The purpose of this paper is to explore the limits of stakeholder governance and to contribute a better comprehension of the relationships between corporate social performance (CSP) and corporate financial performance (CFP) through the development of a dynamic model that links together innovation and change, stakeholder cohesion, and competitive advantage.
The approach takes the form of theory building through the development of eight testable propositions.
Stakeholder cohesion may have a “dark side” to the extent that it results in inertia and resistance to change, thus reducing propensity to innovation and change. The latter, in turn, are vital for both competitive advantage and stakeholder cohesion itself. Therefore, propensity to innovation and change is the pivotal variable that helps to explain the complex, non‐linear, often inextricable relationships between CSP and CFP. Furthermore, external (environmental dynamism) and internal (firm culture) variables moderate, respectively, the impact of innovation and change on firm performance and the impact of firm performance on its propensity to innovation and change.
The paper represents a first attempt to use system dynamics to improve the comprehension of the relationships between CSP and CFP and, from a practical point of view, to interpret the economic crisis as a consequence of a too high level of stakeholder cohesion.
