Academy of Management Review

Strategic Cognition an d Issue Salience: Towards an Explanation of Firm Responsiveness to Stakeholder Concerns

Journal: Academy of Management Review

Manuscript ID: AMR-2011-0179-Original.R3

Manuscript Type: Original Manuscript

Stakeholder Theory, Perceptual Issues, Strategy Implementation/ Process, Keyword: Cognition (Managerial), Decision Making (General), Corporate Social Responsibility

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1 2 3 4 STRATEGIC COGNITION AND ISSUE SALIENCE: 5 6 TOWARDS AN EXPLANATION OF FIRM RESPONSIVENESS TO STAKEHOLDER 7 8 CONCERNS 9 10 11 12 13 14 15 16 Jonathan Bundy 17 University of Georgia 18 [email protected] 19 20 21 22 Christine Shropshire 23 University of Georgia 24 [email protected] 25 26 27 28 Ann K. Buchholtz 29 Rutgers University 30 [email protected] 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 Acknowledgments: The authors wish to thank Associate Editor Jean-Philippe Bonardi and three 50 51 anonymous reviewers for their invaluable feedback and guidance. Additionally, the authors wish 52 53 to thank Michael Pfarrer, Amy Hillman, Jeanne Logsdon, and participants at the 2011 Academy 54 55 of Management Annual Conference for comments on earlier versions of the manuscript. 56 57 58 59 60 1

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1 2 3 4 ABSTRACT 5 6 As a new perspective for understanding firm responsiveness to stakeholder concerns, we propose 7 8 a strategic cognition view of issue salience, i.e., the degree to which a stakeholder issue resonates 9 10 with and is prioritized by management. More specifically, we explain how a firm’s cognitive 11 12 structures of organizational identity and strategic frames utilize differing core logics to influence 13 14 managerial interpretation of an issue as salient. We then present a typology of firm 15 16 responsiveness and suggest that firms will respond more substantially to those issues perceived 17 18 19 as salient to both cognitive logics and more symbolically to those issues salient to only one logic. 20 21 This paper fills key gaps in our understanding of how firms manage and respond to stakeholders 22 23 by focusing on the salience of the issue and incorporating strategic cognition as a key mediating 24 25 mechanism. 26 27 28 29 Keywords: Strategic cognition, issue salience, stakeholder management, public affairs/issues 30 31 management 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 2

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1 2 3 4 Firm responsiveness, defined as the degree to which a firm is willing to provide a 5 6 thoughtful response to stakeholder concerns and commit to continued work on the issue (David, 7 8 Bloom, & Hillman, 2007; IRRC, 1993), has long held the interest of organizational scholars. 9 10 Early work in stakeholder theory addressed firm responsiveness by developing general strategies 11 12 of stakeholder management (Freeman, 1984), outlining broad firm responsibilities to 13 14 stakeholders (Carroll, 1979), and examining stakeholder characteristics to determine which 15 16 stakeholders should command managerial attention (Mitchell, Agle, & Wood, 1997). Building 17 18 19 from these models and typologies, recent research has begun to highlight the heterogeneous 20 21 nature of stakeholder concerns and idiosyncratic interactions between stakeholders and target 22 23 firms (de Bakker & den Hond, 2008). Indeed, the concept of stakeholder multiplicity or “the 24 25 degree of multiple, conflicting, complementary, or cooperative stakeholder claims made to an 26 27 organization,” has begun to take root (Neville & Menguc, 2006: 377). Researchers are now 28 29 paying more attention to the diversity of stakeholder issues – i.e., the explicit concerns and 30 31 requests raised by individuals/groups that can affect or be affected by the firm (Freeman, 1984) – 32 33 and the process by which managers interpret, balance, and respond to these claims (e.g., Eesley 34 35 & Lenox, 2006; Mitchell, Agle, Chrisman, & Spence, 2011; Rowley, 1997). 36 37 Much extant research on why or how firms respond to stakeholder issues approaches the 38 39 question from the stakeholder’s perspective or focuses on external drivers such as environmental 40 41 and stakeholder characteristics (e.g., David et al., 2007; Eesley & Lenox, 2006; Reid & Toffel, 42 43 2009). For example, one stream of research examines stakeholder characteristics by asking 44 45 which stakeholder groups receive managerial attention (Agle, Mitchell, & Sonnenfeld, 1999; 46 47 David et al., 2007; Mitchell et al., 1997). Other work examines the influence of institutional, 48 49 competitive and individual motivators (Bansal & Roth, 2000) or network influences (Reid & 50 51 Toffel, 2009; Rowley, 1997). However, despite this body of work, considerable debate persists 52 53 54 regarding the mechanisms that drive firm actions in response to stakeholder concerns (cf. 55 56 Laplume, Sonpar, & Litz, 2008). Moreover, there have been few attempts to examine the 57 58 59 60 3

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1 2 3 4 cognitive process used by managers and decision-makers to interpret, understand, and react to 5 6 the actual issue under consideration. 7 8 We suggest a new perspective for understanding firm responsiveness to stakeholder 9 10 concerns by developing a strategic cognition view of issue salience , which we define as the 11 12 degree to which a stakeholder issue resonates with and is prioritized by management. In doing 13 14 so, we position issue salience as a central driver of firm responsiveness. Firms and managers do 15 16 not respond to stakeholder and environmental characteristics per se. Instead, they respond to 17 18 19 specific issues and concerns advocated by stakeholders, e.g., emissions reduction advocated by 20 21 environmental stakeholders, governance reform advocated by shareholders, and fair labor 22 23 practices advocated by employees. In developing our perspective we recognize the wealth of 24 25 prior research on firm responsiveness that emphasizes various issue characteristics: e.g., who 26 27 sponsors it (e.g., Agle et al., 1999; Mitchell et al., 1997), how much institutional attention the 28 29 issue receives (e.g., Bonardi & Keim, 2005; Reid & Toffel, 2009), and its potential impact on the 30 31 organization and stakeholders (e.g., Jones, 1991). However, we also suggest that an important 32 33 yet missing component for understanding responsiveness is managers’ interpretation of the issue 34 35 and its characteristics as salient to the firm and thus worthy of a response. We describe a 36 37 strategic cognition process (cf. Narayanan, Zane, & Kemmerer, 2011) used by managers to 38 39 determine issue salience as an outcome of issue interpretation. Furthermore, given that firm 40 41 responsiveness has largely been understood as action taken against some specific request or 42 43 demand (e.g., David et al., 2007; Eesley & Lenox, 2006), we use this strategic cognition process 44 45 to suggest a direct relationship between issue salience and a firm’s response. 46 47 Our central purpose is to present an issue salience perspective for examining firm 48 49 responsiveness to stakeholder issues. In developing this perspective, we make two primary 50 51 contributions. First, we position the strategic cognition structures of organizational identity 52 53 54 (Albert & Whetten, 1985; Dutton & Dukerich, 1991) and strategic frames (Huff, 1982) as 55 56 integral and interrelated components to the issue interpretation process. Organizational identity 57 58 guides issue interpretation using an expressive logic , which is related to how the firm defines and 59 60 4

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1 2 3 4 displays conceptions of the self, while a firm’s strategic frame facilitates issue interpretation 5 6 using an instrumental logic predicated on the rational pursuit of organizational goals (Polletta & 7 8 Jasper, 2001; Rowley & Moldoveanu, 2003). Both cognitive structures work simultaneously to 9 10 influence issue interpretation. Managers interpret a stakeholder issue as salient based on its 11 12 relationship to the logic of each cognitive structure. Issues perceived as consistent (i.e., 13 14 materially supporting, reinforcing, or confirming) or conflicting (i.e., materially challenging or 15 16 threatening) with the core logic of each structure will have higher salience, while issues 17 18 19 perceived as unrelated (i.e., immaterial to cognitive structures) will have lower salience. 20 21 Second, we utilize the overall level of issue salience and nature of an issue’s cognitive 22 23 interpretation (i.e., whether the issue is perceived as consistent or conflicting) to develop a 24 25 typology of stakeholder issues. We then use these issue types to discuss a firm’s expected 26 27 response. In doing so, we consider the materiality of response, being either symbolic or 28 29 substantive, as well as the general form of response, being either defensive or accommodative. 30 31 We also explore the consequences of cognitive dissonance (Festinger, 1957), or instances when 32 33 an issue is interpreted as consistent with one logic but conflicting with the other. 34 35 In pursuing these objectives, we contribute to the literature by developing a strategic 36 37 cognition perspective to understand how managers process and respond to the ever-expanding 38 39 range of issues championed by stakeholders (Laplume et al., 2008). Our theory develops the 40 41 mediating process between issue characteristics as inputs and firm responsiveness as output, 42 43 utilizing an organizational perspective of strategic cognition and issue salience. We consider the 44 45 influence of both expressive and instrumental logics in shaping managerial interpretation of 46 47 stakeholder issues, answering a call for research to investigate the dynamic relationship of the 48 49 two logics (Rowley & Moldoveanu, 2003) and also connect interpretation to firm action in the 50 51 form of responsiveness. Thus, our framework provides a more complete understanding of to 52 53 54 whom and what firms pay attention (e.g., March & Olsen, 1976; Ocasio, 1997), as well as how 55 56 they respond given a level of attention. 57 58 59 60 5

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1 2 3 4 Consider an example of environmental sustainability as a stakeholder issue for Walmart. 5 6 Although Walmart was an exemplar in driving down prices by taking advantage of economies of 7 8 scale, the company was long criticized for their lack of attention to environmental concerns. 9 10 Eventually, however, executives at Walmart recognized that their economies of scale could 11 12 provide a strategic advantage in the area of sustainability. "At Wal-Mart, we realized, we've 13 14 learned, that what many people criticize us for also happens to be one of our greatest 15 16 opportunities, which is our size," said Rand Waddoups, senior director of strategy and 17 18 19 sustainability (Truini, 2008: 12). In October 2005, Walmart announced broad sustainability 20 21 initiatives because such investments “help Walmart differentiate itself from its competition, 22 23 maintain a license to grow, and make its supply chain dramatically more efficient. In other 24 25 words, a good business sustainability plan would help Walmart get even better at what it does 26 27 best: drive down costs to generate profits” (Plambeck & Denend, 2008: 54). Characteristics of 28 29 the environmental issue alone did not trigger Walmart’s heightened responsiveness to 30 31 sustainability concerns, largely because the nature of the issue did not change – nor did the 32 33 power, legitimacy or urgency of the stakeholders involved (Mitchell et al., 1997). Instead, 34 35 Walmart executives began to cognitively interpret the issue as materially consistent with its 36 37 identity as a low-cost leader and consistent with its strategic frame of leveraging economies of 38 39 scale. We draw on the strategic cognition literature to explain how managers use organizational 40 41 cognitive structures of identity and strategic frames to process and prioritize the wealth of 42 43 stakeholder issues faced by a firm such as Walmart. 44 45 We organize the paper as follows. First, we briefly review the issue salience literature to 46 47 highlight previous use of expressive and instrumental logics to understand stakeholder issues. 48 49 We then formally define issue salience and present a strategic cognition framework of issue 50 51 salience. In doing so, we discuss how different characteristics of the issue influence perceptions 52 53 54 of salience. In the second half of the paper, we describe how issue salience leads to firm action 55 56 and responsiveness and present a typology of stakeholder issues and firm responses. We end 57 58 with a discussion of the implications of our theoretical model and an agenda for future research. 59 60 6

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1 2 3 4 STAKEHOLDER ISSUE SALIENCE 5 6 Research investigating the concept of issue salience appears in several streams of 7 8 organizational literature, emphasizing both stakeholder and firm perspectives. Scholars taking a 9 10 stakeholder perspective regularly focus on the degree to which an issue resonates with a 11 12 stakeholder group, suggesting that stakeholders mobilize around an issue because of their 13 14 collective perception of its criticality as driven by identity (Rowley & Moldoveanu, 2003), 15 16 culture (Jones, Felps, & Bigley, 2007), or emotional connection to the issue (Bansal & Roth, 17 18 19 2000). This social identity and emotional perspective can explain why certain stakeholders 20 21 advocate for radical issues or lost causes, such as when “gadfly” shareholders propose extreme 22 23 resolutions (Rowley & Moldoveanu, 2003). Issues are salient to stakeholder groups to the degree 24 25 that they connect with deeper meanings of what defines the group and makes it unique. Research 26 27 on collective identity in social movements refers to this characteristic of identity as an expressive 28 29 logic , suggesting that actions motivated by identity serve to express identity to external 30 31 constituents and stakeholders (Polletta & Jasper, 2001). For example, Scott and Lane (2000: 44) 32 33 use expressive logic to argue “identity is best understood as contested and negotiated through 34 35 iterative interactions between managers and stakeholders.” As such, an organization’s desire to 36 37 articulate its identity to pertinent stakeholders can influence the expressive salience of external 38 39 issues (Ashforth, Harrison, & Corley, 2008). 40 41 While stakeholder views of issue salience emphasize expressive logic from an identity 42 43 perspective, strategic views of issue salience focus on firm-level interpretations of how an issue 44 45 potentially affects the firm as it attempts to achieve its goals (Dutton & Jackson, 1987; Jackson 46 47 & Dutton, 1988; Thomas, Clark, & Gioia, 1993). For example, strategic issues management 48 49 research investigates the extent that an issue “is likely to have an important impact on the ability 50 51 of the enterprise to meet its objectives” (Ansoff, 1980: 133). Thus, issue salience perceptions are 52 53 54 a function of how the firm strategically frames the issue. Managers prioritize issues based on 55 56 perceptions of how the issue relates to strategic decisions and goals, and managerial action 57 58 follows this prioritization. An important conclusion of this research is that issues not framed as 59 60 7

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1 2 3 4 influential to strategic goals do not receive priority or attention (Ansoff, 1980). Thus, in contrast 5 6 to the expressive logic of organizational identity, strategic frames are driven by an instrumental 7 8 logic concerned with the rational pursuit of organizational objectives (Polletta & Jasper, 2001). If 9 10 managers interpret an issue as instrumentally salient for achieving strategic goals, they grant it 11 12 increased priority and attention. 13 14 Drawing from both perspectives outlined above, we formally define issue salience as the 15 16 degree to which a stakeholder issue resonates with and is prioritized by management. Implicit in 17 18 19 our definition is a characterization of issue salience as a perceptual outcome of a strategic 20 21 cognition process. We suggest that the expressive and instrumental cognitive structures of 22 23 organizational identity and strategic frames, respectively, drive this perception. The salience of 24 25 an issue is a function of its perceived relationship with the interpretive logic of each cognitive 26 27 structure (Ashforth & Mael, 1996). Thus, building from the stakeholder literature highlighted 28 29 above, an issue is consistent with an organization’s expressive logic if perceived as having 30 31 bearing on or being material to the expression of an organization’s core values and beliefs. 32 33 Similarly, drawing from research on strategic issues management, an issue is consistent with an 34 35 organization’s instrumental logic if perceived as materially supporting or useful to the 36 37 achievement of strategic goals. In contrast, an issue is conflicting with each respective structure 38 39 when it is interpreted as materially challenging or threatening to an organization’s identity or 40 41 strategic frame. Finally, an issue may also be perceived as unrelated to an organization’s 42 43 expressive or instrumental logic. In such cases, the issue is largely seen as irrelevant to the 44 45 achievement of an organization’s goals or the expression of its identity. 46 47 Our overarching framework of issue salience appears in Table 1 below. Those issues 48 49 perceived as materially related to both cognitive logics – either consistent or conflicting - will be 50 51 highly salient to managers (as identified in the dark shaded section of Table 1). Issues perceived 52 53 54 as materially related to only one logic - either consistent or conflicting - will be moderately 55 56 salient (as identified in the light shaded sections of Table 1). Finally, issues perceived as 57 58 unrelated to both cognitive logics will have low salience (as identified in the lower right section 59 60 8

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1 2 3 4 of Table 1). Several important aspects of our framework should be noted. First, consistent with 5 6 prior research, we consider each cognitive structure to be independent of the other while 7 8 operating simultaneously to influence interpretation and salience (Ashforth & Mael, 1996). We 9 10 discuss more on the nature of each structure and their interrelationship in the following section. 11 12 Second, our conception of salience distinguishes issue interpretation in both positive and 13 14 negative terms: as consistent and conflicting. This is consistent with research in strategic issues 15 16 management, which highlights issues as both opportunities and threats (e.g., Dutton & Jackson, 17 18 19 1987; Jackson & Dutton, 1988), and also with research on identity, which often considers the 20 21 role of identity threats in addition to opportunities to express identity (e.g., Dutton & Dukerich, 22 23 1991). Thus, in utilizing the concepts of consistency and conflict to understand salience, we 24 25 allow for both positively and negatively salient issues. Viewing salience in such terms also 26 27 allows us to consider instances of cognitive dissonance, i.e. when an issue is perceived as 28 29 consistent with one logic but conflicting with the other. We detail the implications of cognitive 30 31 dissonance in our section on firm responsiveness. For the current discussion regarding issue 32 33 salience we suggest that dissonant issues will be highly salient, as are consonant issues, or those 34 35 issues uniformly consistent or conflicting with both logics. 36 37 ------38 39 Insert Table 1 about here 40 41 ------42 43 As mentioned above, much of the previous work exploring firm reactions to stakeholder 44 45 issues focuses on the influence of exogenous issue characteristics, e.g., how much power or 46 47 legitimacy is held by a sponsoring stakeholder (e.g., Mitchell et al., 1997) or how the issue is 48 49 embedded in the organizational environment (e.g., Reid & Toffel, 2009). We build on this 50 51 literature by focusing on how firms cognitively process these characteristics, i.e., how managers 52 53 54 interpret an issue as meaningful to the organization’s core logics. Reaction to an issue is not 55 56 automated but rather driven by issue interpretation and perception (Dutton & Dukerich, 1991; 57 58 Dutton & Jackson, 1987; Jackson & Dutton, 1988). Our arguments draw from the strategic 59 60 9

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1 2 3 4 cognition perspective (Narayanan et al., 2011) which emphasizes the role of cognitive structures 5 6 including strategic frames and organizational identity. We now turn our attention to strategic 7 8 cognition and discuss the role of each cognitive structure in determining issue salience. While we 9 10 focus on explicating the interpretation process, we also recognize previous research and highlight 11 12 potential exogenous characteristics of an issue that can influence its interpretation. 13 14 STRATEGIC COGNITION AND PERCEPTIONS OF ISSUE SALIENCE 15 16 Strategic cognition is the study of organizational cognitive structures and decision 17 18 19 processes in an attempt to understand strategic decision-making (Narayanan et al., 2011; Porac & 20 21 Thomas, 2002). Behavioral biases and interpretive frames constrain managers’ ability to make 22 23 complex decisions (Finkelstein, Hambrick, & Cannella, 2009; Kabanoff & Brown, 2008; Walsh, 24 25 1995). Such biases, in part, determine which information receives managerial attention and how 26 27 managers interpret it. Thus, strategic cognition describes the information-filtering or 28 29 sensemaking process through which strategic issues are interpreted (Finkelstein et al., 2009). 30 31 Accounting for strategic cognition allows us to enter the black box of managerial 32 33 decision-making to understand how firms act as interpretation systems to receive and process 34 35 stakeholder issues (Daft & Weick, 1984). Strategic cognition is a function of organizational 36 37 characteristics (e.g., age, size), top manager traits (e.g., functional or educational background), 38 39 and values (Daft & Weick, 1984; Finkelstein et al., 2009; Hambrick & Mason, 1984). In this 40 41 way, and consistent with prior literature in strategic cognition (e.g., Daft & Weick, 1984; Dutton 42 43 & Dukerich, 1991; Gioia & Thomas, 1996; Pratt & Foreman, 2000), we adopt a managerial 44 45 perspective. Additionally, stakeholder management is typically considered an enterprise-level 46 47 strategy (Schendel & Hofer, 1979). Thus, rather than focusing on individual agency, our theory 48 49 resides at the organizational level to understand how strategic cognitive mechanisms influence 50 51 the processing of and responsiveness to stakeholder issues. 52 53 54 Research in strategic cognition often focuses on traditional strategic issues, such as the 55 56 definition of industry and competitive boundaries (Porac & Thomas, 2002) or the nature of 57 58 strategic change (Nadkarni & Narayanan, 2007), although some work has also addressed firm- 59 60 10

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1 2 3 4 stakeholder interactions (cf. Brickson, 2005; Scott & Lane, 2000). However, the question 5 6 remains: how do firms cognitively process stakeholder issues to determine salience and 7 8 subsequent responsiveness? To answer this question, we focus on firm cognitive structures, 9 10 which represent the relatively stable characteristics and/or repeated patterns of behavior used to 11 12 interpret strategic information (Kabanoff & Brown, 2008; Narayanan et al., 2011). Cognitive 13 14 structures are the mechanisms and biases that direct the sensemaking process of “information 15 16 seeking, meaning ascription, and action” (Thomas et al., 1993: 240). If strategic cognition is the 17 18 19 process for sensemaking, cognitive structures represent the tools for this process. 20 21 Firms face numerous and diverse stakeholder concerns. For an external issue to receive 22 23 attention and reaction from the firm, it must be interpreted as somehow related or relevant to a 24 25 firm. As mentioned above, research on issue salience has previously focused on the cognitive 26 27 structures of organizational identity and strategic frames, viewing each as a mechanism for 28 29 processing external issue information and guiding firm perceptions and decisions (Ashforth & 30 31 Mael, 1996; Narayanan et al., 2011). Each cognitive mechanism captures unique aspects of issue 32 33 interpretation and can act independently to influence the salience of a stakeholder concern. 34 35 Ashforth and Mael (1996:20) consider the relationship between organizational identity and 36 37 strategic frames to be “mutually reinforcing, although not determining.” Thus, similar to 38 39 Donaldson and Preston’s (1995) distinction between the core normative and instrumental aspects 40 41 of stakeholder theory, strategic cognition research distinguishes between an expressive logic 42 43 inherent in organizational identity and an instrumental logic of strategic frames (Ashforth & 44 45 Mael, 1996; Narayanan et al., 2011; Polletta & Jasper, 2001). These two distinct logics 46 47 differentiate the influence of each structure on firm attention to stakeholder issues. 48 49 Identity is often expressed in terms of how organizations “wish” to be perceived and is 50 51 used to construct a desirable self (Polletta & Jasper, 2001). Rowley and Moldoveanu (2003: 211) 52 53 54 discuss this aspect of cognition for stakeholder groups suggesting that identity-driven actions 55 56 “may not be taken by the group to satisfy the members’ rational interests but, rather, to affirm the 57 58 members’ collective identity.” Thus, issues often become salient because of their normative or 59 60 11

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1 2 3 4 expressive value, not necessarily because of their instrumental value. The expressive logic 5 6 inherent in identity focuses on the ability of an issue to serve as a claim for identity construction 7 8 and is not necessarily concerned with the issue’s strategic significance (Albert & Whetten, 1985; 9 10 Ashforth & Mael, 1996). 11 12 Alternatively, while identity is often associated with emotional resonance and intrinsic 13 14 value (Albert, Ashforth, Gioia, Godfrey, Reger, & Whetten, 1998; Weick, 1999), strategic 15 16 frames reflect cause-and-effect beliefs for effective strategic action to achieve organizational 17 18 19 goals (Chattopadhyay, Glick, Miller, & Huber, 1999). Such an instrumental logic is often 20 21 calculated on the basis of cost-benefit considerations without explicitly accounting for identity or 22 23 expressive concerns (Polletta & Jasper, 2001; Rowley & Moldoveanu, 2003). Therefore, salience 24 25 and attention may also be granted to an issue because it serves an instrumental purpose, 26 27 independent of its relationship to identity. 28 29 In summary, identity is related to organizational rhetoric and display of desired images 30 31 while strategic frames are related to calculative action aimed at achieving performance 32 33 outcomes. We further explore each cognitive structure below, focusing on how various 34 35 stakeholder issue characteristics work to influence managerial perceptions of salience. 36 37 Organizational Identity and Issue Salience 38 39 The construct of organizational identity reflects that which is distinctive and enduring 40 41 about an organization (Albert & Whetten, 1985) or how an organization views and defines itself. 42 43 From a sensemaking perspective (Weick, 1979; 1995), organizational identity is a critical lens 44 45 used by organizational members to interpret the world. Identities reflect collective understanding 46 47 and represent a source of differentiation from other firms. Organizational identity is perceived as 48 49 a “root construct” used to situate cognitive processing and sensemaking (Albert, Ashforth, & 50 51 Dutton, 2000: 13; Ashforth, et al., 2008). 52 53 54 Whether a stakeholder issue is material to a firm’s core values and beliefs – the primary 55 56 content of organizational identity – renders an issue expressively salient (Ashforth, 2001; 57 58 Ashforth et al., 2008). Multiple stakeholder- and issue-related factors are important when 59 60 12

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1 2 3 4 considering how an issue is perceived as expressively salient. However, specifying all the 5 6 exogenous characteristics of an issue that may render it salient is outside the scope of the current 7 8 manuscript. Instead, we distill three broad issue characteristics that may influence managerial 9 10 cognitive processing: characteristics of the sponsoring stakeholder, characteristics of the actual 11 12 request or issue under consideration, and characteristics of the institutional or environmental 13 14 context (e.g., Mitchell et al., 1997; Reid & Toffel, 2009; Rowley & Berman, 2000). 15 16 Regarding the sponsoring stakeholder, managers - in understanding and expressing 17 18 19 organizational identity - are cognizant of who presents a specific demand or concern. Salient 20 21 stakeholders’ support of an issue can influence or reinforce how an organization perceives itself, 22 23 especially if those stakeholder groups or their espoused issues are central to the organization’s 24 25 identity. For example, theory on organizational identity orientation explains that a firm’s 26 27 perception of an issue as confirming or denying its collective identity with stakeholders gives the 28 29 issue meaning and priority (Brickson, 2005; 2007). Thus, an organizational identity defined by a 30 31 relationship with a particular stakeholder will render the concerns of that stakeholder material to 32 33 identity and likely to obtain expressive salience. Consider the case of Johnson & Johnson whose 34 35 mission and credo prioritize a responsibility and commitment to consumers. Any concern raised 36 37 by this stakeholder group is likely to be perceived as consistent with the firm’s identity and thus 38 39 given consideration. Similarly, any issue that threatens Johnson & Johnson’s relationship with 40 41 consumers would conflict with identity and thus also command salience. 42 43 Like identity orientation, the concept of referent-others also provides context for 44 45 cognitive processing with respect to identity. Referent-others are stakeholders with a particularly 46 47 strong influence on the process of self-definition (Greenwald & Breckler, 1985; Scott & Lane, 48 49 2000). Any issue influencing the relationship with a referent stakeholder would likely be 50 51 perceived as related to the firm’s expressive logic. Similarly, the idea of stakeholder legitimacy 52 53 54 often indicates a moral or normative obligation to certain stakeholders (Jones et al., 2007; 55 56 Mitchell et al., 1997; Phillips, 2003). An identity defined by a stakeholder relationship can create 57 58 59 60 13

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1 2 3 4 normative obligations to referent stakeholders and thus issues raised by these stakeholders are 5 6 seen as important to the core values of an organization. 7 8 Stakeholder issues may also command managerial attention not because of the issue’s 9 10 sponsor but because of the specific issue being raised. For example, an organizational identity 11 12 strongly rooted in conceptions of justice or fairness may influence firm managers to give salience 13 14 to justice-related requests from stakeholders (e.g., Logsdon & Van Buren, 2008). Just as a 15 16 stakeholder advocates for an issue based on a desire to articulate identity (Rowley & 17 18 19 Moldoveanu, 2003), a firm processes stakeholder issues in relation to organizational identity to 20 21 determine if worthy of attention. Organizations like Patagonia or Herman Miller, whose value 22 23 statements stress environmental stewardship and sustainability, are likely to perceive issues 24 25 related to the environment as salient given the potential to express their identity. 26 27 The firing of comedian Gilbert Gottfried as the voice of the Aflac duck illustrates how 28 29 issue characteristics that conflict with a firm’s core values and identity can inspire a high level of 30 31 salience. Shortly after the devastating 2011 earthquake and tsunami in Japan, Gottfried posted a 32 33 series of jokes about the disaster. Comedians often cross boundaries and companies often 34 35 respond when their spokespeople use material that is publicly offensive. However, the clash of 36 37 Gottfried’s material with Aflac’s core values amplified its perceived salience for Aflac. Aflac 38 39 espouses a core philosophy of servant leadership and has been consistently ranked on Fortune’s 40 41 “Most Admired Companies” and Ethisphere Magazine’s “World’s Most Ethical Companies” 42 43 lists (Grillo, 2010; Washington, Sutton, & Field, 2006). To respond with derision instead of 44 45 concern for the people of Japan stood in sharp contrast with Aflac’s identity. The issue was 46 47 highly salient to Aflac and they crafted an immediate response, firing Gottfried, removing all 48 49 television ads, placing newspaper ads offering condolences, and contributing generously to the 50 51 relief effort (Belson, 2011). 52 53 54 Finally, broader institutional and environmental aspects of an issue may influence its 55 56 salience. An important function of organizational identity is the expression of uniqueness; an 57 58 organization’s identity serves as a tool for differentiation (Ashforth & Mael, 1996; Rowley & 59 60 14

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1 2 3 4 Moldoveanu, 2003). Stakeholder issues that offer little opportunity for a firm to express its 5 6 unique identity will likely be perceived as unrelated to organizational identity. For example, as 7 8 an early adopter of a majority-vote standard for director elections, Intel was able to capitalize on 9 10 the expressive value in setting itself apart from competitors as a leader in corporate governance 11 12 and accountability (Allen, 2007; Intel, 2006). Following Intel’s adoption, nearly three-quarters of 13 14 the S&P 500 also moved to a majority-vote standard, making the issue far less material to late 15 16 adopter firms in the expression of a unique identity. Thus, issue timing and degree of 17 18 19 institutionalization can influence the expressive interpretation of an issue. 20 21 In summary, we suggest that organizational identity directs managerial attention and 22 23 promotes issue salience. Because identity is primarily understood using an expressive logic, 24 25 issues that are perceived as materially supporting or challenging a firm’s ability to express its 26 27 identity to stakeholders will have expressive salience, i.e., resonate with and be prioritized by 28 29 management. A number of stakeholder-, environmental- and issue-specific characteristics can 30 31 influence a firm’s perception of expressive salience, including the centrality of the sponsoring 32 33 stakeholder or issue topic to the firm’s identity or the ability of the issue to convey a unique 34 35 identity within environmental constraints. Managers interpret stakeholder concerns in terms of 36 37 their material relationship to the expression of organizational identity. Thus, we suggest: 38 39 Proposition 1: Stakeholder issues perceived as either consistent or conflicting 40 41 with a firm’s organizational identity will have expressive salience to managers. 42 43 Strategic Frames and Issue Salience 44 45 While organizational identity reflects how a firm defines itself and expresses its purpose, 46 47 a strategic frame is the cognitive mechanism for translating that purpose into strategic action 48 49 (Daft & Weick, 1984; Nadkarni & Narayanan, 2007). A strategic frame is “the knowledge 50 51 structure that informs strategic decisions, a cognitive template that individuals impose on the 52 53 54 information environment to give it form and meaning” (Narayanan et al., 2011: 309). In other 55 56 words, strategic frames shape the interpretation and translation of environmental context into 57 58 competitive decisions. Strategic frames use an instrumental logic to serve as filters, paths, or 59 60 15

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1 2 3 4 reference points, providing focus on information and actions that conform to what is necessary 5 6 for success (Huff, 1982). Finkelstein and colleagues (2009) suggest that frames influence a 7 8 filtering process in determining which information receives attention (i.e., is in the field of 9 10 vision). For a stakeholder issue to be considered instrumentally salient, it must first fall within 11 12 the strategic field of vision and overcome other stimuli. Ashforth and Mael (1996:46) explain 13 14 that “to be labeled a strategic issue, something must be noticed and interpreted as potentially 15 16 relevant to the organization’s status or performance.” Issues not interpreted as instrumental to the 17 18 19 organization’s pursuit of objectives receive little attention (Barr, Stimpert, & Huff, 1992; 20 21 Narayanan et al., 2011). 22 23 As with identity, firms use strategic frames to interpret and understand stakeholder issues 24 25 (Dutton, Fahey, & Narayanan, 1983; Dutton & Jackson, 1987; Jackson & Dutton, 1988; Thomas 26 27 et al., 1993). Research in strategic issues management often invokes the concept of strategic 28 29 framing to describe classification and response schemas for issue interpretation. Managers use 30 31 strategic frames to categorize an issue and determine its level of priority (Ansoff, 1980), yet 32 33 these frames are also a product of social construction and influence (Porac & Thomas, 2002). 34 35 Thus, previous work relating issue characteristics directly to firm responsiveness provides insight 36 37 into these input factors of cognitive processing. In other words, and similar to organizational 38 39 identity, an issue’s sponsor, consequences, and surrounding context all influence managers’ 40 41 cognitive interpretation of whether the issue is materially related to the instrumental logic of the 42 43 organization. 44 45 As mentioned above, managers are aware of the source of issues they face and may direct 46 47 their attention depending on the issue’s sponsor (Dutton, Walton, & Abrahamson, 1989). Extant 48 49 research has developed a number of stakeholder-based frameworks focusing on the instrumental 50 51 relationship between the stakeholder and the firm. For example, early work stressed the internal 52 53 54 or external position of the stakeholder relative to the firm (Freeman, 1984) as well as the 55 56 stakeholder’s contractual relationship with the firm, often categorized as primary versus 57 58 secondary (Clarkson, 1995). The idea of issue networks (Frooman, 2010) also highlights the 59 60 16

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1 2 3 4 importance of considering the web of stakeholders with an interest in the issue. Mitchell and 5 6 colleagues (1997) developed perhaps the most well-known instrumental framework of 7 8 stakeholder characteristics by focusing on stakeholder salience, or the degree of priority given to 9 10 different stakeholder groups based on attributes of the stakeholder. According to their typology, 11 12 stakeholder salience is a function of the power, urgency, and legitimacy of the stakeholder group. 13 14 Several empirical examinations lend partial support to models of stakeholder salience (Agle et 15 16 al., 1999; David et al., 2007; Eesley & Lenox, 2006), suggesting that managers indeed pay 17 18 19 attention to salient stakeholders when making strategic decisions. Thus, the characteristics of an 20 21 issue advocate can influence a firm’s cognitive processing using strategic frames. 22 23 Managers are also cognizant of the broader competitive and institutional environment in 24 25 which stakeholder concerns are embedded. As institutional attention to certain issues rises, firms 26 27 face increasing pressure to consider the issue in their strategic frame (DiMaggio & Powell, 1983; 28 29 Scott, 1995). Research in corporate political activity suggests that firms confronted with “widely 30 31 salient” issues find resistance difficult and face increased pressure to conform (Bonardi & Keim, 32 33 2005). As firms become aware of peer company responses, they may be more likely to embrace 34 35 similar choices (Abrahamson & Rosenkopf, 1997; Haveman, 1993). Whether imminent 36 37 government action (King & Lenox, 2000; Reid & Toffel, 2009) or intensified media attention to 38 39 a specific stakeholder issue (Deephouse, 2000; Desai, 2011; Pollock & Rindova, 2003), the 40 41 institutional environment helps establish and validate a stakeholder agenda (McCombs, 1981; 42 43 Rogers, Dearing, & Bregman, 1993) which also heightens managerial awareness and may shape 44 45 an issue’s instrumental interpretation . 46 47 The intensity or nature of stakeholder issues also influences instrumental interpretation. 48 49 Decisions that have an impact on the firm and on other stakeholders vary in their influence and 50 51 in the concomitant level of their issue intensity, which is the “issue related imperative” in the 52 53 54 situation (Jones, 1991: 372) encompassing both strategic and moral issue considerations. For 55 56 example, the consequences of product recalls can be moral (Cheah, Chan, & Chieng, 2007) 57 58 and/or financial (Thirumalai & Sinha, 2011). Jones’s (1991) issue-contingent construct of moral 59 60 17

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1 2 3 4 intensity considers multiple elements of an issue, from magnitude of consequences and social 5 6 consensus to temporal immediacy and proximity, and explores how these elements influence 7 8 managerial decision-making. Thus, the impact of the issue itself on the organization can also 9 10 shape perception of instrumental salience. 11 12 The aforementioned firing of comedian Gilbert Gottfried as the voice of the Aflac duck 13 14 also illustrates how an issue can be interpreted from an instrumental perspective using strategic 15 16 frames. The magnitude of the event, social consensus regarding its harm, and the immediacy of 17 18 19 the impact combined to create a high level of moral intensity. Furthermore, the offending 20 21 remarks held a high level of proximity as Aflac has approximately 4000 employees in Japan and 22 23 derives more than 70 percent of its revenue there (Belson, 2011). The nature of the concerns or 24 25 the collective intensity of the issue was conflicting with Aflac’s strategic frame, granting it 26 27 instrumental salience. 28 29 In summary, strategic frames represent an organization’s understanding of cause-effect 30 31 relationships in the competitive environment based within an instrumental logic. Issues 32 33 interpreted as related to strategic goals, either as consistent or conflicting, receive consideration 34 35 and attention. Thus, we suggest that stakeholder issues perceived through the frame as pertinent 36 37 to competitive advantage and performance are instrumentally salient, while those interpreted as 38 39 unrelated to the strategic frame are not. Stakeholder- and issue-specific characteristics, including 40 41 salience of the advocate stakeholder, institutional attention given to the issue, and intensity of 42 43 issue consequences, influence perceptions of issue salience to strategic frames. Thus: 44 45 Proposition 2: Stakeholder issues perceived as either consistent or conflicting 46 47 with a firm’s strategic frame will have instrumental salience to managers. 48 49 Issue Salience to Both Organizational Identity and Strategic Frames 50 51 We outline above the function of organizational identity and strategic frames in 52 53 54 determining the expressive and instrumental salience of stakeholder issues. Consistent with 55 56 strategic cognition research, which often considers each structure separately (cf. Narayanan et 57 58 al., 2011), we discuss the influence of each cognitive structure as an independent element in a 59 60 18

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1 2 3 4 firm’s sensemaking process. We suggest, however, that an issue with only expressive or 5 6 instrumental salience, and not both, will result in only a moderate level of total salience. We now 7 8 describe how an issue garners high salience by highlighting the interrelationship between the two 9 10 cognitive structures. 11 12 While serving distinct expressive and instrumental functions, organizational identity and 13 14 strategic frames are loosely-coupled, reciprocally-related cognitive structures that can reinforce 15 16 or bias one another (cf. Ashforth & Mael, 1996; Dutton & Penner, 1993; Gioia & Thomas, 1996; 17 18 19 Narayanan et al., 2011; Polletta & Jasper, 2001). For example, Ashforth and Mael (1996), 20 21 building on the work of Dutton and Penner (1993), suggest that strategic frames focus a firm’s 22 23 attention to expressively salient issues based on aspects of instrumental importance, legitimacy 24 25 and feasibility. Organizations often seek opportunities to express identity across a wide range of 26 27 diverse and unrelated issues, and strategic frames serve to filter or restrict this range by guiding 28 29 managerial attention to those issues with strategic importance for the organization. Similarly, 30 31 organizational identity can guide strategic frames to focus on issues that have some relationship 32 33 with broader organizational values. Ultimately, those issues that “speak to the raison d’etre and 34 35 core competencies of the organization” will be seen as more attractive to the organization 36 37 (Ashforth & Mael, 1996: 46) and as more legitimate targets for action (Dutton & Penner, 1993). 38 39 Thus, expressive issues that also carry instrumental importance, or vice-versa - instrumental 40 41 issues that also allow for identity expression, will be given the highest priority by managers. 42 43 Research on strategic agenda building helps to illustrate this point (Dutton & Dukerich, 44 45 1991; Dutton & Penner, 1993; Dutton, 1997). Defined as the set of issues that command 46 47 managerial attention, strategic agendas reflect managers’ limited capacity in the number of issues 48 49 that can be prioritized. Issue- and firm-specific factors may encourage an issue’s placement on a 50 51 firm’s strategic agenda, including the issue’s perceived instrumental value, (in)consistency with 52 53 54 shared organizational values, and internal and external norms and expectations (Dutton, 1997). 55 56 Issues that satisfy more of these factors are likely to be more prominent on the strategic agenda. 57 58 An example is Dutton and Dukerich’s (1991) study of the New York/New Jersey Port Authority. 59 60 19

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1 2 3 4 Homelessness existed as an instrumentally salient issue for the Port Authority for a number of 5 6 years. However, the issue did not achieve priority on the Port Authority’s strategic agenda until it 7 8 gained expressive salience via the issue’s increase in national attention and social legitimation 9 10 (Dutton & Dukerich, 1991; Dutton, 1997). Thus, a perceived conflict with the organization’s 11 12 identity was the catalyst needed to raise a moderately salient (i.e., instrumentally salient only) 13 14 issue into a highly salient one, having both instrumental and expressive salience. 15 16 Given the reinforcing relationship between identity and frames, we suggest that issue 17 18 19 salience is further heightened by the issue’s perceived relationship to expressive and instrumental 20 21 logics, collectively. An issue that has bearing on both the expression of organizational identity, 22 23 thus expressive salience, and on the achievement of strategic goals and objectives, thus 24 25 instrumental salience, will capture the total attention of managers and enjoy a greater degree of 26 27 resonance and prioritization than an issue relevant to only one cognitive mechanism. Similarly, 28 29 issues lacking a connection to either identity or strategic frames will evade managerial attention 30 31 and fail to resonate with organizational decision-makers. Thus, we propose: 32 33 Proposition 3: Stakeholder issues perceived as either consistent or conflicting 34 35 with both a firm’s organizational identity and strategic frames will have high 36 37 salience to managers. 38 39 Proposition 4: Stakeholder issues perceived as unrelated to both a firm’s 40 41 organizational identity and strategic frames will have low salience to managers. 42 43 Given this understanding of issue salience, a number of questions remain regarding the 44 45 relationship between salience and firm responsiveness. For example, how do firms respond when 46 47 a stakeholder issue is highly salient and perceived as consistent (or conflicting) with both 48 49 interpretive logics? Alternatively, how do firms respond when an issue is salient to each logic but 50 51 the nature of each relationship is at odds, such as when an issue is perceived as consistent with 52 53 54 identity but conflicting with strategic frames, or vice versa? How do firms act on a moderately 55 56 salient issue, or issues perceived as salient to only one logic? To answer these questions, we 57 58 propose a typology of strategic cognition, issue type and responsiveness. In doing so, we 59 60 20

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1 2 3 4 describe how total issue salience influences the general substance of the response, ranging from 5 6 symbolic to substantive, while the nature of the interrelationship between cognitive structures 7 8 influences the general form of the response, ranging from defensive to accommodative. 9 10 We depict our typology in Table 2 below, which expands on the issue salience 11 12 framework presented in Table 1. Among highly-salient issues, we first explore consonant 13 14 cognitive interrelationships, i.e., when an issue is perceived as uniformly consistent or 15 16 conflicting to both cognitive structures. Such issues are depicted in the top-left and bottom-right 17 18 19 corners of the dark shaded section of Table 2. Consonant issues are likely to trigger substantive 20 21 accommodative responses in cases of consonant consistency, and substantive defensive 22 23 responses in cases of consonant conflict. We then attend to situations of cognitive dissonance, 24 25 when an issue is perceived as consistent with one structure but conflicting with the other 26 27 structure. These issue types are found in the upper-right and bottom-left corners of the dark 28 29 shaded section of Table 2. Such issues prompt a unique type of responsiveness in the form of 30 31 substantive negotiation. Next, we address firm responsiveness to moderately salient issues, or 32 33 those issues relevant to only one cognitive structure, as depicted in the light shaded sections of 34 35 Table 2. We end with issues perceived as immaterial or unrelated to both cognitive structures, 36 37 depicted in the bottom-right section of Table 2. 38 39 ------40 41 Insert Table 2 about here 42 43 ------44 45 ISSUE SALIENCE AND RESPONSIVENESS 46 47 The propositions above specify the nature and level of issue salience by explicating the 48 49 cognitive process underlying managerial interpretation of stakeholder issues. Rather than 50 51 defining issue salience based on firm actions (e.g., Eesley & Lenox, 2006), we conceive of issue 52 53 54 salience as an outcome of cognitive interpretation, a perception of expressive importance and/or 55 56 instrumental influence. However, perception in and of itself does not specify action. Instead, the 57 58 cognitive structures and interpretive logics “establish the parameters of behavior” (Ashforth & 59 60 21

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1 2 3 4 Mael, 1996: 48). Responsiveness captures the firm’s commitment and course of action following 5 6 perceptions of salience. If issue salience represents the resonance and priority of an issue once 7 8 cognitively processed, then responsiveness reflects behavior based on that issue’s salience. 9 10 Within- and between-firm responsiveness to stakeholder issues is often quite mixed. 11 12 Consider an example using one specific stakeholder group – firm shareholders. Securities and 13 14 exchange laws allow qualified shareholders to submit, for proxy consideration, resolutions 15 16 concerning any number of issues, including social and governance policy issues. During a recent 17 18 19 proxy season, the Walt Disney Company received eight shareholder resolutions, with sponsors 20 21 ranging from individual “gadfly” shareholders to major public pensions such as CalPERS and 22 23 the New York City Pension Fund. These resolutions addressed a variety of issues such as 24 25 international labor standards, CEO/Chairman duality, and shareholder access to proxy material. 26 27 Disney responded to these requests in dramatically different ways: effectively ignoring some, 28 29 embracing others, and outright resisting several. Some of the resolutions Disney rejected enjoyed 30 31 sponsorship by prominent shareholders and broad public support. Additionally, other firms 32 33 facing similar resolutions responded quite differently, and in many cases, those firms accepted 34 35 resolutions Disney rejected and vice versa. Explaining such variance in firm responsiveness has 36 37 long been a goal of stakeholder research. While external factors are important, models limited to 38 39 stakeholder and environmental characteristics offer insufficient explanation for why some issues 40 41 receive support while others provoke fierce battles. Thus, our focus on cognition and salience 42 43 can advance research on responsiveness by considering the logics and structures of stakeholder 44 45 issue interpretation and the subsequent connection to action in response. 46 47 We define responsiveness as the degree to which the firm is willing to provide a 48 49 thoughtful response and commit to continued work on the area of stakeholder concern (David et 50 51 al., 2007; IRRC, 1993). Our definition connotes action but is not limited to a discrete outcome, 52 53 54 i.e., that the firm either does or does not respond. Rather, we conceive of responsiveness as an 55 56 array of choices for action characterized by the nature of issue salience. Responsiveness also 57 58 does not imply a strict adoption or rejection of stakeholder requests but rather incorporates a 59 60 22

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1 2 3 4 range of potential outcomes regarding firm behavior towards the stakeholder issue. Wood (1991) 5 6 describes responsiveness as comprised of the social impact, programs, and policies implemented 7 8 by a company in response to stakeholder issues. Thus, responsiveness is a collection of actions 9 10 by the firm. Similarly, as the “action phase of management,” Carroll (1979: 502) suggests that 11 12 responses can vary from doing nothing (i.e., non-responsiveness) to doing much (i.e., substantive 13 14 responsiveness). 15 16 Consistent with Doty and Glick’s recommendations (1994), our typology of 17 18 19 responsiveness suggests specific relationships among issue types, based on salience and 20 21 cognitive consonance/dissonance, and a firm’s expected response, in terms of substance and 22 23 form. Response substance is the degree of material action taken in reaction to the issue, often 24 25 resulting in significant changes to the firm’s “goals, structures, and processes” (Ashforth & 26 27 Gibbs, 1990: 178; Ashforth & Mael, 1996; David et al., 2007). Ashforth and colleagues (2008) 28 29 suggest that behaviors are probabilistic outcomes of identity and thus highlight the positive 30 31 relationship between identity and substantive action. Identities provide trajectories for action; 32 33 they make action more or less feasible given the relationship with organizational identity. The 34 35 same is true for strategic frames, which serve to focus managerial attention and shape managerial 36 37 behavior (Dutton & Jackson, 1987). Issues interpreted as highly salient, thus having a perceived 38 39 material expressive and instrumental relationship, are more likely to garner a substantive 40 41 response. Dutton and Ashford use similar logic to suggest that “management’s allocation of 42 43 attention to an issue is a necessary precursor to their taking substantive action on an issue” 44 45 (1993: 404). Because the issue is perceived to have materiality in its relationship with the firm’s 46 47 cognitive structures, the firm will respond in a material manner by committing substantial 48 49 resources, time, energy and effort to the issue. 50 51 In contrast, responsiveness to less salient issues is likely to be more symbolic in nature. 52 53 54 That is, firms may seek to signal compliance with external demands while, in reality, continuing 55 56 in their own incumbent self-interest (Oliver, 1991). Instead of genuinely conforming to external 57 58 standards, firms will portray conformity through symbolic action, allowing the firm to gain 59 60 23

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1 2 3 4 legitimacy and other benefits while doing little to change firm processes and cognitions 5 6 (DiMaggio & Powell, 1983; Suchman, 1995). Indeed, symbolic responsiveness is seen as an 7 8 active attempt by firms to manipulate external expectations to be more closely aligned with firm 9 10 goals (Oliver, 1991). Thus, firms often use symbolic management to deal with external 11 12 expectations that do not align with the firm’s expressive or instrumental goals. Additionally, 13 14 given limited capacity to process and respond to external stimuli, including stakeholder issues 15 16 (Cyert & March, 1963; Daft & Weick, 1984; Finkelstein et al., 2009), managers must prioritize 17 18 19 issues, substantively responding to those issues most critical to the organization and symbolically 20 21 responding to those issues found to be less important. Stakeholder issues perceived as 22 23 moderately salient enjoy some level of priority but do not capture the attention or responsiveness 24 25 granted to higher salience issues. 26 27 In addition to the substance of responsiveness, we also consider its form. We draw from 28 29 research on strategic issues management, impression management, and identity management 30 31 (e.g., Dutton & Jackson, 1987; Elsbach, 2003; Elsbach & Kramer, 1996) to suggest that 32 33 responsiveness can be defensive or accommodative in nature, depending on issue consistency or 34 35 conflict, respectively. Issues perceived as materially consistent with a firm’s cognitive structures 36 37 engender an accommodative response, while conflicting issues engender a defensive response. If 38 39 viewing the issue in negative terms, a firm employs a defensive response to distance itself from 40 41 the issue, uphold existing cognitive structures, and attempt to eliminate the perceived threat of 42 43 the issue (Dutton & Jackson, 1987; Elsbach & Kramer, 1996). In contrast, a firm employing an 44 45 accommodative response embraces the issue, viewing it in positive terms. In this sense, 46 47 accommodative responsiveness is similar to the concepts of dialogue (Logsdon & Van Buren, 48 49 2008; 2009) and stakeholder integration (Heugens, 2002), which highlight a focal firm’s 50 51 willingness to engage with the sponsoring stakeholder in a positive and open manner. 52 53 54 We now address each section of Table 2, beginning with issues having high salience 55 56 given their alignment with both cognitive structures. 57 58 High Issue Salience and Substantive Responsiveness 59 60 24

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1 2 3 4 Cognitive Consonance. Issues interpreted as consistent with both organizational identity 5 6 and strategic frames are considered true opportunities, while issues interpreted as conflicting 7 8 with both cognitive structures are true threats . These issues appear in the top-left and bottom- 9 10 right corners of the dark shaded section in Table 2. An issue representing a true opportunity 11 12 allows the organization to express its identity and promotes action that fits its instrumental logic 13 14 of strategic success. Under these conditions, the issue will have high salience as it resonates with 15 16 the firm’s cognitive structures and is prioritized by management as both an expressive and 17 18 19 instrumental opportunity. Such issues engender substantive accommodative responses as the firm 20 21 embraces the issue. For example, in response to concerns regarding its carbon emissions and use 22 23 of coal energy, New Belgium Brewery embraced the issue as a true opportunity and responded 24 25 by becoming the first brewery in the U.S. completely powered by wind energy (Bundy, 2012). 26 27 Environmental stewardship and the promotion of sustainable change are core values in New 28 29 Belgium’s identity, so reducing carbon emissions by switching from coal to wind power was 30 31 highly aligned with the firm’s expressive logic. In addition, being the first firm in its industry to 32 33 rely on wind power allowed New Belgium to differentiate itself from competitors. New Belgium 34 35 leveraged publicity from the switch and is now well known and highly regarded as a sustainable 36 37 enterprise. Thus, from a strategic frame perspective, the move was beneficial in building the 38 39 firm’s reputation and brand (Ferrell & Hartline, 2011). 40 41 In contrast, a stakeholder issue representing a true threat conflicts with both the firm’s 42 43 identity and strategic frame. Like a true opportunity, a true threat will be highly salient as 44 45 managers assess the nature and degree of the perceived challenge and formulate potential 46 47 responses. To minimize the likelihood of harm, the response will be defensive and substantive. A 48 49 recent example of a firm responding to a true threat is Google’s response to the U.S. Stop Online 50 51 Piracy Act (SOPA) bill. The SOPA bill challenged Google’s identity as a facilitator of free 52 53 54 speech and information. The bill also threatened Google’s strategic frame, as compliance with 55 56 the act would have been excessively burdensome for companies like Google. Google responded 57 58 59 60 25

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1 2 3 4 by engaging in heavy lobbying against the bill, deploying a large-scale publicity campaign, and 5 6 even threatening to blackout the webpage (Lyons, 2012). 7 8 Our examples of New Belgium and Google represent substantive action and response by 9 10 the focal firms, indicative of their willingness to engage and make a serious commitment to 11 12 addressing the stakeholder issue. The responses chosen by these firms were highly-publicized, 13 14 costly initiatives and exemplify substantial responsiveness to issues of high salience. The 15 16 responses took the form of accommodative or defensive based on issue perception as consistent 17 18 19 or conflicting, respectively, with both cognitive structures. Thus, we propose: 20 21 Proposition 5a: Stakeholder issues perceived only as true opportunities will elicit 22 23 substantive accommodative responses from managers. 24 25 Proposition 5b: Stakeholder issues perceived only as true threats will elicit 26 27 substantive defensive responses from managers. 28 29 Cognitive Dissonance. Issues that are material to both cognitive structures may also be at 30 31 odds, e.g., an issue perceived as consistent with one structure may be conflicting with the other. 32 33 Such interpretations create cognitive dissonance for managers as they attempt to determine the 34 35 appropriate response. An issue perceived to be conflicting with organizational identity yet 36 37 consistent with an organization’s strategic frame is termed an identity conflict. An issue 38 39 conflicting with the strategic frame but consistent with identity is termed a frame conflict. These 40 41 issues appear in the bottom-left and top-right corners of the dark shaded section in Table 2. 42 43 Dissonance between expressive and instrumental logics is familiar to researchers in the field of 44 45 business ethics. The basis of an ethical dilemma is the idea that one’s identity or conception of 46 47 the self – a core construct related to values and ethical beliefs – is at odds with the options 48 49 available to enacting this identity (Carroll & Buchholtz, 2009); in other words, “Who I am/what I 50 51 value” conflicts with “What it takes to succeed.” 52 53 54 In reviewing research on organizational identity, Ashforth and colleagues suggest that 55 56 various factors influence the degree of dissonance between a firm’s identity and strategic action 57 58 including “situational constraints, competing identifications, impression management concerns, 59 60 26

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1 2 3 4 and so on” (2008: 331). Issue-specific characteristics, including the salience of the sponsoring 5 6 stakeholder, the institutional environment surrounding the issue, and the intensity of the issue 7 8 itself, can also constrain and influence perceptions of an issue. Consider an issue consistent with 9 10 identity yet conflicting with strategic frames, such as demands from an identity-relevant 11 12 stakeholder for strategic initiatives incompatible with a firm’s current strategic frame. Given the 13 14 potential implications for the firm, the issue will be substantively prioritized. Indeed, Ashforth 15 16 and Mael (1996) argue that issues are most salient and attended to when they invoke ambiguity 17 18 19 or disagreement between the firm’s cognitive structures. However, while it seems evident that 20 21 issues of cognitive dissonance command salience, and thus substantive responsiveness, the form 22 23 of response is likely neither accommodative nor defensive. 24 25 Stakeholder issues have been characterized as “socially constructed disruptions of 26 27 institutional order” or ongoing battles of sensemaking and sensegiving whereby combating 28 29 participants attempt to influence the social environment (Lamertz, Martens, & Heugens, 2003: 30 31 82). Those stakeholder issues which induce identity or frame conflict represent a particularly 32 33 strong disruption of order, a “sensebreaking” or “dislocating” event that triggers fundamental 34 35 questioning of one’s sense of self (Ashforth et al., 2008; Ashforth & Mael, 1996; Pratt, 2000). 36 37 Such events constitute an explicit “shift from the experience of immersion in projects to a sense 38 39 that the flow of action has become unintelligible in some way” (Weick, Sutcliffe, & Obstfeld, 40 41 2005: 409). In response to the cognitive dissonance created by the conflict, managers will engage 42 43 in efforts to bring about consensus or alignment among competing frames (Festinger, 1957; 44 45 Jackson, 2002; Strauss, 1978; Swann, 1987). In other words, perceived inconsistences in a firm’s 46 47 understanding of itself and its strategic goals call for a renegotiation of the status quo (Strauss, 48 49 1978). Thus, we suggest that in response to identity and frame conflicts, firms will engage in 50 51 substantive negotiation, which we define as efforts by the focal firm to bring consonance to the 52 53 54 interpretive logics used to understand an issue. 55 56 Google’s identity conflict involving its foreign expansion to China highlights this 57 58 sensebreaking-negotiation response. Committed to free expression and open access to 59 60 27

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1 2 3 4 information, Google struggled with censorship by the Chinese government while recognizing the 5 6 potential to serve the largest economy in the world (Levy, 2011). Executives at Google valued 7 8 the introduction of their search engine to China, even on the government’s restrictive terms, 9 10 because of its consistency with strategic frames; however, insiders grappled with the move’s 11 12 misalignment with corporate identity. After multiple run-ins with Chinese authorities, Google 13 14 announced it was “no longer willing to continue censoring our results on Google.cn, and so over 15 16 the next few weeks we will be discussing with the Chinese government the basis on which we 17 18 19 could operate an unfiltered search engine within the law, if at all. We recognize that this may 20 21 well mean having to shut down Google.cn, and potentially our offices in China” (Drummond, 22 23 2010). Documented internal disputes among Google founders and current executives indicate the 24 25 strife over reconciling business growth with continued governmental compliance, and ultimately, 26 27 Google withdrew from mainland China and ended its experiment in censorship (Levy, 2011). 28 29 An example of frame conflict is New Belgium’s move to distribute its product in 30 31 aluminum cans instead of glass bottles, based on evidence that cans are more environmentally 32 33 friendly (Bundy, 2012). This strategy was consistent with New Belgium’s identity as an 34 35 environmentally-conscious organization. However, when consumers voiced their displeasure 36 37 with the change and claimed that the new packaging reduced product quality, New Belgium 38 39 faced a frame conflict as the new strategy risked widespread rejection by consumers. In response, 40 41 the organization engaged in extensive external negotiation, issuing press releases and reports 42 43 highlighting the environmental friendliness of cans and disputing claims that product quality 44 45 suffers. 46 47 Just as New Belgium Brewery attempted to resolve its frame conflict over sustainable 48 49 packaging, Google conducted broad negotiation efforts toward resolution of their identity 50 51 conflict over censored operations in China. Organizations facing identity or frame conflict are 52 53 54 likely to respond by engaging in substantive negotiation, ideally until the issue becomes either 55 56 consonantly aligned or immaterial to one or both of the dissonant cognitive structures. Therefore, 57 58 we suggest: 59 60 28

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1 2 3 4 Proposition 6: Stakeholder issues perceived only as identity or frame conflicts 5 6 will elicit substantive negotiation responses from managers. 7 8 In sum, stakeholder issues with high salience garner substantive responses from 9 10 managers. By definition, such issues have a high degree of resonance and priority and 11 12 thus receive managerial attention in a meaningful and significant way. Given the vast 13 14 assortment of stakeholder concerns brought to firms on an ongoing basis, and the fact that 15 16 firms face cognitive and resource limits in their ability to respond to every issue, we next 17 18 19 address issues perceived as salient to only one cognitive structure. These issues appear in 20 21 the light grey sections of Table 2. 22 23 Moderate Issue Salience and Symbolic Responsiveness 24 25 Some issues may be perceived as material to only one cognitive structure. As noted 26 27 above, the defining element of issue salience to identity is a perceived relationship with an 28 29 organization’s expressive logic, such that the issue presents a significant influence on a firm’s 30 31 ability to express or enact its identity. We also suggest that some attempts to express identity 32 33 have little to do with strategic performance or goals (Rowley & Moldoveanu, 2003). The same is 34 35 true for strategic frames; although perceived as instrumentally salient, some issues fail to connect 36 37 with identity. Issues perceived as consistent (or conflicting) with organizational identity yet 38 39 unrelated to strategic frames are expressive opportunities ( or expressive threats) , while issues 40 41 consistent (or conflicting) with only strategic frames are instrumental opportunities (or 42 43 instrumental threats ). These four issue types encourage firm responsiveness that is largely 44 45 symbolic in nature. 46 47 We have established that stakeholder issues materially related to strategic frames follow 48 49 an instrumental logic. Two matters of corporate governance reform involving shareholder 50 51 resolutions illustrate how firms respond to such instrumental issues. Between 2005 and 2009, 52 53 54 powerful investment advisory services and governance watchdog groups launched widespread 55 56 campaigns supporting two separate governance reforms: shareholder proxy access and adoption 57 58 of a majority-vote standard for board of director elections. Excluding advantages given to first- 59 60 29

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1 2 3 4 movers, these initiatives were largely immaterial to most firms as a matter of organizational 5 6 identity. However, in the case of the majority-vote standard, the policy quickly diffused and 7 8 received broad institutional support. As a source of structural legitimacy (DiMaggio & Powell, 9 10 1983), the policy was quickly recognized as consistent with strategic frames, creating an 11 12 instrumental opportunity for institutional and shareholder compliance. However, the response to 13 14 such issues was largely symbolic. Indeed, the Council for Institutional Investors, one of the 15 16 strongest proponents for majority-vote, has recently expressed concerns regarding the symbolic 17 18 19 way in which the policy seems to have been adopted (CII, 2010; Lublin, 2009). Westphal and 20 21 Zajac (1994; 1995; 1998) found a similar effect in their studies investigating adoption of 22 23 executive long-term incentive plans. Early adopters implemented the plans in earnest while later 24 25 adoption was largely symbolic, as firms attempted to gain legitimacy yet maintain strict control 26 27 over their structures and processes. Without a strong connection to identity, there was little 28 29 incentive for firms to substantively implement the policy, especially as stakeholders seemed 30 31 mollified by simple adoption, thus allowing the adopting firms to take advantage of the 32 33 instrumental opportunity. 34 35 In contrast, allowing shareholders full proxy access would involve a substantial change to 36 37 corporate governance at publicly traded firms, and the proposal was met with widespread 38 39 resistance. Thus, proxy access as a shareholder issue presented an instrumental threat as the issue 40 41 conflicted with strategic frames. Firms responded by allowing the issue to go to non-binding vote 42 43 on proxy ballots, thus allowing them to signal consideration of the issue without invoking any 44 45 true reform. The issue managed to garner some attention but ultimately had little lasting effect, 46 47 resonance, or priority by organizational decision-makers. Dutton and Dukerich (1991) described 48 49 a similar response to an instrumental threat in their study on the Port Authority of New York and 50 51 New Jersey. The Port Authority’s initial interpretation of the presence of homeless individuals in 52 53 54 its facilities was largely instrumental; the Authority perceived little connection between the issue 55 56 and its identity. The organization responded symbolically, asking external partners to deal with 57 58 the issue rather than substantially addressing the issue itself. Until the Port Authority’s 59 60 30

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1 2 3 4 interpretation of the issue evolved to recognize that the issue was identity relevant as well, its 5 6 response was symbolic and defensive. 7 8 In contrast to the instrumental logic of strategic frames, stakeholder issues salient to 9 10 organizational identity yet unrelated to strategic frames follow an expressive logic. Again, we 11 12 offer examples to illustrate stakeholder issues likely to resonate with identity yet unlikely to be 13 14 prioritized in strategic decision making. Requests for philanthropy and community involvement 15 16 often offer a firm an expressive opportunity to enact deeply-rooted values without materially 17 18 19 affecting pursuit of strategic objectives (e.g., Margolis & Walsh, 2003). For example, Moir and 20 21 Taffler (2004) suggest that donations made by IBM to the non-profit ArtSkills were largely 22 23 altruistic, meaning the donations were not connected to IBM’s business strategy or stakeholder 24 25 relationships. Thus, the donations were largely symbolic and disconnected from instrumental 26 27 logic, only serving an expressive purpose. 28 29 Alternatively, requests that actively oppose core beliefs and self-concept yet have little to 30 31 do with strategic frames represent expressive threats. Consider stakeholder activists such as 32 33 PETA or Greenpeace, who often employ extreme smear campaigns against companies they 34 35 perceive as violating animal or environmental rights. Often lacking legitimacy in the eyes of the 36 37 public (Mitchell et al., 1997), such campaigns generally have little impact on a target firm’s 38 39 strategic performance. Without a solid connection to strategic outputs or goals, these issues are 40 41 unrelated to strategic frames and so firms respond symbolically and defensively. For example, 42 43 Starbucks used a product derived from crushed insects as a red food-coloring additive in some of 44 45 its coffees and smoothies. PETA and vegan activists raised concerns and organized a change.org 46 47 campaign against Starbucks, claiming its use of the additive was deceptive, unnatural and 48 49 unfriendly to vegan consumers (Shute, 2012). Starbucks initially responded by issuing a press 50 51 release explaining that the additive is naturally-occurring, FDA-approved, and commonly used 52 53 54 by food preparers in order to avoid artificial ingredients; thus, using the additive maintained 55 56 Starbucks’ commitment to providing safe and natural products. Eventually Starbucks switched to 57 58 a product derived from tomatoes, although some argue that such a move remains deceptive 59 60 31

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1 2 3 4 (Mestel, 2012). Regardless, Starbucks initially perceived the issue as largely expressive and its 5 6 response was generally symbolic and defensive. 7 8 In summary, symbolic responsiveness represents an attempt by firms to resolve issues 9 10 that are perceived as materially related to only one cognitive structure and thus only moderately 11 12 salient. Issues perceived as consistent or conflicting with strategic frames alone are instrumental 13 14 opportunities and threats, and issues consistent or conflicting with identity alone are expressive 15 16 opportunities and threats. The form of responsiveness corresponds with issue type, wherein a 17 18 19 consistent issue signals an opportunity for symbolic accommodative responsiveness while 20 21 conflict signals a threat for symbolic defensive responsiveness. Thus, 22 23 Proposition 7a: Stakeholder issues perceived only as instrumental or expressive 24 25 opportunities will elicit symbolic accommodative responses from managers. 26 27 Proposition 7b: Stakeholder issues perceived only as instrumental or expressive 28 29 threats will elicit symbolic defensive responses from managers. 30 31 Low Issue Salience and Non-Responsiveness 32 33 Finally, some issues are perceived as immaterial, i.e., not related to either an 34 35 organization’s identity or strategic frame. These non-issues can be found in the lower-right 36 37 section of Table 2. Extending the stakeholder activism examples above, some activism involves 38 39 broad campaigns conducted without meaningful targets or purposeful association between the 40 41 issue and the focal firm. While the stakeholder group may be passionate about the issue, 42 43 inconsequence to strategic cognition renders the issue easily ignored and dismissed (Marens, 44 45 2002; Rowley & Moldoveanu, 2003). An example of a non-issue is the movement urging 46 47 companies to reincorporate in North Dakota, which enacted the most shareholder-friendly 48 49 corporate governance law in the United States (Tuna, 2008). Since that change, a group of 50 51 activist investors, including noted shareholder activist Carl Icahn, has targeted major 52 53 54 corporations with resolutions urging them to reincorporate in North Dakota. Five years later, 55 56 only American Railcar Inc., majority-controlled by Icahn, has approved the proposal 57 58 (Marketwatch, 2009). According to Richard Ferlauto, the head of corporate governance and 59 60 32

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1 2 3 4 pension investment at the American Federation of State, County and Municipal Employees, "this 5 6 is more a wake-up call for Delaware to modernize than any significant attempt to attract business 7 8 in North Dakota" (Tuna, 2008). Of course, events such as shareholder litigation can change a 9 10 non-issue into a true or instrumental threat, but as long as such concerns are unrelated to both 11 12 organizational identity and strategic frames, they largely represent non-issues to managers. 13 14 Issues perceived as unrelated to strategic cognition, i.e., immaterial to organizational 15 16 identity or strategic frames, will lack salience and thus, by definition, be unlikely to resonate 17 18 19 with or be prioritized by management. Low salience also implies little to no responsiveness, and 20 21 such issues may be momentary distractions or nuisances among the diverse landscape of 22 23 stakeholder demands. The non-issue holds neither importance nor meaning in how firms 24 25 interpret the external environment and manage stakeholder relationships. Therefore, 26 27 Proposition 8: Stakeholder issues perceived only as non-issues will elicit little to 28 29 no response from managers. 30 31 We present Table 3 below to summarize our arguments and examples related to 32 33 firm responsiveness and issue salience. 34 35 ------36 37 Insert Table 3 about here 38 39 ------40 41 DISCUSSION AND CONCLUSION 42 43 Our ultimate goal in presenting a cognitive theory of issue salience is to establish a new 44 45 research agenda for exploration of firm responsiveness to stakeholder concerns. We advance 46 47 theoretical understanding of stakeholder concerns by proposing issue salience as a distinct 48 49 construct driven by cognitive interpretations of the issue. In contrast to previous work, we model 50 51 issue salience as the key antecedent of firm responsiveness to stakeholder concerns. We 52 53 54 contribute to research by positioning issue salience as an intermediating construct, the outcome 55 56 of firm perceptions of issue characteristics and a cognitive process through which external issue 57 58 factors are interpreted. Additionally, our treatment of organizational identity and strategic frames 59 60 33

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1 2 3 4 as simultaneous but unique constructs advances research in strategic cognition, which 5 6 traditionally considers the influence of only one or lumps the constructs together (Narayanan et 7 8 al., 2011). Thus, in explicating the dual nature of issue salience, we advance research 9 10 investigating the multiple motivations of managers in responding to stakeholder demands. 11 12 We also contribute to research by explicitly considering how issue salience relates to firm 13 14 responsiveness. Not only do we consider how managerial attention is cognitively organized, but 15 16 we propose a typology of issue type and responsiveness to translate attention into action. By 17 18 19 providing a cognitive explanation for a firm’s response in both substance and form, we 20 21 contribute to our understanding of symbolic management and firm responsiveness. We address 22 23 instances of cognitive dissonance and introduce negotiation as a discrete response to such 24 25 situations. In doing so, we also advance our understanding of how stakeholders and the issues 26 27 they champion can induce change or alter a firm’s cognition. 28 29 While this paper proposes issue salience as the focal point, we recognize that firms 30 31 manage multiple issues at once and that issues evolve over time. How an issue is perceived by 32 33 managers is dynamic, and while our typology classifies levels of salience and discusses expected 34 35 responses, the separation between categories and quadrants may be superficial. Thus, consistent 36 37 with the recommendations of Doty and Glick (1994), we present a variety of issue types that 38 39 represent complex constructs and provide an abstract and falsifiable model for future testing. 40 41 One fruitful area for future research is the cyclical or iterative nature of issue salience and 42 43 responsiveness. It is likely that responsiveness will shape subsequent requests and inputs to 44 45 perceptions of salience, from contextual characteristics to cognitive understanding of the issue at 46 47 hand. The relationship between salience and responsiveness may be reinforcing; initial salience 48 49 influences initial responsiveness, which influences future salience, and so on. Future work could 50 51 refine this iterative model, identify other important dimensions, and investigate potential limits 52 53 54 or boundaries to the influence of salience. Like Proffitt & Spicer (2006), we recognize that there 55 56 may be value in capturing the entire life cycle of an issue, including its earliest inception in order 57 58 to understand fully the evolution of an issue’s meaning and interpretation. 59 60 34

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1 2 3 4 Our theory also offers opportunities to explore the mediating nature of strategic cognition 5 6 and refine our understanding of strategic outcomes. Scholars have used various perspectives to 7 8 explain strategic change, using a rational lens to examine direct effects of environmental 9 10 conditions such as uncertainty, competition or regulation (e.g., Haveman, 1992; Wiersema & 11 12 Bantel, 1993) or using a cognitive lens to view how environmental context affects strategy 13 14 through managerial cognition (Barr et al., 1992; Brown & Blackmon, 2005). Rajagopalan and 15 16 Spreitzer (1997) integrate these disparate perspectives to propose a multi-lens framework of 17 18 19 strategic change, in which environmental conditions affect strategy through managerial 20 21 cognition. Our theoretical model of issue salience responds to their call for research to explore 22 23 strategic change as reflective of both environmental antecedents and managerial cognition, and 24 25 our logic suggests that institutional and stakeholder effects may directly influence strategic 26 27 cognitive structures and thus indirectly influence issue salience. In other words, strategic 28 29 cognition represents the key mediating process by which external factors translate to issue 30 31 salience within the firm. Previous research notes that external stimuli are more likely to be 32 33 perceived as reinforcing cognitive structures rather than altering them (e.g., Barr et al., 1992; 34 35 Gary & Wood, 2011). Thus exploring when issue characteristics such as institutional attention or 36 37 stakeholder salience are more likely to challenge or impel change in strategic frames and 38 39 organizational identity may be an interesting area for future research. 40 41 Our theory also connects to the large body of prior work on stakeholder activism and firm 42 43 performance, in both financial and social terms. A review of stakeholder theory suggests 44 45 appropriate stakeholder management should be associated with increased financial performance, 46 47 reputation, trust, efficiency, innovation, flexibility and negatively related to risk and uncertainty 48 49 (Parmar et al., 2010). Similarly, a separate review of the shareholder activism literature supports 50 51 a positive relationship between responsiveness and short-term financial performance (Gillan & 52 53 54 Starks, 2007), although empirical research has also reported a negative relationship between 55 56 responsiveness and social performance (David et al., 2007). We believe that work exploring 57 58 connections between stakeholders and performance will especially benefit from focusing on 59 60 35

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1 2 3 4 issue salience and that empirical studies incorporating our model may be productive avenues for 5 6 additional research. By focusing on issue salience, researchers can begin to better understand 7 8 how institutional, stakeholder, and cognitive forces combine to influence firm outcomes. 9 10 Theory to date does not explain how firms decide between competing stakeholder claims 11 12 (Kaler, 2006) or how firms effectively respond to individual requests when faced with multiple, 13 14 conflicting demands (e.g., Hadani, Goranova, & Khan, 2011). Our model of issue salience 15 16 enables researchers to address these vexing questions. Additional theoretical development may 17 18 19 further explore the influence of organizational decision makers outside of the top management 20 21 team as well as the potential for agency issues within the executive suite. An upper echelons 22 23 perspective views the background and experiences of top managers as highly influential to 24 25 organizational outcomes (Hambrick & Mason, 1984); thus, a lens of managerial cognition or 26 27 other more “micro” approaches may further enrich our understanding of the realities of 28 29 managing and crafting responses to stakeholder concerns. 30 31 Organizational identity and strategic frames each represent extensive bodies of research, 32 33 and our typology focusing on the consistent or conflicting relationship between an issue and each 34 35 structure provides only an initial step at mapping the complexity of the strategic cognition 36 37 process and corresponding salience of stakeholder issues. We do not attempt to capture all 38 39 aspects of strategic cognitive structures and leave for future theorizing the opportunity to deepen 40 41 our understanding of the interrelationship between these mechanisms and the influence of 42 43 potential moderators. While we view the relationship between identity and strategic frames to be 44 45 independent and reciprocal, we encourage future research to explore the potential contingency 46 47 and moderating factors that may influence this relationship. 48 49 For example, organizational identity scholars discuss factors such as the multi- 50 51 dimensionality and strength of identification (Ashforth & Mael, 1996), which may further 52 53 54 advance our theory of how firms process and prioritize stakeholder concerns and how they 55 56 behave, especially in instances of cognitive dissonance. Firms with strong identities often frame 57 58 issues that are consistent with organizational identity as also being strategic (Ashforth & Mael, 59 60 36

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1 2 3 4 1996; Gioia & Thomas, 1996). Thus, an organization like Johnson & Johnson, whose identity 5 6 centers around service to consumers, will strategically frame issues from this stakeholder group 7 8 as instrumental simply because of their proximity and connection to identity. In other words, the 9 10 expression of an organizational identity relative to a particular stakeholder is also seen as 11 12 instrumental to achieving organizational objectives. Similarly, the relationship of an issue to 13 14 strategic frames may be influenced by the firm’s strategic flexibility (Nakdarni & Narayanan, 15 16 2007), its scanning orientation, or its perceived ability to control an issue (Thomas et al., 1993). 17 18 19 Additional dynamic factors such as the timing of issues, the urgency of stakeholder claims, and 20 21 even the stochastic nature of information processing are also likely to affect whether and how an 22 23 issue commands high salience. 24 25 If issue salience influences firm responsiveness, in general, we might also expect an 26 27 influence on performance outcomes. However, this relationship is highly complex. For example, 28 29 responsiveness to an issue based on strong consistency with organizational identity could 30 31 actually hurt performance, such as when a firm chooses to donate a large percentage of profits to 32 33 a specific cause in order to maintain a philanthropic self-concept. Recognizing a range of firm 34 35 responsiveness including substantive, symbolic, and negotiation responses, in concert with the 36 37 cognitive process determining issue salience, may allow scholars a rich opportunity to explore 38 39 the true nature of the relationship between responsiveness and performance. 40 41 Our attention to issue salience also informs the research stream specifically related to 42 43 symbolic management (Meyer & Rowan, 1977; Westphal & Zajac, 1998). Highly salient issues 44 45 are likely to engender substantive responses from managers, based on their alignment with both 46 47 organizational identity and strategic frames. However, our typology also describes how a 48 49 perceived material relationship with only one cognitive structure may promote more symbolic or 50 51 satiating responses. Future research could focus on the interplay between managerial symbolism 52 53 54 and decoupling and issue salience. How does the level and nature of issue salience influence the 55 56 significance and scale of firm response? Are there repercussions to enacting symbolic responses 57 58 to salient issues? Do firms respond differently to expressive versus instrumental opportunities, or 59 60 37

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1 2 3 4 expressive versus instrumental threats? Connecting the construct of issue salience to managerial 5 6 symbolism can inform our understanding of the antecedents and consequences of symbolic 7 8 responses. 9 10 We also recognize that there may be additional drivers of each aspect within our model 11 12 and the possibility that issue salience may be a second- or even third-order construct. We know 13 14 that stakeholder salience itself is a multi-dimensional construct (Agle et al, 1999; Crawford, 15 16 Williams, & Berman, 2011; Mitchell et al., 1997), and that between- and within-firm as well as 17 18 19 external factors are likely to influence issue salience and firm responsiveness. While most 20 21 previous work explores issue and stakeholder characteristics driving firm response, we highlight 22 23 how exemplary stakeholder, issue-specific, and environmental issue characteristics may 24 25 influence the interpretation of salience. Our intention was not to formulate a fully saturated 26 27 model of responsiveness to stakeholder concerns. Instead, we propose a first step by calling 28 29 attention to strategic cognition as a mediating process and issue salience as a perceptual outcome 30 31 influencing responsiveness. In balancing the challenges of integrating multiple perspectives and 32 33 providing a parsimonious theoretical model, we hope our initial steps will facilitate broad and 34 35 varied extensions of organizational and stakeholder research in the future. 36 37 We acknowledge that the construct of issue salience specifically, and our proposed model 38 39 more broadly, present challenges for empirical testing. Perhaps prior research concentrates on 40 41 singular environmental factors or stakeholder variables as drivers of firm responsiveness given 42 43 their more accepted and readily available archival measures. Strategic cognition, interpretation, 44 45 and sensemaking are difficult to capture without primary data, and so the development of our 46 47 model could benefit from case study or other qualitative research design, which may motivate 48 49 further inductive theory building. Researchers have used similar approaches when investigating 50 51 complex cognitive processes such as identity change and evolution (e.g., Clark, Gioia, Ketchen, 52 53 54 & Thomas, 2010). Techniques employing content analysis also present promising opportunities 55 56 to test our model (e.g., Duriau, Reger, & Pfarrer, 2007), including the use of word counts, 57 58 computer aided content analysis, and other methods focused on analyzing firm communication to 59 60 38

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1 2 3 4 determine managerial cognitive orientation (Cho & Hambrick, 2006; Kaplan, 2008). 5 6 Additionally, cognitive mapping as a form of content analysis has been a popular method for 7 8 capturing strategic frames (Huff, 1990). However, much of this research has focused on non- 9 10 evaluative variables, such as counts of keywords indicating strategic focus and managerial 11 12 attention (Kabanoff & Brown, 2008). Because we position issue salience as cognitive 13 14 interpretation, a simple examination of public filings might be confounded by organizational 15 16 attempts at impression management (Abrahamson & Hambrick, 1997). 17 18 19 We encourage multi-method research to explore the relationships posited in our model 20 21 and suspect that scholars may find such research design to be especially fruitful, in line with 22 23 work using qualitative and quantitative data to assess cognitive processes of managers in 24 25 recognition of threats versus opportunities (Gregoire, Barr & Shepherd, 2010). Well-executed 26 27 studies employing multiple methodologies not only offer rich evidence with greater 28 29 generalizability but also are more likely to be highly-cited, high-impact papers in the long run 30 31 (Molina-Azorin, 2012). A promising setting to employ a multi-method technique is within the 32 33 phenomenon of shareholder resolutions (e.g., David et al., 2007; Logsdon & Van Buren, 2008). 34 35 Future research could employ qualitative content analysis techniques, such as cognitive mapping, 36 37 to analyze text contained within shareholder requests and firm responses. Such analysis, 38 39 combined with the traditional quantitative response variables used to investigate shareholder 40 41 resolutions (cf. David et al., 2007), may reveal how identity and strategic frame influence a 42 43 firm’s prioritization of shareholder issues and subsequent nature of responsiveness. Empirical 44 45 research could also follow multiple issues within one firm, one issue across multiple firms, or 46 47 even the evolution of issue salience as an issue changes in relatedness to firm cognitive 48 49 structures, as with Walmart’s investment in sustainability initiatives. Despite the challenges of 50 51 empirically testing our overarching model, we hope that our focus on issue salience will help to 52 53 54 clarify previous findings and advance our understanding of responsiveness to stakeholder issues 55 56 and the complex relationships between the organization and its many stakeholders. 57 58 59 60 39

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1 2 3 4 In conclusion, we believe that this theoretical model contributes to scholarship and 5 6 practice in several ways. We develop the mediating role of strategic cognition to issue salience, 7 8 recognizing the importance of organizational identity and strategic frames in understanding how 9 10 stakeholder issues resonate with organizational decision-makers. This contribution also reflects 11 12 practical implications for organizations with respect to stakeholder responsiveness. While other 13 14 stakeholder research considers the characteristics of stakeholders or patterns of targeting firms 15 16 with their demands, we focus on the firm and the cognitive process of how issues become more 17 18 19 or less salient. We recognize that managers must identify, understand, and assign priority to the 20 21 issue before they can respond to any demands accessory to the issue, and that responsiveness 22 23 includes a broad collection of choices for action and engagement aligning with the firm’s 24 25 willingness or commitment to addressing the issue. Particularly promising is research motivated 26 27 by our theoretical model to help firms better manage relationships with stakeholders and respond 28 29 to their vast array of preferences and requests. 30 31 While we develop a cognition-based theoretical model regarding firm perceptions of 32 33 stakeholder issues, we believe our model also has practical application. Firm managers and 34 35 stakeholders need only look inward and examine the firm’s identity and strategic frame to 36 37 understand how the firm might respond to an issue. With this understanding, managers can 38 39 examine stakeholder issues for core characteristics related to their cognitive structures and craft 40 41 appropriate responses. Similarly, external stakeholders may attempt to frame their concerns 42 43 consistent with a firm’s cognitive structures in order to achieve desired objectives and 44 45 engagement with the targeted organization. Whether firms consciously or more subliminally 46 47 manage stakeholder relationships, we also envision implications of our theory for organizational 48 49 outcomes such as financial and social performance. We suggest a number of avenues for 50 51 additional theorizing and empirical testing and hope that our overarching model constitutes a 52 53 54 meaningful research agenda to enrich our understanding of the relationship between stakeholder 55 56 concerns and firm responsiveness. 57 58 59 60 40

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1 2 3 Table 1 4 5 6 A Strategic Cognition Framework for Issue Salience 7 8 9 Relationship with Strategic Frame 10 11 12 Consistent Conflicting Unrelated 13 14 15 16 17 18 19 Moderate

20 Consistent High Salience – Salience – 21 Expressive 22 Expressive and Instrumental 23 Salience Salience 24 Only 25 26 27 28 Conflicting 29 30 31 Moderate Salience – 32 33 Instrumental Salience Low Salience 34 Only Relationship with Organizational Identity

35 Unrelated 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 52

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1 2 3 Table 2 4 5 6 Strategic Cognition, Issue Type, and Responsiveness 7 8 9 Relationship with Strategic Frame 10 11 12 Consistent Conflicting Unrelated 13 14 15 16 Expressive True Opportunity – Frame Conflict – 17 Opportunity – Substantive Substantive 18 Symbolic 19 Accommodative Negotiation

20 Consistent Accommodative 21 22 23 24 Identity Conflict – True Threat – Expressive Threat – 25 Substantive Substantive 26 Symbolic Defensive 27 Negotiation Defensive 28 Conflicting 29 30 31 Instrumental Instrumental Threat 32 Opportunity – Non-Issue – No –Symbolic 33 Symbolic Response 34 Relationship with Organizational Identity Defensive

35 Unrelated Accommodative 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 53

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1 2 3 Table 3 4 5 6 Firm Responsiveness and Examples 7 8 9 Issue Type Expected Response Example 10 Substantive New Belgium Brewery and 11 True Opportunity 12 Accommodative wind power 13 14 True Threat Substantive Defensive Google and SOPA legislation 15 16 17 Identity Conflict Substantive Negotiation Google and China 18 New Belgium Brewery and 19 Frame Conflict Substantive Negotiation 20 aluminum cans 21 22 Instrumental Symbolic Majority-vote and LTIP 23 Opportunity Accommodative adoption 24 25 Symbolic Proxy access and NY/NJ Port 26 Instrumental Threat 27 Defensive Authority 28 Symbolic Altruistic philanthropy: IBM 29 Expressive Opportunity 30 Accommodative and ArtSkills 31 32 Symbolic Extreme activism: PETA and Expressive Threat 33 Defensive Starbucks 34 35 36 Gadfly shareholder resolution: 37 Non-Issue No Response Reincorporation in North 38 Dakota 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 54

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1 2 3 4 Jonathan Bundy ([email protected] ) is a doctoral candidate in strategic management at the Terry 5 6 College of Business, University of Georgia. His research interests include stakeholder 7 8 management, reputation and social evaluations, corporate corruption and crises, and corporate 9 10 governance. 11 12 13 14 Christine Shropshire ([email protected] ) is an assistant professor of management at the 15 16 Terry College of Business, University of Georgia. She received her Ph.D. from Arizona State 17 18 19 University. Her research is in the area of corporate governance, including interlocking directors, 20 21 board composition and effectiveness, diversity in the upper echelons, and stakeholder 22 23 management. 24 25 26 27 Ann K. Buchholtz ([email protected] ) is Professor of Leadership and Ethics at 28 29 Rutgers Business School and Research Director of the Institute for Ethical Leadership. She 30 31 received her Ph.D. from the Stern School of Business at New York University. Her research 32 33 concerns ethics and social responsibility, with a focus on corporate governance. 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 55