Is Corporate Sexual Equality a Strategic Choice? Analyzing How Performance Feedback Influences CSE

Abstract

Prior research on corporate social responsibility (CSR) shows that socially responsible organizational actions contribute to profitability and value creation. Recently, organizational performance feedback theory has been used to explain the motivations behind CSR, suggesting that organizations use relative performance comparisons to make decisions on socially responsible actions. Organizational performance below aspirations increases CSR, showing that firms rely on CSR to increase value creation and mend performance shortfalls. In this paper, we analyze the outcomes of organizational performance feedback on a specific and controversial form of CSR: corporate social equality (CSE), which captures how a firm treats its lesbian, gay, bisexual, and transgender (LGBT) stakeholders. CSE has the potential to mend performance shortfalls by increasing firm reputation, human capital, innovation, and stakeholder relations. However, CSE can also trigger backlash from certain stakeholders, drive up costs, damage corporate image and further decrease performance. Using the Human Rights Campaign (HRC) Corporate Equality Index (CEI) of 309 US firms between 2012-2020, we find that performance below aspirations decreases CSE, suggesting that organizations avoid CSE in response to performance shortfalls, likely to avoid costs and backlash. We also find that slack is an important boundary condition; low performing organizations with slack resources choose to increase CSE to mend performance shortfalls. We draw important implications for the research on performance feedback, CSR, corporate social equality, and LGBT inclusion in organizations.