A Stakeholder Perspective on Crisis Management: Stakeholder Sensegiving and Firm Sensemaking

Abstract

Drawing on sensemaking, sensegiving, and stakeholder theory, I extend inquiry on stakeholder perceptions following an integrity-based organizational crisis. Whereas past studies focus on stakeholder perceptions as consequents, I take a dynamic, reciprocal approach that argues stakeholder perceptions are also important antecedents that influence a firm's selection of a crisis response strategy. Taking a mixed-methods approach, I conduct an event study of 577 integrity-based crises experienced by 188 S&P 500 companies and develop a novel policy capturing experiment that isolates focal sociocognitive mechanisms. Collectively, these studies support that media (moderate support) and investor (strong support) reactions to an integrity-based organizational crisis increase the likelihood of a firm selecting an accommodative, as compared to defensive, crisis response strategy. Interestingly, results from both studies support that media reactions to an integrity-based organizational crisis decrease the likelihood of a firm selecting an accommodative response strategy when firms have high endowments of social approval. As such, this paper extends theory on affective sensemaking and sensegiving, emotional-based social evaluations, the reciprocal relationship between firms and stakeholders, and the stakeholder perspective to crisis management. Methodologically, this paper introduces a novel sampling technique for crises events and develops a proximal measure for endowments of social approval.