A Behavioral Theory of Social Performance: Social Identity and Stakeholder Expectations

Abstract

Firms use reference points to evaluate financial performance, frame gain or loss positions, and guide strategic behavior. However, there is little theoretical underpinning to explain how social performance is evaluated and integrated into strategic decision making. We fill this void with new theory built on the premise that inherently ambiguous social performance is evaluated and interpreted differently than largely clear financial performance. We propose that firms seek to negotiate a shared social performance reference point with stakeholders who identify with the organization and care about social performance. While incentivized to align with the firm, firm-identified stakeholders provide intense feedback when there are major discrepancies between their expectations and the firm’s actual social performance. Firms frame and respond to feedback differently depending on the feedback valence: negative feedback will be framed as a legitimacy threat, and firm responses are likely to be substantive; positive feedback will be framed as an efficiency threat, and firm responses are likely to be symbolic. However, social enterprises face a double standard in evaluations and calibrate responses to social performance feedback differently than do nonsocial enterprises. Our behavioral theory of social performance advances knowledge of organizational evaluations and responses to stakeholder feedback.