Contracting Beyond the Market: Property Rights, Externalities, Historical Conflict, and Contractual Agreements Between Firms and Nonmarket Stakeholders

Sinziana Dorobantu (NYU Stern School of Business)
Kate Odziemkowska (Univ. of Pennsylvania)

Abstract : Despite firms’ growing engagement of nonmarket stakeholders—such as local communities and nongovernmental organizations—there has been little research on the emergence of contractual agreements between firms and nonmarket actors. Given that a very large number of such contracts are theoretically possible but only a small number exist, we seek to understand what factors explain the use of contracts to govern some firm-stakeholder relationships but not others. We ground our inquiry in transaction cost economics, which views governance as a means to infuse order into a relation where potential conflict threatens value creation. We propose that the property rights, externalities, and history of conflict that define the relationship between a firm and a nonmarket stakeholder influence the potential for conflict between them and therefore the probability of a contract to govern their relationship. We collect novel data on the location and relationships between indigenous communities and mining firms in Canada to identify a plausible exhaustive set of indigenous communities “at risk” of signing a contract with a mining firm. We measure the three factors defining the relationship between a firm and a local community by relying, respectively, on historically assigned property rights over a mining area, the mine-community colocation in a watershed, and archival records of protests and lawsuits. We find support for our propositions by examining which of the 5,342 dyads formed by 459 indigenous communities and 98 firms signed 259 contracts between 1999 and 2013.

Responding to Regulatory Uncertainty: Government Agency Signalling and Greenhouse Gas Emissions

Eunhee Kim (Fordham University)
Shon Hiatt (University of Southern California)
Yue Maggie Zhou (University of Michigan)

Abstract : Anticipating and mitigating the impact of regulatory changes are important tasks for firms; yet, this can be challenging when firms face constantly evolving and ambiguous policies such as those regarding climate change and when regulatory implementation is uncertain. We approach this issue by bringing government agencies center stage and exploring the factors that lead agencies to signal their policy implementation intentions as well as firm reactions to such signals in the context of electric power generation in the European Union from 2004 to 2009. We propose that agencies’ concern over resources motivates them to signal implementation intentions to political principals who support the policy goals in an effort to reduce uncertainty surrounding future budgets. We argue that firms will respond to these signals by altering strategy and reducing carbon emissions. We further show that the effect of resource dependency on agency signalling is moderated by pressures from local agency stakeholders and by the agency’s capacity to implement the policy.

Voice but No Exit? the Effects of Social Activism Under Imperfectly Competitive Exchange

Ilze Kivleniece (INSEAD)
Bertrand V. Quelin (HEC Paris)

Abstract : Prior literature has shed important light on the effects of social or stakeholder activism on firm responsiveness, yet, has been limited to largely friction-less, competitive forms of exchange. In this study, we examine how social activism impacts firm responsiveness and end-user value outcomes in imperfectly competitive, hybrid forms of exchange. We argue that in an exchange characterized by imperfect competition and limited stakeholder “exit” mechanisms, social activism increases the associated exchange costs for the focal firm, resulting in reduced firm responsiveness to stakeholder demands and higher economic value loss (e.g. higher price) for the end-users. We further argue that this effect is moderated by the bargaining power of institutional actors, as well as the legitimacy and salience of activism domain. We find support for our hypotheses using a unique data from French municipal water contracts to private operators. Our paper highlights the “darker side” of social activism and suggests important boundary conditions to its effects, particularly in imperfectly competitive forms of exchange, carrying thereby both managerial and policy implications.

Hybrid Organization: Serving Both Economic and Social Objectives

Bertrand V. Quelin (HEC Paris)

Abstract : We define hybrid organizations as inter-organizational forms that exist across the boundaries of sectors. They merge objectives of different organizations or entities. As organizational innovations, they are at the intersection of changing state-market relations, offer novel institutional designs and rely on the growing role of civil society organizations as key stakeholders to creation economic and social value. Two types can be differentiated. The first type is when one focal organization embraces two distinct objectives: economic and social outcomes. The second type is obtained when at least two (or more) organizations from distinct sectors with distinct identities (firms, NGOs, non-for-profit, associations…) agree on mutual interests and decide to collaborate through pooling their resources, competencies, and objectives. In this paper, we explore the micro-foundations of hybrid organizational forms and compare the two types of hybrid organizations to explain when and how they are capable to take advantage of governance mechanisms – board composition, accountability and reporting systems. We also analyze how they internally incorporate the elements of their (potential) competing logics and how they maintain their hybrid nature over time. Moreover, we discuss what factors contribute to hybrid sustainability? We contribute in three directions. First, we identify the inter-organization collaboration as a distinct type of hybridity. We offer a comprehensive analysis of hybridity challenges and means of addressing them. Second, our framework advances that appropriate organizational governance, by monitoring dual performance objectives and aligning the interests of multiple principal stakeholders, remedies to internal tensions and institutional pressures. Third, our proposed analytical framework of hybrid organizations sheds new light on the novelty of hybrid organizational forms and discuss how they can continue to create value.