Managerial Discretion in Stakeholder Engagement: A Multi-Level Story of Opportunities and Challenges

Abstract

Managerial discretion, understood as managers’ latitude of strategic actions and latitude of opportunistic objectives, is an oft-used construct in strategy research linking executive decision making to firm actions. However, little research has been done examining how managerial discretion translates into a company’s ability to engage with stakeholders for better firm financial and social performance. We contend that this is a multi-level issue: managerial discretion is influenced at the institutional level by the explicit/implicit nature of CSR and at the firm level by organizational stakeholder culture, which then trickle down to the manager’s level with implications for stakeholder engagement. We show that high managerial discretion may be beneficial to firms and their stakeholders, but it may also be harmful, depending on the institutional and firm level influences that determine whether the manager will behave opportunistically with an agency orientation, or more stakeholder-oriented, with active stakeholder engagement that is beneficial to the firm.