provides the basic premises of this study: stakeholder management and knowledge processes are both crucial in realizing broad value creation.

3.3.2 Knowledge development

In actions towards sustainable development knowledge from multiple sources and stakeholders is needed, and it includes scientific, economic, social and political knowledge (Cash et al., 2003; van Kerkhoff & Lebel, 2006). Harrisson et al. (2010) proposed that firms could obtain nuanced information about the utility of a stakeholder, which might lead to more value creation (Harrison et al., 2010). The key question here is how firms are able to translate the information that is obtained, and use it as a source for value creation. Firms do not necessarily use

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information flows in a proper way: is information from the external environment really used appropriately and does it subsequently produce output with regard to different performance metrics? The empirical evidence about the way in which companies gain understanding of stakeholders has not been forthcoming (Greenley & Foxall, 1997). Harrison, Bosse and Philips (2010) acknowledge several factors that might impede successful execution of the managing-for-stakeholders approach and the resulting effects such as a competitive advantage. They suggest that a lack of the ability to translate knowledge into value creating opportunities might be one of those factors (Harrison et al., 2010) that discriminates between firms who do extract value from stakeholder management and those that do not realize this.

3.3.3 Absorptive capacity

Barney (1995) addressed the need for certain organizational capabilities to unlock potential sources of competitive advantage. The absorptive capacity of a firm is crucial to the firms’ ability to translate knowledge into value. Cohen & Leviathan (1990) defined absorptive capacity as ‘the ability of a firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends’ (Cohen & Levinthal, 1990, p. 128). Over the years the concept of absorptive capacity has been re-conceptualized, one of which was the distinction between potential and realized absorptive capacity, referring to the processes of knowledge acquisition & assimilation, and transformation & exploitation respectively (Zahra & George, 2002). The former refers to an ability to obtain information from external sources (e.g. different stakeholders) and understanding this information or knowledge, where the latter refers to the transformation of this ‘’information’’ to useful knowledge. These dimensions should enable companies to enhance their overall firm performance and may subsequently lead to a competitive performance (Flatten, Engelen, Zahra, & Brettel, 2011). It is quintessential to acknowledge the existence of these different dimensions in the knowledge development process since they are fundamentally different. Both the gathering of information and the subsequent translation of this information to strategic knowledge are fundamental aspects of knowledge processes in a firm and they would not function on their own. Due to this nature the concept of absorptive capacity has been developed, that seeks to grasp this entire process without diminishing the fundamental differences. This study uses this concept as well to address the fundamental knowledge processes leading to broad value creation, without losing the main focus – how is value created – while being precise and concise. The following hypotheses is therefore proposed:

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H2: Absorptive capacity is positively related to CSP

3.4 FROM STAKEHOLDER INFORMATION TO CORPORATE SUSTAINABILITY PERFORMANCE

The success of corporate sustainability strategies requires the successful resolution of multiple interrelated tensions, comprising (1) the 'triple bottom line', i.e. the reconciliation of ecological, social and economic strategic directions, (2) the management of contradictory stakeholder goals, (3) and managing their different inputs in the strategic process. MNEs and their management have significant roles in resolving this. Numerous studies on the different sorts of CS practices that are being used have been conducted, as well as a lot of studies on the effects of these practices on (financial) performance (Luo & Bhattacharya, 2006; Parmar et al., 2010). However, the way in which these processes function is less clear. Most research on the factors that influence this process are focused on dyadic relationships, or are only focused on a single aspect of the ’triple bottom line’ (Buysse & Verbeke, 2003). Managers that are engaged in the CS initiatives must have a granular understanding of every activity in the value chain and thus all stakeholders (Porter & Kramer, 2006). Successfully transferring knowledge in the value chain and seeking solutions in CS practices, requires all stakeholders to be included in this process (Closs et al., 2011; Rugman & Verbeke, 2001). In order to do so, adequate stakeholder management can be a valuable tool, as this provides a way to obtain information from different stakeholders to use in subsequent processes of value creation (Harrison et al., 2010). Also, knowledge is an important factor in CS practices. Knowledge from different dimensions and from a multitude of external resources is necessary to create value, and to develop successful and sustainable strategies (Cash et al., 2003; Harrison et al., 2010; van Kerkhoff & Lebel, 2006). Research has shown that research & development plays an important role in successfully developing such practices (Chakrabarty & Wang, 2013). The process of obtaining information from stakeholders, and the subsequent assimilation and transformation of this information is essential in the value creation process. A firm will not be able to use the stakeholder knowledge and translate it in to value without the appropriate capabilities, systems and processes associated with absorptive capacity. Hence, obtaining but not adequately processing knowledge may not lead to the expected corporate sustainability performance. Thus the following hypothesis is formed;

H3: Absorptive capacity (ACAP) has a positive mediating effect between Stakeholder Management (SM) and CSP; if ACAP is low, the knowledge transfer will be lower resulting in lower CSP and vice versa.

18 3.5 CONCEPTUAL FRAMEWORK

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4.1 RESEARCH DESIGN

Corporate sustainability performance is the dependent variable and stakeholder management is the independent variable. Furthermore, absorptive capacity (ACAP) is included as a mediating variable. Thus, the basic model is a three-variable system such that there are two possible ways to the dependent variable of corporate sustainability performance. Firstly, a direct effect of stakeholder management on corporate sustainability performance, and an indirect effect of stakeholder management through absorptive capacity on corporate sustainability performance. The data were obtained through several validated secondary databases and were combined to one dataset. The model was tested with correlation and regression analyses in order to establish possible relations between the variables.

4.2 DEPENDENT VARIABLE

4.2.1 Corporate Sustainability Performance

Since its inception, corporate sustainability performance (CSP) has been operationalized in a number of ways, and different approaches and definitions have been used in measuring this. As was noted, the definition of sustainability is often a mix of environmental, social and economic concerns. The disparity in the usage and different weighing of these factors calls for a clear alignment with the definitions used in this study and the definitions used in the database. The baseline in this study and the definition of corporate sustainability performance, remains the ‘triple bottom line’ emphasizing equal consideration of economic, environmental and social issues. A number of indices based on different sustainability dimensions have been developed such as the Down Jones Sustainability Index, the Carbon Disclosure Project Leadership Index, the Global 100 Most Sustainable Corporations in the World and the CRO’s 100 Best Corporate Citizens (SustainAbility, 2013). These indices however, suffer the same issues as the basic definition of CSP. They all have different approaches towards CSP. The best known index is the Down Jones Sustainability Index (DJSI). This index defines corporate sustainability as a business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments. The fundamental assessment of the DJSI is based on the Corporate Sustainability Assessment (CSA) by RobecoSAM. RobecoSAM is a global research firm and leading specialist in sustainability

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investing, and multiple scholars have deemed this an appropriate data source (Consolandi, Jaiswal-Dale, Poggiani, & Vercelli, 2009; Lo & Sheu, 2007; Robinson, Kleffner, & Bertels, 2011). Since 1999, RobecoSAM has been conducting an annual CSA which serves as a framework for measuring CSP. The world’s 2500 largest companies are invited to participate in the CSA each year. They send out industry specific questionnaires covering economic, environmental and social dimensions. The companies are evaluated and receive a Total Sustainability Score (TSS) between 0-100 and are ranked against other companies in their industry. Unfortunately, the TSS for the firms are not fully disclosed. However, the results do provide a basis for consideration for inclusion in the DJSI, but also for the RobecoSAM Sustainability Yearbook. This is a report which includes the top 15% performers in each of their industries, and they are all ranked from industry leader, to a Gold, Silver or Bronze class performer, or they are a runner up. The qualifying criteria for these classes are depicted in table 1.

Classification Criteria

Sector Leader The top performer in its respective industry

Gold Class To qualify for the SAM Gold Class, the SAM

Sector Leader must achieve a minimum total score of 75%. Peer group companies whose total score is within 5% of the SAM Sector Leader are also awarded SAM Gold Class. A score up to 10% lower than the leader results in SAM Silver Class, a score up to 15% lower than the leader results in SAM Bronze Class.

Silver Class To qualify for the SAM Silver Class, the SAM

Sector Leader must achieve a total score in the range of 70-75%. Peer group companies whose total score is within 5% of the SAM Sector Leader are also awarded SAM Silver class, while a score of 10% lower than the leader results in SAM Bronze Class.

Bronze Class To qualify for the SAM Bronze Class, the SAM

Sector Leader must achieve a total score in the range of 65-70%. Peer group companies whose total score is within 5% of the SAM Sector Leader are also awarded SAM Bronze Class.

Runner Up Within the top 15% of each sector, to be

included a company must achieve a minimum score of 60% of the score of the sector leader Tabel 1: RobecoSAM Sustainability Yearbook class rating criteria

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Based on this qualification an ordinal ranking can be made which varies from 1 – 5, for the runner up to the industry leader. However, by doing so one would not account for the relative difference within a sector since a leader in one sector might have achieved a much higher score than a leader in another sector. To overcome this discrepancy I have made use of the fact that the best score within a sector, which is the score of the sector leader, is given on a 1-100 scale: this number and the criteria for the classes enable one to calculate an approximate score of the different companies. This score is up to 5% precise for the gold, silver and bronze classes, and a somewhat broader variance in the runner up classes depending on a number of factors. The baseline CSP score has been calculated by averaging the lowest possible score and the highest possible score for each firm based on the sector leader and class criteria premises. The mean of these scores were taken as their respective Total Sustainability Score. What makes this measure very suitable for the analysis is that the performance indicators, which are the economic, environmental and social indicators of the firms are thoroughly weighted by the RobecoSAM CSA according to their industry standards. Because of this, there are already some controls for different industries with regard to CSP, hereby giving a more precise indication of the essential determinants of the CSP.

Moderate CSP can be achieved simply by investing in certain strategies which might result in some increase in performance on different dimensions. These strategies however are not durable and won’t sustain when conducted as such (Porter & Kramer, 2006). The success of sustainability-oriented organizations is determined by the created stakeholder value. Instead of solely maximizing economic profit and, thus, shareholder value, sustainable competitive advantage can only be achieved if organizations create stakeholder value (Harrison et al., 2010). In previous researches measurements were often constructed omitting this notion. Chakrabarty & Wang (2012) studied the long term sustenance of sustainability practices, with a focus on social and environmental aspects, and they included only firms that do pursue sustainability practices to some extent in their sample, leaving out relative underperforming firms leading to more powerful insights on the processes that lead to long term success. Analogous to Chakrabarty & Wang (2012), by studying the firms in the Sustainably Yearbook this study focusses on firms that are relative high performers with regard to the ‘triple bottom line’. Moreover, as Porter & Kramer (2005) emphasized, to sustain the sustainability performance, firms need to perform on a high level. In this view, the ability to gain a competitive advantage is key to overall societal welfare creation, and by using the RobecoSAM Sustainability

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Yearbook measurements we are able to assess the possible antecedents of high performing firms leading to these outcomes as opposed to moderately performing firms who are more likely to be a temporary phenomenon with regard to corporate sustainability performance.

Ideally, this study would have included firms across the entire spectrum in order to have control of the lower performers as well, however due to the proprietary nature of the data from RobecoSAM, I was unable to access this data. Still, the current sample does provide an adequate way to test our proposed relations. Also, the measurements and analyses could have been more precise with full access to RobecoSAM database, as they incorporate a ‘Total Sustainability Score’ of 1-100. The current measurements however give a good representation of the CSP of the firms and provide adequate data to annualize the sample.

4.3 INDEPENDENT VARIABLES 4.3.1 Stakeholder Management

Stakeholder management (SM) is a concept which has been gaining much more attention over the past years as it becomes more apparent that stakeholder management is increasingly important to the overall performance of a firm. The focus on the outcomes of SM resulted in a large number of studies that developed systems to measure outcomes of SM instead of the workings and processes of stakeholder management itself. This distinction is crucial, yet rarely made. Because of this thin line between the SM and the proposed outcomes of SM, the quantification of SM is also referred to as stakeholder orientation. The study of Greenley and Foxall (1997) is among the scarce number of studies that tried to quantify SM. They used a survey methodology to measure a firms orientation towards multiple stakeholders (Greenley & Foxall, 1997). This method however is based on firm beliefs as opposed to firm behaviour, on which this study appears to focus. In order to measure a firm’s orientation toward stakeholder management or in other words the stakeholder relations they manage, the Kinder, Lydenburg, Domini (KLD) index is a measure that can be used. This is a database which is a commonly used measure for corporate social performance (Hillman & Keim, 2001; Waddock & Graves, 1997). The KLD index is compiled by an independent rating service that started in 1991, focusing on rating approximately 650 companies, including the S&P500. They have been expanding their database since then and from 2003 even included full coverage of the small-cap index Russell 3000, containing 95% of all U.S. firms. They focus on a number of areas of social performance. These areas include 7 qualitative issue areas; community, corporate

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governance, diversity, employee relationships, environment, human rights and product, and 6 controversial business issues: alcohol, gambling, tobacco, firearms, military and nuclear power. In each of these area’s a number of issues or compliments are addressed, and KLD assesses the presence or absence of these for each firm (see Appendix for items). KLD uses a variety of sources such as surveys, proxy statements, quarterly and annual reports, as well as data from the business press and other external sources. This rating scheme is broadly recognized as one of the leading measurements in corporate social performance and often used in research (Hillman & Keim, 2001; Waddock & Graves, 1997; Wagner, 2010). The KLD measurements however, needed to be adapted to create a variable that captures the independent variable stakeholder management (SM). Hillman and Keim (2001) previously deconstructed the KLD scale in order to capture the dimensions of stakeholder management. To depict the items that capture the stakeholder management of a firm, all items were all screened based on their direct relationship to stakeholders. All the items for stakeholder management came from the seven qualitative issue areas in the KLD data: these are the areas that exclude the controversial business issues. In this study this deconstruction provided similar results compared to previous studies that applied the same approach to stakeholder management variable and the use of the KLD database (Hillman & Keim, 2001; Waddock & Graves, 1997). The items that were selected from the data parallel the primary stakeholder groups depicted in the theory: employees (items from employee, diversity and human relations), customers (items from product and community), the community (items from community, environment and diversity), capital suppliers (items from corporate governance), and the suppliers (items from diversity, community and human relations). Despite the fact that these measures don’t capture the full range of relations with all stakeholders, the overall combination of the items provide important evidence with regard to the nature of stakeholder relation management of the firms. The items in the KLD data are rated on a binary scale. The data in each particular issue, whether this is positive or negative, is assigned a rating by the KLD. This is a 1 when it had either a strength or concern with regard to that issue, or when it had neither a strength or concern this was indicated by a 0.

Weighing items of the KLD scale was a possibility with regard to the definition of SM. In prior studies on CSP, the categories of KLD were given differential category weighing’s based on academic opinions regarding the importance of different dimensions (Waddock & Graves, 1997). However, I am looking for overall stakeholder management and want to avoid

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emphasizing distinct stakeholder categories. Furthermore, the literature on stakeholder management has yet to identify a ranking of importance of different stakeholders, and one might even wonder whether this is imperative or even possible due to the theoretical nature of stakeholder management. Indeed, some studies already assert that no such universal ranking can be made (Mitchell, Agle, & Wood, 1997). Moreover, this study is addressing the CSP which regards all stakeholders, also the stakeholder management is defined as regarding all stakeholders. Giving certain items more weight would dismiss these arguments and distort my assumptions on both stakeholder management and corporate sustainability performance. Therefore, all items were given equal weighing in order to construct the variable for SM. The construct of SM is built up by the simple summing of the dimensions of the KLD items that were selected for this study (see Appendix), hereby considering the opposing strength (+1) and concerns (-1). This added up to a hypothetical scale of 0 – 69 that measures the stakeholder management.

4.3.2 Absorptive Capacity

It is hypothesized that due to good stakeholder management, a firm might obtain knowledge which subsequently can be used strategically to increase their corporate sustainability performance. The way in which information or knowledge is processed however is often unaccounted for. Absorptive capacity might be an important factor in both accumulation, understanding and further development of knowledge. The extent to which a firm does so, is often measured by R&D proxies. These proxies vary from outputs (e.g. patents), to inputs (e.g. expenditures or investments in R&D) and the selection and use of these proxies often depends on the study that is conducted. The most commonly used proxy is R&D intensity, which represents a broad measure for overall absorptive capacity (Flatten et al., 2011). Cohen & Levinthal (1990) defined R&D intensity as R&D expenditures divided by sales. This normalization of R&D controls for the effect of firm size, which affects return per unit of R&D effort. The COMPUSTAT database provides data on financials, statistical and market information of numerous active and inactive firms worldwide. It covers 99% of the global market capitalization and has data available that goes back to 1950. This database was used to obtain financials on sales & R&D expenditures of the firms in the sample. Despite the broad coverage of this database, there are a lot of firms who do not disclose their R&D figures due to reasons such as information asymmetry, risk management and investor decisions (Aboody & Lev, 2000; Merkley, 2011), the influence of these factors are not covered by this study.

25 4.4 CONTROL VARIABLES

In order to ensure that in the analyses the relationship between corporate sustainability performance - measured by the scores of the RobecoSAM Corporate Sustainability Assessment and stakeholder management scores, mediated by knowledge development measured by R&D intensity - is not confounded by other variables a number of control variables were included. 4.4.1 Industry

The type of industry might be of influence on the preferred way of stakeholder management. Every industry has a specific focus on stakeholders and this should be accounted for in a study (Parmar et al., 2010). Previous literature indicated a need to control for industry as well (Waddock & Graves, 1997). This control variable has been operationalized using the standard 4-digit SIC code. Also, industries differ in research intensity, hence this variable is also controlling for the relative differences in absorptive capacity (Cohen & Levinthal, 1990; Zahra & George, 2002).

4.4.2 Size

Previous research has shown that firms that are leading in CSP are often larger (Artiach, Lee, Nelson, & Julie Walker, 2010), also other articles suggest size to be a factor (Ullman, 1985; Waddock and Graves, 1997a, via Hillman and Keim, 2001), which indicates that the size of the firm should be used as a control variable. This variable is operationalized by using net sales as a proxy for size (Hillman & Keim, 2001).

4.5 SAMPLE

The data for stakeholder management (SM) were obtained from the Kinder, Lydenburg, Domini (KLD) index. This index measures social performance and includes all firms in the Russell 3000 index, which are the 3000 biggest firms in the U.S. This database is based on qualitative research on a number of areas of social performance. Hillman & Keim (2001) used this database to develop a measurement for SM and I used the same methodology, combining 69 indicators to a single scale for the SM of firms. The data for the absorptive capacity (ACAP), proxied by the ratio of R&D expenses divided by sales of a firm (Cohen & Levinthal, 1990), was obtained from the COMPUSTAT database, as are data for the control variables size and industry, which were proxied by the total sales of a firm and the two digit SIC code (Hillman & Keim, 2001; Parmar et al., 2010; Waddock & Graves, 1997). Since it takes time to develop and transform knowledge that is obtained with SM to value creating strategies and since this is not expected

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to have an immediate effect on CSP, I modelled a lagged effect between the independent variables and the dependent variable (Hillman & Keim, 2001; Parmar et al., 2010; Porter & Kramer, 2006). The data on CSP was taken from the RobecoSAM Sustainability Yearbook 2011 and contain data for the firms over the year 2010. Since SM is not likely to have an immediate effect on CSP, the data for SM and absorptive capacity were taken for the year 2009. Merging the data from the yearbook and the KLD data base, resulted in a sample size of 80 firms. The data from COMPUSTAT provided data for 51 of the 80 firms in the sample since 29 firms do not disclose R&D data, leading to a final sample size of 51 U.S. firms from different industries. While this is a relative small sample for secondary data, this represents the theoretical model in the best possible way and it is sufficient for statistical testing. In order to check that the remaining sample did not differ too much from the initial sample I tested for difference in means for the control variables (industry and size). Hypotheses 1 and 2 were tested through correlation analysis and hypothesis 3 was tested using regression analysis.

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5 R

5.1 DESCRIPTIVE STATISTICS AND CORRELATION ANALYSIS

In order to test hypothesis 1, stating that stakeholder management, measured by SM in 2009, is positively related to corporate sustainability performance, measured by CSP in 2010, and hypothesis 2, stating that that absorptive capacity, measured by the ratio of R&D expenses divided by total sales in 2009, of a firm is positively related to corporate sustainability performance a correlation analysis was done. Table 1 shows the descriptives and the Pearson correlation matrix for the dependent, independent and control variables:

Table 1: Means, Standard deviations and Correlations

Variables M SD 1 2 3 4 5 1. CSP (N = 80) 67,500 10,4556 1,000 2. SM (N = 80) 2,75 4,333 ,126 1,000 3. ACAP (N = 51) ,0584 ,07050 -,139 ,107 1,000 4. SIC (N = 80) 29,44 12,196 -,107 ,222* ,609** 1,000 5. SALES (N = 80) 24274,02 31120,722 ,111 ,157 -,119 -,010 1,000 *. Correlation is significant at the 0.05 level (2-tailed).

**. Correlation is significant at the 0.01 level (2-tailed).

CSP = Corporate Sustainability Performance; SM = Stakeholder Management;

ACAP = R&D Expense/Total Sales (proxy for absorptive capacity); SIC = Industry; SALES = Total Sales (proxy for size)

It shows that, contrary to hypothesis 1, absorptive capacity is negatively correlated with CSP, with a coefficient of r = -.176 albeit non-significant. For hypothesis 2, stating that stakeholder management is positively related to CSP has according to the prediction a positively correlation with a coefficient of r =.136, however this is also non-significant. From table 1 we can see that the correlations between the industry and the stakeholder management of a firm is positively and significantly correlated (R = ,222). This indicates that the industry in which a firm operates might play a significant role when it comes to stakeholder management intensity. Another significant result, which is strongly and significantly correlated (R = ,609), is the industry and the absorptive capacity. This is most likely due to the fact that research intensity in general varies among different industries, it also implies the appropriateness of industry as a control variable.

28 5.2 REGRESSION ANALYSES

The following paragraphs present results on the regression analysis of the proposed model, as well as several alternative models. The results for the baseline model proved to be inconclusive, and a subsequent analysis of an alternative moderating model was executed. The basic proposed relation between the variables, with stakeholder management as the independent variable and corporate sustainably performance as the dependent variable remained unchanged. However, the effects of absorptive capacity were modelled in an alternative way. Furthermore, an additional, more fine-grained analysis was performed: the effects of stakeholder management were analysed in a more fine-grained manner by using the separate dimensions of SM based on the KLD data, in order to see what their respective effects were. Since both the mediating and moderating effects of absorptive capacity were very small and did not proved to be of any significance, this fine grained approach to the independent variable of stakeholder management was modelled in a direct relation to the dependent variable of CSP, and analysed trough a regression analysis while being controlled by the control variables.

5.2.1 Mediating effect

To test hypothesis 3, a regression analysis was conducted. To test the proposed relations the process SPSS macro of Preacher & Hayes (2008) was used. This macro provides results for both direct and indirect effects of the independent variables on the dependent variable of CSP in a wide number of models, among others the mediating model that was tested. The recommendation of Preacher & Hayes (2008) to resample 5000 times was followed. The results are depicted in table 2.

First of all, none of the results were significant. Looking at table 3 we can see that stakeholder management has a positive sign in the coefficient on CSP, suggesting that the proposed relation is in the right direction. When we look at the results in table 3, we can see that the effect proposed in hypothesis number 3 is very small with an indirect effect size of .0326, albeit non-significant. The primary effect seems to be due to higher stakeholder management.

The R-square shows that 4% of the variation in CSP is explained by this regression model, however since this model is non-significant this seems not to be meaningful. Table 3 shows the resulting effect sizes of the overall mediating model. These results only show a very small indirect effect, suggesting that the absorptive capacity does not play the crucial role that was proposed in this study. These results however are non-significant, thus not meaningful.

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Table 2: Results for total model

Variables Coefficient S.E. T-value

Direct effect SM --> CSP 0,1246 0,368 0,3385 Indirect effect SM --> ACAP -0,3442 0,1936 -1,7775 ACAP --> CSP -0,0946 0,2683 -0,3526 Total effect SM ,1571 ,3529 ,4453 Control SIC -,1386 ,1479 -,9376 SALES ,0000 ,0000 ,8142 R ,2022 R-square ,0409 F test ,6675

N = 51; Number of bootstrap samples = 5000; Confidence interval at 95%

Table 3: Results effect sizes

Effect S.E T-value

Direct effect ,1246 ,3680 ,3385

Indirect effect (bootstrap) ,0326 ,1072

Total effect ,1571 ,3529 ,4453

Effects are unstandardized; Direct effect = SM on CSP; Indirect effect = SM on CSP through ACAP N = 51; Number of bootstrap samples = 5000; Confidence interval at 95%

5.2.2 Moderating effect

In the theory, it was proposed that the effects of stakeholder management were to lead to higher corporate sustainability performance, but only when the firm was able to convert the information to concrete strategies resulting in higher performance. That is, the increased inflow of information due to increased relationships and contact intensity with stakeholders could only be utilized when a firm had the proper mechanisms associated with absorptive capacity in place. The analysis of the mediating effect of absorptive capacity between stakeholder management and corporate sustainably performance not only proved to be very small, but also non-significant. The mechanism that was proposed in the theory was of a somewhat vital nature, that is, high absorptive capacity of a firm was imperative to the successful value creation out of stakeholder management. However, the absorptive capacity might be less elementary to the

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proposed relationship than theorized, and might fulfil a more stimulating as opposed to a quintessential role. Therefore, an analysis of a possible moderating effect of absorptive capacity between stakeholder management and corporate sustainability performance was conducted. To test for the relations the process SPSS macro of Preacher & Hayes (2008) was used as well. This macro provides results for both direct and interaction effects of the independent variables on the dependent variable of CSP in the alternative moderating model. The analysis resulted in the following data:

Table 4: Results for total moderation model

Variables Coefficient S.E. T-value

Outcome CSP ACAP -,0218 ,2917 -,0748 SM ,3054 ,461 ,6625 SM * ACAP -,0283 ,0429 -,6586 Control SIC -,0920 ,1947 -,4727 SALES ,0000 ,0000 ,7673 R ,2170 R-square ,0471 F test ,4448 R-square change ,0092 F test ,4338 N = 51; Confidence interval at 95%

CSP = Corporate Sustainability Performance; SM = Stakeholder Management;

ACAP = R&D Expense/Total Sales (proxy for absorptive capacity); SIC = Industry; SALES = Total Sales (proxy for size)

The results from the moderation model also proved to be non-significant. Moreover, the sign of the interaction effect is negative, suggesting an opposing relation despite it being very small. The R-square shows that 4,7% of the variation in CSP is explained by this regression model, moreover the R-square change is a mere 0,9% indicating a very small addition with regard to explanatory value for the interaction effect. However, since this model is non-significant this does not seem to be meaningful.

31 5.2.3 Specific stakeholder effects

Since the proposed models do not provide definite answers to research question, additional analyses were performed to look for underlying influences in the independent variables. The literature on stakeholder management has set some precedent for examining the effects of different stakeholders (Hillman & Keim, 2001; Parmar et al., 2010). In this study the different stakeholders are to some extent represented by the individual dimensions of the KLD data. In order to determine separate effects of the dimensions, which might for instance offset each other in the combined measurement for stakeholder management, an analysis of each of the stakeholder dimensions was conducted. These dimensions were; Corporate Governance, Community, Diversity, Employees, Environment, Human Relations and Product. To test this a regression in SPSS was performed, while controlling for both industry and size. Table 5 shows the results of the regression for the different stakeholder dimensions on corporate sustainability performance.

Table 5: Regression results for CSP with seperate dimensions of SM

Variables Coefficient (standardized) S.E. T-value

CGOV ,275* 1,187 2,297 COM -,142 1,256 -1,133 DIV -,073 ,770 -,549 EMP ,109 1,041 ,827 ENV ,139 ,944 1,035 HUM ,185 1,699 1,379 PRO -,004 1,094 -,030 Control SIC -,140 ,111 -1,080 SALES ,129 ,000 ,884 R-square ,1440 Adjusted R-square ,0350 F test 1,3140

Notes: N = 80; Confidence interval at 95%; *p < 0,05;

CGOV = Corporate Governance; COM = Community; DIV = Diversity; EMP = Employee; ENV = Environment; HUM = Human Relations; PRO = Product

This analysis provided a positive and significant (.275, p < 0.05) result for the relationship the Corporate Governance dimension of stakeholder management on the corporate sustainability performance of firm, indicating that this dimension, representing the Capital

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Suppliers, is a primary driver for CSP. The other dimensions have non-significant effects. They do however have different signs which suggest that some dimensions of stakeholders not only have a lesser influence, but possibly have a negative influence on CSP. Taken together, the summed scale of stakeholder dimensions might have a dampened impact as the dimensions counteract each other to some extent.