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Zappos Case Study

Zappos is an American-based online shoe retailer founded in 1999 by Nick Swinmurn. Nick Swinmurn was joined in the company’s management by entrepreneur Tony Hsieh who bought part of Zappos’ stock and later became its CEO in 2000 (Ferrell and Fraedrich 460). Zappos is based on an unconventional corporate culture of maximizing its stakeholders’ happiness. Ranging from its employees to customers, Zappos focuses on ensuring their satisfaction through integrity and astute business practices. Zappos has a strong ethical and social responsibility policy that forms not only the framework of the company’s operations but also its business values and corporate model. The operations of Zappos are based on the company’s ten core values that include: delivering WOW through service, creating fun and a little weirdness, and doing more with less among others (Ferrell and Fraedrich 461). Zappos’ core values have shaped the company’s customer-focused business model that is centered on establishing long-term customer relationships.

The unconventional business approach adopted by Zappos has enabled the company to be highly profitable and successfully tackle contemporary corporate ethical issues. Relying on its customer-first approach, Zappos informs its customers of any ethical issue or challenge affecting the company’s operations. For example, after the hacking of its computer system in 2012, the company emailed all of its customers to inform them of the sad news. This has strengthened the company’s relationship with its customers, which in return has resulted in high sales and revenue income for Zappos (Toelken 67). The hallmark of Zappos operation came in 2009 when the company was purchased by global retail giants, Amazon, in an unconventional deal that left Zappos’ operations intact.

Zappos’ corporate model is based on maximizing the happiness of stakeholders. The company’s operations are based on Zappos’ ten core values that emphasize happiness and integrity in all of its operations and relations. Zappos provides its customers with exceptional shopping and shipping experiences backed up by astute customer services. The company has designed its online retail sites in a user-friendly manner that enables its customers to easily shop and search for their preferred shoes. The user-friendly shopping experience of Zappos is compounded by a free shipping service that delivers Zappos’ products directly to the customers. Zappos also has a functional one-year satisfaction guaranteed return policy. The policy enables unsatisfied Zappos customers to return their purchased products for a full refund. The company’s operations are all based on the value of transparency and this enables Zappos to maximize the satisfaction of its employees, investors, the government, and even the general public. Zappos’ operations are based on open and truthful communication with not only its employees but also all of its stakeholders. The company provides its employees with detailed information about Zappos’ performance and is encouraged to share information about the company.

Zappos’ focus on maximizing its stakeholder’s happiness has impacted the company’s ethical culture in several ways. The company’s ten core values together with its focus on transparency have integrated the concept of integrity as an important aspect of Zappos’ corporate ethical culture. They are:

1. Deliver WOW through service

2. Embrace and Drive Change

3. Create Fun and a Little Weirdness

4. Be Adventurous, Creative and Open-Minded

5. Pursue Growth and Learning

6. Build Open and Honest Relationships with Communication

7. Build Positive Team and Family Spirit

8. Do More with Less

9. Be Passionate and Determined

10. Be Humble

The ethical culture of integrity is manifested in the actions of Zappos’ top management and its employees’ operations. Zappos’ focus on stakeholders’ happiness has also enabled the company to develop and expand its corporate social responsibility (CSR). Through a wide range of CSR programs such as philanthropy and environmental sustainability initiatives Zappos has expanded its ethical culture to give back to not only its employees but also to the American people.

Zappos has a call center specifically dedicated to answering its customer’s questions. The employees handling customers‘ queries at the call center are trained by Zappos particularly on how to create not only good rapport but also long-lasting friendship and relationships with the company’s clients. Zappos’ customer service is further strengthened by the numerous incentives the company offers to its customers such as free shipping and a 100 percent satisfaction guaranteed return policy. Moreover, Zappos has a unique user-friendly online shopping website that utilizes automatic inventory management systems to reduce customers’ frustrations while shopping by only listing products available in the company’s warehouses. The numerous unique customer service policies practiced by Zappos give the company a competitive advantage over its competitors.

Zappos has a distinctive and unique long-term relationship with its employees; a factor that has made the company quite successful in the online shoe retail business. The company has invested in a unique and effective hiring and training program for its employees. Zappos focuses on hiring the right individuals who are aligned with the company’s ten core values and its main theme of maximizing happiness. The company engages its recruited employees in an intensive five-week training program that includes a two-week customer service program. To ensure it remains only with interested and long-term employees, Zappos offers each recruit $ 2,000 to quit immediately after training. After the completion of the five-week training program, the company engages its employees in a development program that takes 200 hours of basic training on business concepts. The massive investment of Zappos in its employees gives the company a competitive advantage in the field of online shoe retail.

Utilizing its policy of maximizing stakeholders’ happiness and satisfaction, Zappos has to a large extent effectively managed the ethical risks it has faced in its operations. Zappos has encountered several ethical issues such as its 2012 data breach and controversial 2011 More than Shoes Cam. Zappos effectively handled the ethical issues by first informing its stakeholders of the unfortunate occurrences, apologizing, and coming up with relevant solutions to prevent the re-occurrence of the issues in the future. For example, Zappos quickly pulled down the More than Shoes Campaign, which was seen as sexual in nature. The company apologized and explained the production process to its stakeholders. The company’s transparent nature of operations has enabled the company to deal with any of its ethical issues successfully without losing much competitive ground to its competitors.

Zappos still faces numerous potential ethical risks in the future. For example, the current COVID-19 pandemic has severely affected the company’s operations and profitability. The economic impact of the COVID-19 pandemic will ultimately result in the company laying off a number of its workers.

Week 9 Assignment – Stakeholder Satisfaction


· From Business EthicsEthical Decision Making and Cases, read “Case 11: Zappos: Taking Steps toward Maximizing Stakeholder Satisfaction.”



Write a 5–7 page paper in which you:

· Analyze the manner in which Zappos’s leadership has fostered a culture of ethics in the company.

. Suggest three actions that other companies can take in order to mimic this culture.

. Please see Zappos Case Study attached

· Determine the major impacts that Zappos’s leadership and ethical practices philosophy have had on its stakeholders.

· Examine three of the ethical challenges that Zappos faces. Recommend three actions that Zappos’s leadership should take in order to address these ethical challenges.

· Evaluate the effectiveness of the core values in relation to developing a culture of ethics.

. Determine the manner in which the core values support the stakeholder’s perspective.

· Analyze the major ethical challenges that Zappos has faced.

. Determine whether or not you would have resolved these challenges differently than Zappos’s management.

The specific course learning outcome associated with this assignment is:

· Propose actions leadership should take to address ethical challenges and develop a culture of ethicalness.

· Use the attached Three case studies as references

· Please complete a heading for each individual criterion.

· Number all Pages

· Use 4 provided sources

· Rubric Stakeholder Satisfaction



Needs Improvement



Analyze the manner in which Zappos’s leadership has fostered a culture of ethics in the company. Suggest two actions that other companies can take in order to mimic this culture.



Did not submit or incompletely analyzed the manner in which Zappos’s leadership has fostered a culture of ethics in the company. Did not submit or incompletely suggested two actions that other companies can take in order to mimic this culture.


18 (11.25%)

Partially analyzed the manner in which Zappos’s leadership has fostered a culture of ethics in the company. Partially suggested two actions that other companies can take in order to mimic this culture.


20.4 (12.75%)

Satisfactorily analyzed the manner in which Zappos’s leadership has fostered a culture of ethics in the company. Satisfactorily suggested two actions that other companies can take in order to mimic this culture.


24 (15.00%)

Thoroughly analyzed the manner in which Zappos’s leadership has fostered a culture of ethics in the company. Thoroughly suggested two actions that other companies can take in order to mimic this culture.

Determine the major impacts that Zappos’s leadership and ethical practices philosophy have had on its stakeholders.



Did not submit or incompletely determined the major impacts that Zappos’s leadership and ethical practices philosophy have had on its stakeholders.


18 (11.25%)

Partially determined the major impacts that Zappos’s leadership and ethical practices philosophy have had on its stakeholders.


20.4 (12.75%)

Satisfactorily determined the major impacts that Zappos’s leadership and ethical practices philosophy have had on its stakeholders.


24 (15.00%)

Thoroughly determined the major impacts that Zappos’s leadership and ethical practices philosophy have had on its stakeholders.

Examine three of the ethical challenges that Zappos faces. Recommend three actions that Zappos’s leadership should take in order to address these ethical challenges.



Did not submit or incompletely examined three of the ethical challenges that Zappos faces. Did not submit or incompletely recommended three actions that Zappos’s leadership should take in order to address these ethical challenges.


18 (11.25%)

Partially examined three of the ethical challenges that Zappos faces. Partially recommended three actions that Zappos’s leadership should take in order to address these ethical challenges.


20.4 (12.75%)

Satisfactorily examined three of the ethical challenges that Zappos faces. Satisfactorily recommended three actions that Zappos’s leadership should take in order to address these ethical challenges.


24 (15.00%)

Thoroughly examined three of the ethical challenges that Zappos faces. Thoroughly recommended three actions that Zappos’s leadership should take in order to address these ethical challenges.

Evaluate the effectiveness of the core values in relation to developing a culture of ethicalness. Determine the manner in which the core values support the stakeholder’s perspective.



Did not submit or incompletely evaluated the effectiveness of the core values in relation to developing a culture of ethicalness. Did not submit or incompletely determined the manner in which the core values support the stakeholder’s perspective.


24 (15.00%)

Partially evaluated the effectiveness of the core values in relation to developing a culture of ethicalness. Partially determined the manner in which the core values support the stakeholder’s perspective.


27.2 (17.00%)

Satisfactorily evaluated the effectiveness of the core values in relation to developing a culture of ethicalness. Satisfactorily determined the manner in which the core values support the stakeholder’s perspective.


32 (20.00%)

Thoroughly evaluated the effectiveness of the core values in relation to developing a culture of ethicalness. Thoroughly determined the manner in which the core values support the stakeholder’s perspective.

Analyze the major ethical challenges that Zappos has faced. Determine whether or not you would have resolved these challenges differently than Zappos’s management. Provide a rationale for your response.



Did not submit or incompletely analyzed the major ethical challenges that Zappos has faced. Did not submit or incompletely determined whether or not you would have resolved these challenges differently than Zappos’s management. Did not submit or incompletely provided a rationale for your response.


30 (18.75%)

Partially analyzed the major ethical challenges that Zappos has faced. Partially determined whether or not you would have resolved these challenges differently than Zappos’s management. Partially provided a rationale for your response.


34 (21.25%)

Satisfactorily analyzed the major ethical challenges that Zappos has faced. Satisfactorily determined whether or not you would have resolved these challenges differently than Zappos’s management. Satisfactorily provided a rationale for your response.


40 (25.00%)

Thoroughly analyzed the major ethical challenges that Zappos has faced. Thoroughly determined whether or not you would have resolved these challenges differently than Zappos’s management. Thoroughly provided a rationale for your response.

Three references.



No references provided.



Does not meet the required number of references; some or all references are poor-quality choices.


6.8 (4.25%)

Meets number of required references; all references are high-quality choices.



Exceeds number of required references; all references are high-quality choices.

Writing mechanics, grammar, and formatting.



Serious and persistent errors in grammar, spelling, punctuation, or formatting.



Partially free of errors in grammar, spelling, punctuation, or formatting.


6.8 (4.25%)

Mostly free of errors in grammar, spelling, punctuation, or formatting.



Error free or almost error free grammar, spelling, punctuation, or formatting.

ABSTRACT. The results of an exploratory study
examining the role of trust in stakeholder satisfaction
are reported. Customers, stockholders, and employees
of financial institutions were surveyed to identify
management behaviors that lead to stakeholder satis-
faction. The factors critical to satisfaction across
stakeholder groups are the timeliness of communica-
tion, the honesty and completeness of the informa-
tion and the empathy and equity of treatment by

KEYWORDS: justice, satisfaction, stakeholder

The scholarly use of stakeholder management has
received increased attention of late, including a
lively debate in a recent issue of the Academy of
Management Review regarding the viability of
stakeholder theory ( Jones and Wicks, 1999;
Trevino and Weaver, 1999; Gioia, 1999;
Freeman, 1999; Donaldson, 1999). Much of the
debate centered on whether stakeholder “theory”
was a theory at all, and whether it could produce
empirically verifiable hypotheses using measur-
able constructs. While finding merit in all sides
of the debate, we will use the stakeholder con-
ceptualization as a framework for examining
satisfaction theory. A stakeholder framework
provides a parsimonious and identifiable catego-
rization of markets in which a firm operates. A
firm operates in product/service markets with
its customer stakeholders, in labor markets with
its employee stakeholders, and in capital markets
with its ownership stakeholders, just to mention
a few of the possible market/group combinations.
The stakeholder framework can be overlaid on
theories developed in one market setting to
determine if the concepts apply in different
market settings. This is the intent of our paper.


* Rules of
Stakeholder Satisfaction
(* Timeliness, Honesty, Empathy)1

Journal of Business Ethics

32: 219–230, 2001.
© 2001 Kluwer Academic Publishers. Printed in the Netherlands.

Kelly C. Strong
Richard C. Ringer

Steven A. Taylor

Kelly Strong is on the management faculty at Michigan
Technological University in Houghton, Michigan, where
he teaches courses in management, leadership, business
policy and international business. His primary research
interests involve stakeholder approaches to strategic
management, cross-cultural comparative management
practices and the impact of social changes on the strategic
planning process. He has published in the International
Journal of Organizational Analysis, Organization
Development Journal, Business and Society, and the
Journal of Business Ethics, among others.

Rick Ringer is Associate Professor of Management in the
College of Business at Illinois State University where
he teaches graduate and undergraduate courses in
general management and organizational change. Before
entering academia, he worked at Los Alamos National
Laboratory in Los Alamos, New Mexico. His primary
research interests include organizational change, leader-
ship, and management history. He has published in
the Leadership and Organization Development
Journal, the Journal of Business and Psychology,
and the Organization Development Journal, among

Steve Taylor is an Associate Professor of Marketing in
the College of Business at Illinois State University,
where he teaches marketing management and founda-
tions of inquiry courses. His primary research areas
include services marketing, relationship marketing, and
e-business with an emphasis on the conceptualization
and operationalization of the service quality, satisfaction,
and value constructs. His work has appeared in
the Journal of Marketing, the Journal of Retailing,
the International Journal of Service Industry
Management, the Journal of Marketing Theory
and Practice, and the .Journal of Health Care
Marketing, among others.

We have used concepts from satisfaction theory
in marketing, traditionally used to measure
customer satisfaction, and applied them to other
stakeholders to determine if the theorized rela-
tionships hold across different market settings.

Research model

The current dominant view of satisfaction in the
marketing literature is frequently referred to as
the gap model. To determine satisfaction levels
using a gap analysis, a firm must determine
customer expectations, and then assess its
performance against those expectations. A gap
between expectations and performance will result
in dissatisfaction. Although this gap model of
satisfaction was developed primarily within
marketing to explain customer satisfaction, it is
likely that the relationships apply to other
stakeholder groups (Taylor, 1993).

Constructs defined in the gap model of satis-
faction as described in the marketing literature
(Parasuraman et al., 1985; Oliver, 1993; Spreng
et al., 1996) were used to establish a research
model for our investigation of stakeholder satis-
faction. In this model, satisfaction is thought to
be a two-phase process of:

1) communicating accurate information
regarding realistic expectations of the
exchange or relationship, as well as accurate
depictions of actual performance, and

2) providing actual performance, which equals
or exceeds expected performance.

The first phase involves accuracy and veracity
of information. Information received by indi-
viduals will be used to make choices from an
array of possible actions. The choice of action
will be based on a set of expectations derived
from available information, some of which will
be supplied by the firm itself (Gardial et al.,
1994). The information, and the judgements
made from it, are antecedents to satisfaction
outcomes (Spreng et al., 1996). Therefore, the
first stage in an overall satisfaction judgement
is a determination of satisfaction with the
information (Westbrook et al., 1978).

The second stage involves judgements

regarding the actual performance, and compar-
ison to the expectations created by pre-exchange
information. This judgement is referred to as
attribute satisfaction (Oliver, 1993). Attribute
satisfaction and information satisfaction combine
to influence overall satisfaction.

In this two-stage satisfaction model, three
possible dis-satisfying experiences may be

1) expectations are not clearly explained and
understood (pre-exchange information is
absent or misleading);

2) actual performance is inappropriately
assessed or disagreed upon (perceptual
variances in degree of compliance with
pre-exchange expectations and equity

3) accurately assessed performance fails to
meet clearly understood expectations
(failure to perform).

The first dis-satisfying outcome involves issues
of honesty and integrity. The second outcome
involves timeliness and empathy issues. The third
outcome involves actual performance and might
be called the “honest mistake”. Two of the three
dis-satisfying experiences involve managerial
communication and assessment, while only the
third relates to performance. Much of the
scholarly work in stakeholder management has
focused only on the performance aspect of
stakeholder exchanges. Wood and Jones (1995)
identified expectations, experiences, evaluation,
and action as the four dimensions of stakeholder-
organizational relationship, concepts very similar
to those described in the gap model of satisfac-
tion. Whereas Wood and Jones evaluated corpo-
rate social performance (experiences) using a
stakeholder framework, the satisfaction model
used in our study allows for examination of the
expectations and evaluation stages, both of which
involve individual judgements. We believe these
stages are critical in developing satisfied stake-
holders over time, and may be more important
than actual performance in cultivating strong
stakeholder relationships.

To summarize, individuals use pre-exchange
information to establish expectations and make
choices from an array of possible actions. They

220 Kelly C. Strong et al.

will develop a post-exchange perception of
performance, which will be compared to the pre-
exchange expectations. If substantial gaps exist
between the expected outcomes and the actual
outcomes, dissatisfaction will result. The dis-
satisfaction may arise from information failures
or attribute (performance) failures. The satisfac-
tion model is presented graphically below as
Figure 1.

The satisfaction model depicted in Figure 1
has been derived from marketing literature. The
intent of our study was to determine whether the
constructs were valid in other domains as well.
We used stakeholders as an organizing framework
because of the rich history of research in

stakeholder management, which is briefly
reviewed in the next section.

Stakeholder literature review

We wanted to examine the nature of satisfaction
among stakeholders. Since the original stake-
holder work of Freeman (1984), debate has been
ongoing whether or not management’s ability to
satisfy one group of stakeholders comes at the
expense of their ability to satisfy another. For
instance, De Castro et al. (1996) found that
wealth creation strategies in the privatization of
state-owned enterprises resulted in losses for the

THE Rules of Stakeholder Satisfaction 221

Figure 1. Stakeholder satisfaction model.

employee stakeholders and gains to the owner-
ship group, at least in the short term. Laban and
Wolf (1993) argue that outside investors are less
likely to provide capital to firms that have
powerful employee stakeholders. McDonald
(1993) states that when employee groups become
powerful, labor peace is valued above all else,
leading to declines in customer service and a dis-
regard for profitability. The studies described
above represent the view that improved man-
agerial performance in one stakeholder group
comes at the expense of performance for another

In an extensive review, Wood and Jones (1995)
use a stakeholder framework to examine corpo-
rate social performance. They find, among other
things, that managers respond to social controls
exercised through policies, markets, and values,
and that the nature of control is related to the
expectations of the stakeholders. To put it simply,
managers appear to respond differentially to
stakeholder concerns with no apparent trade-off
in stakeholder performance. These findings are
similar to those of Waddock and Graves (1997),
who report that treatment of three primary stake-
holder groups (employees, customers, and
owners) as measured by profitability and the
Kinder, Lydenberg, and Domini index is strongly
related to the overall evaluation of managerial
performance as defined by ranking in the
Fortune reputational index. The net effect of
such a finding is to move the debate about
managerial effectiveness away from assessment
strictly on financial performance. Huse and Eide
(1996) found that many of the strategies used
for stakeholder management are generic across
stakeholder groups. Although the events studied
by Huse and Eide revealed abusive stakeholder
management practices, the authors state that
checks on executive power may create more
equitable and ethical generic stakeholder man-
agement practices. Huse and Eide suggest that
identification of such checks on power are a
fertile area for future research and therefore do
not provide specific examples. However, it can
be inferred from their conclusions that they
are suggesting the need for stakeholder repre-
sentation on boards of directors, close monitoring
of interlocking relationships among CEOs and

the power elite within organizations, and
strict laws and regulations governing executive

The studies described in the paragraph above
suggest that, within limits, managers are able to
meet the performance expectations of three
primary2 stakeholder groups simultaneously.
Similar strategies can be used for effective man-
agement across all primary stakeholder groups,
but performance outcomes and assessments must
be appropriate to the concerns and expectations
germane to each stakeholder group. In the study
described below, we hope to add to our under-
standing of the dynamics of stakeholder satisfac-
tion by asking the question: “Are there common
themes in management or organization behaviors
that lead to satisfaction across all three primary
stakeholder groups of employees, customers, and

Research design

To look for common themes, we needed to
investigate organizations where all three stake-
holder groups appeared generally satisfied. Four
financial institutions, all from the Upper Midwest
with high reputations and a long-standing
presence in the community, were approached.
One elected not to participate after concerns
over the satisfaction of the ownership group
became apparent. The remaining three financial
institutions agreed to participate by making
representatives of their ownership group, their
customer group, and their employee group
available for interviews. A random sample of
customers and employees were asked to partici-
pate in the interviews. A very high percentage of
the invited employees agreed to participate. The
participation rate among customers was relatively
low despite several follow-up requests. However,
the final sample did represent a cross section of
commercial and individual customers using a
variety of services at the bank. Contact with the
ownership group was coordinated through the
executive offices of each bank. Therefore, the
sampling process was beyond the control of the
research team. However, the researchers
explained the need for diversity and representa-

222 Kelly C. Strong et al.

tion among the owners to ensure reliability of

In this study, we used structured field inter-
views to investigate issues of stakeholder satis-
faction at three financial institutions. The
financial institutions are located in the same com-
munity, are approximately similar in size and
pursue a common mission as community banks
involved predominantly in personal and small
business banking. All three financial institutions
are publicly held. Interviews were conducted
with 116 individuals representing three stake-
holder groups. Thirty-two customers, forty-nine
employees, and thirty-seven shareholders were
interviewed over a two-week period.

In the structured interview methodology
representatives from each group were asked a
series of seven similar questions regarding their
expectations and experiences within the partic-
ipating organizations. The questions related
to expectations, experiences and satisfaction
with pre-exchange information; expectations,
experiences, and satisfaction with performance
(relevant to the stakeholder group, not merely
financial performance); and overall satisfaction.
Most interviews were conducted in person at
the participating organization’s facilities by a
single interviewer. Within the ownership group,
some telephone interviews were conducted
with individuals who could not travel to the
bank. Confidentiality was guaranteed to all

No material change in ownership, stock price,
employment policies, product/service offerings,
etc. occurred during the interview period that
could have biased the results. Interview responses
were coded independently by two judges. The
judges agreed on interpretations of responses in
over 90% of the cases. A meeting was held to
reconcile different interpretations, most of which
involved cases where an interviewee’s response
indicated they were satisfied “in general” but
were dissatisfied about a specific experience. A
decision was made that these respondents would
be considered neutral (a score of three on a five
point Likert response scale) for the purposes of
this study. With this mutually agreed interpreta-
tion, very high rates (> 95%) of inter-judge
agreement were achieved.


The responses are summarized in Table I. For
simplicity, categorical responses only are shown
in Table I. In several instances, follow up
questions were asked, and the transcripts of the
interviews were analyzed to gather more detailed
information than that depicted in Table I. The
interviews confirmed the anecdotal evidence that
these three institutions were operating in a
manner leading to satisfaction across all groups.
31 of 32 customers reported average or above
satisfaction, 49 of 49 employees reported average
or above satisfaction, and 35 of 37 stockholders
reported average or above satisfaction. Addi-
tionally, a large majority of respondents (30/31
customers; 44/49 employees, 33/35 customers)
could recall and describe a recent exchange
(either performance or information) at their
institution relating to their satisfaction judge-
ment. There were 165 specific examples
described in the interviews. They were catego-
rized by the judges as either a positive only
exchange, a negative only exchange, or an
exchange involving both positive and negative
reactions. There were 60 positive exchanges, 71
negative exchanges, and 34 exchanges involving
both a negative and positive incident. Therefore,
slightly more than half of the exchanges involved
negative information or performance (71/131
excluding the “both” category, 88/165 if respon-
dents giving both a positive and a negative
incident are included).

The high number of negative incidents came
as a surprise. Failure to meet expectations
regarding information or performance is hypoth-
esized to result in dissatisfaction, but it is apparent
that the stakeholders included in our study
are not dissatisfied. It appears that a negative
experience, if dealt with appropriately by
management, need not result in a dissatisfied
customer, employee, or owner.

Apparently, negative experiences or exchanges
are just one part of a complex set of interactions
upon which people make satisfaction judgements.
The interactions involve expectations, perfor-
mance, and perceptions by both the stakeholders
and the top management. The key is for
management to be responsive to performance

THE Rules of Stakeholder Satisfaction 223

224 Kelly C. Strong et al.

Response summary of satisfaction surveys by institution and stakeholder group

(Financial Institutions = B1, B2, B3)
(Stakeholder Group: E= Employee, C= Customer, O= Owner)

Question B1 B2 B3

Is the bank meeting E: 1 no, 14 yes, 2 some E: 0 no, 14 yes, 1 some E: 1 no, 11 yes, 5 some
your expectations C: 0 no, 10 yes, 2 some C: 1 no, 12 yes, 0 some C: 0 no, 7 yes, 0 some
with regard to its O: 3 no, 8 yes, 2 some O: 1 no, 12 yes, 0 some O: 0 no, 11 yes, 0 some

Can you describe an pos. neg. both none pos. neg. both none pos. neg. both none
experience which
caused a positive or E: 4 7 6 0 E: 4 4 5 2 E: 0 7 6 4
negative reaction by C: 7 2 3 0 C: 10 1 2 0 C: 2 3 1 1
you? O: 2 5 2 4 O: 5 3 4 1 O: 6 2 1 2

Is the information E: 2 no, 14 yes, 1 some E: 0 no, 14 yes, 1 some E: 3 no, 12 yes, 2 some
provided by the bank C: 0 no, 12 yes, 0 some C: 1 no, 12 yes, 0 some C: 0 no, 7 yes, 0 some
consistent with your O: 0 no, 12 yes, 1 some O: 0 no, 12 yes, 1 some O: 0 no, 11 yes, 0 some

Have you had a pos. neg. both none pos. neg. both none pos. neg. both none
positive or negative
reaction to E: 2 7 0 8 E: 1 10 0 4 E: 2 8 1 6
information you C: 1 2 1 8 C: 2 2 1 8 C: 2 2 0 3
have received from O: 4 2 0 7 O: 2 3 1 7 O: 4 1 0 6
the bank?

Overall, how satisfied *5 4 3 2 1 *5 4 3 2 1 *5 4 3 2 1
are you with the
performance of the E: 6 7 2 2 0 E: 5 4 4 2 0 E: 3 8 2 3 1
bank as it relates to C: 8 3 1 0 0 C: 9 2 2 0 0 C: 5 1 1 0 0
(your job; the O: 4 4 3 0 2 O: 6 2 3 2 0 O: 8 3 0 0 0
products/services; your
stock ownership)?

How satisfied are *5 4 3 2 1 *5 4 3 2 1 *5 4 3 2 1
you with the
information you E: 6 5 4 2 0 E: 4 2 7 2 0 E: 3 9 1 2 2
receive? C: 4 2 5 1 0 C: 5 1 1 6 0 C: 2 4 1 0 0

O: 3 4 4 1 1 O: 4 5 2 2 0 O: 6 3 2 0 0

Overall, how satisfied *5 4 3 2 1 *5 4 3 2 1 *5 4 3 2 1
are you with the
bank? E: 5 4 8 0 0 E: 5 1 9 0 0 E: 6 6 5 0 0

C: 5 2 5 0 0 C: 6 5 1 1 0 C: 4 0 3 0 0
O: 5 0 6 0 2 O: 4 6 3 0 0 O: 7 3 1 0 0

* 5 = very satisfied; 4 = somewhat satisfied; 3 = average/in the middle; 2 = somewhat dissatisfied; 1 = very

that does not meet expectations (timeliness); to
try to perceive the expectation/performance
gap from the viewpoint of the stakeholders
(empathy), and, to the extent possible, clearly set
forth expectations for performance and assess-
ment prior to exchanges (honesty).

In summary, it appears that:

1) the three financial institutions in this study
were generally operating in a manner that
customers, shareholders, and employees
found satisfying;

2) the interview participants had recent expe-
riences with the institutions upon which
to make a satisfaction judgement;

3) slightly more than half these experiences
involved information or performance that
was below expectations; and

4) incidents of negative experiences did not
translate into overall dissatisfaction if
management effectively addressed the

We wanted to examine further why stake-
holders at these institutions were satisfied in spite
of incidents of failed expectations. We were
particularly interested in how managers reacted
to negative situations once they were brought to
their attention. In spite of well-intentioned,
proactive management, organizations are prone
to error that can lead to performance, assessment,
or communication mistakes resulting in unmet
expectations. The banks in our study were no
exception, with “negative” or dis-confirming
incidents comprising over half of the experiences
described in our interviews. Yet, virtually all
respondents reported average or above satisfac-
tion. The next step was to look for possible com-
monalties in management’s role in performance,
assessment, and communication, which might
explain stakeholder satisfaction.

Interview transcripts were analyzed for
common words, language, or phrases across all
three stakeholder groups. The pattern of
responses describing the stakeholders’ experi-
ences appeared to reveal three recurrent man-
agement behaviors that lead to satisfaction:

1) empathy and concern for the equitable
treatment of individuals

2) honesty and integrity of information
3) time-related factors

Seventy-three responses to follow up questions
(not shown in Table I) contained references to
empathy and concern for fairness, forty-five
responses related to the integrity and availability
of information, and twenty-nine responses
indicated time-related factors. Several responses
contained language referring to a combination of
the three categories. Fifteen responses did not
relate to any of the three categories above.

In describing negative experiences, several
comments relating to communication issues were
common among respondents. For instance,
several customer service employees noted frus-
tration when they were not informed of
marketing promotions and communications.
Marketing managers had mailed promotional
materials to customers outlining new products
and services, but had failed to tell the line
employees. Obviously, chaos ensued when cus-
tomers arrived asking for new products or
services, which the line employees knew nothing
about. Many employees were frustrated by the
situation, feeling that management had failed to
treat them with empathy in this situation, and
that they had unfairly received customer aggres-
sion through no fault of their own. However,
because management had worked well with line
employees in the past, mutually agreed steps were
taken to prevent similar incidents from recurring
in the future.

In a similar situation, several employees and
customers were dissatisfied that new policy state-
ments were not communicated clearly. Directions
were issued on new policies involving fees, but
were not applied uniformly. This resulted in
some customers receiving differential treatment.
Similarly, new employee policies were issued, but
some managers interpreted the policies differently
than others. This resulted in a perceived lack of
equity that caused frustration among all three
stakeholder groups, as the owners were affected
by the resulting negative publicity and customer

Many respondents from all three groups were
dissatisfied that they were not routinely informed
of impending changes in a timely manner. Most

THE Rules of Stakeholder Satisfaction 225

of the individuals understood that rapid change
was inevitable, and didn’t expect management to
“know all the answers.” Nonetheless, they did
express frustration that they were not kept
informed of the changes in a timely manner so
they could manage their own affairs accordingly.
This frustration appeared to cut across all three
stakeholder groups. The ownership group in
particular noted that changes in legislation, oper-
ating procedures, and economic conditions were
not communicated with expedience. They were,
however, generally satisfied because they believed
management was doing the best they could to
improve the situation.

Honesty and integrity issues were also preva-
lent in the responses. For employees, it usually
involved recognition for a job well done. For
instance, several employees responded that they
had handled a customer complaint and were
recognized by their managers for having handled
the situation with integrity. Also, mistakes in
customer statements or stockholder information
occurred, but were usually resolved immediately.
Most important in the responses was the aspect
of consistent communication. Telling different
stories to different groups invariably led to
problems later on, which had to be corrected or
clarified by management.

One of the banks experienced a series of
layoffs and a period of corporate downsizing
several years prior to our study. Some of the
remaining employees reported this as a negative
experience, but commented on how honesty,
empathy, and compassion from top managers had
prevented the situation from resulting in dis-
satisfaction among the retained employees. This
provides another example of how poor perfor-
mance need not lead to continuing dissatisfaction
if managed effectively.

The common themes of timeliness, honesty,
and empathy are related in many ways, as are the
satisfaction levels of each stakeholder group.
Recent work has emphasized the strong rela-
tionship between stakeholder theory and the
organizational justice literature (Husted, 1998).
Specifically, the argument is made that the appli-
cation of justice theory can provide insights into
stakeholder relations. That argument would
appear to hold in the case of our research.

Justice theory is composed of two general
areas: distributive justice and procedural justice.
Distributive justice refers to perceptions regarding
the fairness of the actual distribution of outcomes
or the ends achieved. Procedural justice, on the
other hand, focuses on the fairness of the process
used to distribute outcomes or achieve ends
(Greenberg, 1990). Both distributive and proce-
dural justice would appear to closely relate to the
stakeholder model of satisfaction presented in this
study. Clearly, perceptions of distributive justice
would closely match attribute satisfaction in the
model. Perceptions of procedural justice would
closely match satisfaction with information in the
model. Specifically, perceptions of procedural
justice would apply to the first two dissatisfying
experiences specified by the model: 1) expecta-
tions are not clearly explained or understood, and
2) performance is inappropriately assessed or the
assessment is subject to disagreement. Both of
these issues suggest concerns over fair procedures
and, in fact, are examples of the elements of fair
procedures (e.g., accurate information, bias
suppression, consistency) (Leventhal et al., 1980).

A key dimension of justice theory can be
applied to this study to broaden our under-
standing of how stakeholders respond to organi-
zational activities. Research has suggested that
when an outcome is perceived to be low or
negative (i.e., low distributive justice), individ-
uals are more sensitive to issues of procedural
justice (Brockner and Siegel, 1996; Welbourne,
1998). In fact, perceptions of procedural justice
moderate the impact of individual reactions to an
outcome. As long as the process to determine or
allocate outcomes is considered fair, the actual
distribution of rewards or outcomes has less of an
effect on individual reactions (Brockner and
Siegel, 1996).

As noted in this research, stakeholders often
reported satisfaction with an organization in spite
of specific negative experiences. The reasons for
the maintenance of satisfaction appear to be
related to perceptions of procedural justice. For
example, respondents reported that, even when
outcomes were negative, they realized that “man-
agement was doing the best it could” and that
“management can’t know all the answers.” In the
case of a corporate downsizing, respondents

226 Kelly C. Strong et al.

remembered the honesty, empathy and compas-
sion of management during this difficult period.
These responses appear to reflect beliefs that
management specifically, and the organization in
general, was attempting to be fair and just when
making decisions and determining outcomes, and
that it was truly concerned about the welfare of
those impacted by decisions. Further, respondents
noted that, when a mistake occurred, steps were
taken to correct the mistake and to ensure that
it did not occur again. Perceptions that the orga-
nization is attempting to be fair and just, that it
is concerned about those adversely affected by
decisions, and that the opportunity to correct
mistakes exists, reflect key rules that are used to
determine procedural justice (Leventhal et al.,

Procedural justice explains why respondents in
this study continued to report high satisfaction
with an organization, even when experiencing
negative outcomes. Research indicates that while
satisfaction with specific outcomes (i.e., pay,
dividends, etc.) is strongly related to perceptions
of distributive justice, overall satisfaction with the
organization is strongly related to perceptions of
procedural justice (Greenberg, 1990). Since
perceptions of procedural justice were high, the
impact of specific outcomes was lessened and
satisfaction with the organization was not
adversely affected over the long term.

Communitarian values also integrate timeli-
ness, honesty, and empathy. For instance, taking
responsibility for errors in statements, employee
records, or shareholder documents and correcting
those mistakes quickly and without cost or
hardship reflects a sense of communitarian values
of shared responsibility and a recognition of the
rights of other stakeholders. Additionally, extra-
institutional behaviors were notable. For
example, several people related stories of bank
managers sending get well cards to customers,
flowers to the funeral of an employee’s family,
or of owners calling customers to help with
business problems. All of the financial institutions
were relatively small, operating in a mid-sized
community. These factors may make extra-
institutional behaviors easier to initiate than at
large, institutionally owned banks in large met-
ropolitan areas.

Another interesting finding is that satisfaction
of one stakeholder group is influenced by the sat-
isfaction of the other groups. This appears
intuitively obvious but is frequently overlooked
by management. There appears to be a mutual-
satisfaction relationship between stakeholders. It
was reasonably clear, although not empirically
verified, that employees are more satisfied when
customers are more satisfied and vice versa. For
instance, one employee stated that when cus-
tomers are dissatisfied, they direct their frustra-
tion at the employees. Therefore, satisfying
customers makes it easier to satisfy employees,
at least in retail service settings. Even the own-
ership group expressed concern about growth
opportunities for employees and the need for
good benefits. Several owners stated they
expected dividend payments or stock growth, but
not at the expense of quality of work for
employees or customer service. Again, because
of the regional nature of these financial institu-
tions, these results may not generalize to large,
institutionally owned organizations. Although
not tested here, it could very well be that when
owners, customers, and employees all live in the
same community and have contact on a routine
basis outside of work, issues of empathy, fairness,
honesty and integrity become personalized. It
may be harder to “mistreat” someone you are
likely to see in a PTA meeting that night or in
church on Sunday.

Expanding on the findings presented in the
prior paragraphs, several implications for future
research and practice of stakeholder management
emerge. In particular, the importance of com-
munity, or at least high levels of personalized
relationships, may play a critical role in effective
stakeholder management. Mistakes are bound to
happen in corporations. Whether these mistakes
lead to dissatisfaction and movement out of the
stakeholder group (customers changing banks,
employees resigning, or owners selling stock)
depends in large part on the cohesion and sense
of community present in the organization. This
concept is similar to what Ring (1996) calls
“resilient trust.” Ring’s conception of trust is
built on expectations, similar to the satisfaction
models described earlier. Ring claims that
achievement of a deeper level of trust requires

THE Rules of Stakeholder Satisfaction 227

solid interpersonal communication and “whole
person” skills including openness, integrity,
loyalty, and equitable treatment. This “resilient
trust” is also more likely to form in communi-
ties where kinship and strong social ties are
present. Resilient trust, developed over time
through a series of relational exchanges, can
withstand the occasionally honest mistake.
Therefore, one of the keys to developing stake-
holder satisfaction is to invest in community and
relationship-building activities on a consistent
basis. Then, when organizations fail to meet
expectations, management will be given a second
chance to correct or explain the situation. Of
course, managerial competence is essential. Trust
is a necessary, but not sufficient, condition for
satisfaction. Management must still strive to
perform according to expectations.

In addition, when customers, owners, and
employees have a strong sense of community, it
appears they discern higher levels of responsibility
for each other’s welfare and satisfaction. When
executives foster a sense of community through
honest communication, equitable treatment, and
personalized attention, they create a system that
perpetuates its own satisfaction. Individuals feel
a strong sense of loyalty to their own and other
stakeholder groups. Responsibilities to other
stakeholder groups were acknowledged in our
interviews. In an organization with well-identi-
fied community attributes, individuals respond to
unmet expectations by thinking – “it must have
been a mistake”, rather than – “they don’t care
about their employees” (or customers, etc.).
There is no “us against them” posturing between
stakeholder groups. It appears from our study that
resilient trust, strong identification with com-
munity, an organizational culture that values
justice, and shared responsibilities are the results
of actions and beliefs from the executive

The actions and beliefs of top management
evident in our study involved timeliness, honesty
and empathy. If we could give managers one
piece of advice from our study, it would be to
always tell the truth, communicate it quickly
(before rumors start in the grapevine), tell the
same story to all stakeholder groups, and empa-
thetically evaluate alternatives and actions from

the viewpoint of each stakeholder group. This is
important for both positive and negative com-
munications. Good news and bad news must be
shared honestly and quickly, and the impact of
negative or positive outcomes must be consid-
ered across all groups. Although this may appear
to be common sense, many upper level managers
disregard these simple rules. For example,
Northwest Airlines, in recent negotiations with
its largest union, argued that pay raises for
employees must be small to ensure the continued
survival of the airline. However, management
awarded itself very handsome bonuses for keeping
operating costs so low. These types of contra-
dictory statements and actions do not develop the
relationships necessary for satisfied stakeholders.

As a result of the exploratory study presented
here, an expanded model of satisfaction incor-
porating constructs of trust and justice can be
developed as shown in Figure 2.

The constructs titled “perceptions of perfor-
mance gap” and “perceptions of information
gap” are merely simplified representations of the
difference between expected and actual perfor-
mance and outcomes shown in Figure 1. The
relationships shown in Figure 1 have not been
changed, merely simplified for the sake of clarity.
The expanded model in Figure 2 suggests how
the development of trust and the perceptions of
justice may influence or moderate the satisfac-
tion judgement. It is important to note that the
expanded model was not tested in our study. The
relationships are suggested from our results,
however, and should be the subject of future

The study presented here has many obvious
limitations. The institutions studied were small
banks operating in a mid-sized community. The
results may not be generalizable to larger banks,
to other types of firms, or even to small banks
in large communities. In addition, the interview
methodology relied on open-ended question-
naires. While this allowed for more in-depth
analysis of responses and follow up questions, it
did require interpretations by judges and limited
the sample size. Lastly, since no banks were
included with dissatisfied stakeholder groups, it
cannot be determined if the timeliness, honesty,
and empathy rules are material in the creation

228 Kelly C. Strong et al.

of satisfied stakeholders. It could be that managers
who use these generic strategies have dissatisfied
stakeholders because the resilient trust necessary
to make them successful has failed to develop.
Stated differently, stakeholder satisfaction may
(and almost certainly does) have a long-term
developmental aspect which was not examined
in the cross-sectional design utilized in our study.

The results of our exploratory study of stake-
holder satisfaction suggest that managers are able
to satisfy several stakeholder groups simultane-
ously by communicating in a timely, honest, and
empathetic manner. Such behavior clearly illus-
trates critical components of procedural fairness
and justice (Leventhal et al., 1980) and helps
explain how stakeholder satisfaction within an
organization can be maintained. When commu-
nication of information is managed effectively,
honest performance mistakes need not lead to
dissatisfaction among stakeholders.


1 A previous version of this paper was presented in
March, 1999 at the 10th annual conference of the
International Association for Business and Society in
Paris, France, and appears in the conference
2 “Primary” stakeholders are those whose active

involvement is critical to the organization. For most
publicly owned corporations, the primary stakeholder
groups will always include employees, customers, and
owners, although individual companies will certainly
have additional primary stakeholders. For simplicity
and clarity, we use the word “primary” to mean
employees, customers, and owners.


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Kelly C. Strong
School of Business and Economics,
Michigan Technological University,

1400 Townsend Drive,
Houghton, MI 49931-1295,

E-mail: [email protected]

Richard C. Ringer
Department of Management and Quantitative

Campus Box 5580,

Illinois State University,
Normal, IL 61790-5580,

E-mail: [email protected]

Steven A. Taylor
Department of Marketing,

Campus Box 5590,
Illinois State University,

Normal, IL 61790-5590,

E-mail: [email protected]

230 Kelly C. Strong et al.

Corporate Ethical Identity as a Determinant

of Firm Performance: A Test of the

Mediating Role of Stakeholder Satisfaction

Pascual Berrone
Jordi Surroca

Josep A. Tribó

ABSTRACT. In this article, we empirically assess the

impact of corporate ethical identity (CEI) on a firm�s
financial performance. Drawing on formulations of nor-

mative and instrumental stakeholder theory, we argue that

firms with a strong ethical identity achieve a greater degree

of stakeholder satisfaction (SS), which, in turn, positively

influences a firm�s financial performance. We analyze two
dimensions of the CEI of firms: corporate revealed ethics and

corporate applied ethics. Our results indicate that revealed

ethics has informational worth and enhances shareholder

value, whereas applied ethics has a positive impact

through the improvement of SS. However, revealed

ethics by itself (i.e. decoupled from ethical initiatives) is

not sufficient to boost economic performance.

KEY WORDS: business ethics, corporate ethical identity,

financial performance, stakeholder satisfaction, stakeholder


ABBREVIATIONS: CEI: corporate ethical identity;

CRE: corporate revealed ethics; CAE: corporate applied

ethics; SiRi: sustainable investment research international;

KLD: Kinder, Lyndenburg, Domini Research and

Analytics Inc.; SS: stakeholder satisfaction; CFP: corpo-

rate financial performance; MVA: market value added;

ROA: return on assets; R&D: research and development


During the last decades, the ethical behaviour of

firms and the potential effects of malfeasance on

society have attracted the interest of researchers and

the business press alike. Recently, business ethics has

generated renewed attention due to notorious cor-

porate scandals like those of Enron, Worldcom,

Arthur Andersen, Tyco International, and Adelphia.

Additionally, the growing importance of govern-

mental regulations, the amplified scrutiny of the

media, and increased pressure from various stake-

holders have placed the business ethics challenge on

the strategic agenda of virtually all firms (Ponemon

and Michaelson, 2000; Stevens et al., 2005; Weaver

et al., 1999). In the academic arena, the proliferation

of specialized journals like Journal of Business Ethics

and Business Ethics Quarterly are testaments to

growing interest in the subject.

There is still a number of unresolved academic

issues in the area of business ethics and social

responsibility of the firm, however (Donaldson, 2003;

Harrison and Freeman, 1999; Walsh et al., 2003).

Specifically, knowledge about existing linkages

Pascual Berrone is a PhD candidate of the Business Adminis-

tration and Quantitative Methods Ph.D. program at the

Universidad Carlos III de Madrid. His current research

interests focus on business ethics, stakeholder theory, and

various aspects of the interface between corporate governance

mechanisms and corporate social responsibility. His interests

also include ethical, environmental and social issues and their

impact on firms’ overall performance.

Dr. Jordi Surroca is an Assistant Professor of Management at the

Department of Business Administration at the Universidad

Carlos III de Madrid. He holds a PhD in Business

Administration and a Licentiate Degree in Business and

Economics from Universitat Autònoma de Barcelona. His

research interests center on stakeholder management, firm

strategy, innovation, and corporate governance.

Dr. Josep A. Tribó is Associate Professor of Finance in the

Department of Business Administration at the Universidad

Carlos III de Madrid. He has a PhD in Economic Analysis

from the Universitat Autònoma de Barcelona and a Licenciate

Degree in Theoretical Physics by Universitat de Barcelona.

His research interests are Corporate Finance and the financing

of R&D. His work has been published in journals such as

Applied Economics, International Journal of Produc-

tion Economics.

Journal of Business Ethics (2007) 76:35–53 � Springer 2007
DOI 10.1007/s10551-006-9276-1

between a firm�s ethical stance and its performance
remains limited at best. There are theoretical and

empirical reasons for this situation. From a theoretical

point of view, there is controversy over the effect of

business ethics and good corporate behaviour on a

firm�s financial performance. Some authors (Hosmer,
1994; Jones, 1995) argue that good ethics is good

business because it generates positive externalities like

trust and commitment to stakeholders, which in turn

assures long-term performance. Others remain skep-

tical (Friedman, 1970; Jensen, 2001; Schwab, 1996).

The skeptics argue that ethical initiatives are invest-

ments without pay-offs and therefore against the

shareholder�s best interest. Unfortunately there is
limited empirical work that has explicitly addressed

these corporate ethical issues and the existing research

has shown mixed results (e.g. Berman et al., 1999;

Hillman and Keim, 2001). Thus the question remains:

Is ethical behaviour a good predictor of business

performance (Gibson, 2000)?

An interesting avenue for exploring the relation-

ship between ethics and performance is through the

perspective of corporate identity – the set of inter-

dependent characteristics of the organization that

give it distinctiveness: organizational philosophy,

values, history, strategy, business scope, and com-

munication, for instance (Balmer, 1998, 2001; van

Riel and Balmer, 1997). Since corporate identity is

recognized as a source of competitive advantage

(Balmer and Gray, 2000), we suggest that a firm�s
ethical stance (i.e., its ethical values, behaviours, and

communications on ethical commitments) can be

seen as a component of the firm�s corporate identity
that may enhance corporate performance.

Despite the significance that corporate identity

research has recently engendered (Balmer, 1998,

2001), previous research has largely ignored the

ethical dimension of corporate identity and its rela-

tionship to a firm�s performance. This study aims to
fills this gap in several ways. First, we define the

ethical component of the corporate identity con-

struct with a concept that we call corporate ethical

identity (CEI). Relying on the notion of corporate

identity, we define CEI as ‘‘the set of behaviours,

communications, and stances that are representative

of an organization�s ethical attitudes and beliefs’’.
This narrowly defined concept encompasses two

aspects: corporate revealed ethics (CRE), which com-

prises the communication of a firm�s ethical attitudes

and beliefs, and corporate applied ethics (CAE), which

comprises the firm�s behaviours – actions and poli-
cies that can be considered as ethical.

A second way in which we aim to contribute to

this literature is by drawing on stakeholder theory to

propose a theoretical scheme whereby the gap

between performance and ethics – specifically CEI –

is bridged by stakeholder satisfaction (SS). Stake-

holders play a key role in the formation of society�s
ethical demands and CEI emerges as a standard by

which stakeholders compare the firm�s ethical
behaviours to their expectations. Thus, a strong CEI

implies congruence with the ethical demands of the

firm�s stakeholders, resulting in higher levels of sat-
isfaction. In turn, satisfied stakeholders are expected

to be more willing to provide their services and

resources to the firm, thereby enhancing performance.

A third way in which we plan to fill the gap

between corporate identity and a firm�s performance
is to empirically test our theoretical contention. Our

results indicate that firms with a strong CEI achieve

a greater degree of SS, and this, in turn, positively

affects a firm�s financial performance. Also, we have
found that CAE and CRE have differential effects.

Whereas applied ethics has a positive impact on

performance through improved SS, revealed ethics

has informational worth and enhances shareholder

value directly. However, revealed ethics by itself (i.e.

decoupled from ethical initiatives) is not sufficient to

boost economic performance.

The remainder of this article is structured as fol-

lows. First, we define CEI and its dimensions. Next,

we present relevant literature relating to the objec-

tives of this work and our theoretical formulation.

We propose a set of hypotheses grounded in the

logic of stakeholder theory, through which we

analyze the relationship between CEI and the

financial performance of firms. Next, we test our

hypotheses on a sample of 398 firms from 26

countries. The article concludes with a discussion of

the theoretical and practical significance of the study.

Theoretical framework and hypotheses

Perhaps because of the rapid growth of identity

studies, the concept of corporate identity has not

been homogenously defined. The lack of consensus

on a precise definition of corporate identity has led to

36 Pascual Berrone et al.

confusion with the usage of the term, which is often

wrongly used interchangeably with related concepts

like corporate reputation, corporate personality, and

corporate image (see Balmer and Gray, 2003; Hatch

and Schultz, 1997; and especially Balmer, 2001, for a

clarifying discussion on this issue). Traditionally, the

notion of corporate identity has been associated with

graphics design, visual identification, and marketing

communication. More recently, however, the defi-

nition of corporate identity has gradually broadened

(Markwick and Fill, 1997; van Riel and Balmer,

1997). Thus corporate identity can be defined as the

‘‘the reality and uniqueness of an organization which

is integrally related to its external and internal image

and reputation through corporate communication’’

(Balmer and Gray, 2000; Gray and Balmer, 1998).

Corporate identity deals with the essence of the firm

and its unique characteristics: its philosophy, values,

history, strategy, business scope, and communication

(Balmer, 1998, 2001; Balmer and Gray, 2003; van

Riel and Balmer, 1997).

Corporate identity is receiving increasing atten-

tion from practitioners and academics alike, because

it is believed to have a positive influence on cor-

porate reputation (Fombrun, 1996), which, in turn,

spawns superior financial performance (Deephouse,

2000; Fombrun and Shanley, 1990; Roberts and

Dowling, 2002). Corporate identity is also recog-

nized as a strategic resource and a valuable tool for

addressing the needs of the firm�s stakeholders (van
Riel, 1995). Indeed, corporate identity and such

related concepts as corporate communication and

organizational identity are the result of permanent

interactions between the firm and its stakeholders

(Balmer and Gray, 2000; Hatch and Schultz, 1997;

Scott and Lane, 2000; Stuart, 2002; van Riel and

Balmer, 1997). Stakeholders have interests and

demands, and the way in which a firm manages these

claims contributes to the shaping of its corporate

identity, insofar as its values, actions, and stance

differentiate it from other organizations.

CEI: definition and components

One neglected area of research is the ethical

dimension of corporate identity. Yet, the firm�s
ethical behaviours and stance are also part of its reality

and uniqueness. In this paper, we offer a definition of

the ethical dimension of corporate identity that we

call CEI. Bearing in mind the aforementioned defi-

nition of corporate identity, we approach the CEI

concept as ‘‘the set of behaviours, communications,

and stances that are representative of an organization�s
ethical attitudes and beliefs’’. It contributes to the

organization�s reality and uniqueness and reflects the
extent to which a firm can be considered ethical.

Thus, CEI refers to a firm�s ethical goals, values,
practices, communications, and actions, and provides

a reference for stakeholders to compare their ethical

claims with the ethical stance of the corporation.

In the same way that corporate identity is the result

of continuous interaction between the firm and its

stakeholders, CEI is influenced by the interaction

between a firm and its stakeholders� ethical claims
(Fombrun and Foss, 2004; Fritz et al., 1999; Logsdon

and Yuthas, 1997). The ethical stance of a firm is

based on the expectations of society – the legitimate

claims made by the constituencies with which the

firm interacts (Logsdon and Yuthas, 1997; Mitchell et

al., 1997; Wood, 1991). In the words of Ferrell et al.

(2000), if ‘‘a specific required behaviour is right or

wrong, ethical or unethical, is often determined by

stakeholders, such as investors, customers, interest

groups, employees, the legal system, and the com-

munity’’ (p. 6). Recent empirical studies support the

previous argument. For instance, Weaver et al.

(1999) showed that the orientation of corporate

ethics programs reflected both external influences

(e.g. institutional environment) and internal pressures

(e.g. top management). Such ethical endeavours as

ethics programs merge the organization�s decisions
and the ethical claims of society (Weaver et al., 1999).

In a similar vein, Stevens et al. (2005) found evidence

that financial executives are more likely to integrate

their firm�s ethical code into their strategic decisions
if they perceive pressure from market stakeholders.

Other factors such as the idiosyncratic position of a

firm�s executives toward corporate ethics can influ-
ence the ethical stance of an organization (Weaver et

al., 1999). Also, these studies indicate that ethical

decisions and actions are at least partially the result of

the interaction between the firm and its stakeholders.

As we argue later in the paper, when there is

congruence between the firm�s ethical actions and
societal ethical claims, stakeholders are expected to be

satisfied. Thus SS is defined as the extent to which

the stakeholders� claims are met by the firm�s actions.

Corporate Ethical Identity As Determinant of Firm Performance 37

Because corporate identity is a multidimensional

concept (Melewar and Jenkins, 2002), various

dimensions can be identified. Previous literature

seems to show consensus on two main factors –

communication and behaviour – that define cor-

porate identity and the way it is demonstrated to

internal and external audiences (van Rekom, 1997;

van Riel, 1995; van Riel and Balmer, 1997).

Communications refer to the explicit revelation of

such aspects of identity as history and values. Cor-

porate communication plays a pivotal role in the

process through which stakeholders perceive that the

company�s identity and reputation is formed (Balmer
and Gray, 2000; van Rekom, 1997). Behaviours are

related to those activities and actions that charac-

terize corporate identity. Likewise, we identify two

dimensions that define the CEI: (1) what we call

CRE, which deals with the communication of the

firm�s ethical identity to its constituencies and rele-
vant audiences and (2) what we term CAE, which

deals with all actions and policies that can be con-

sidered ethical, thereby exceeding the simple com-

munication of ethical values. It is important to

distinguish these ethical actions from other initiatives

that are related to the good management of stake-

holders (Fisher, 2004). Whereas the latter deals with

everyday activities like employee training programs

or profit-sharing schemes, ethical actions refer to

processes, activities, and events conducted on an

ethical basis that go beyond a firm�s daily functions.
For instance, the adoption of ethical codes as a self-

commitment device, initiatives like HIV/AIDS

programs, or divesting from a country to avoid

corruption problems are examples of the application

of ethics (Margolis and Walsh, 2003).

The distinction between CRE and CAE provides

us with a better understanding of the relationships

among CEI, SS, and corporate financial performance

(CFP). In the following sections, we focus on these


Stakeholder theory

Because stakeholders are engaged in constructing the

ethical identity of firms, a stakeholder approach

appears to be the appropriate framework to connect

ethics with performance. Moreover, management

scholars studying ethical and social issues have

generated an extensive body of research (Garriga and

Melé, 2004; Margolis and Walsh, 2003) drawn

primarily on stakeholder theory (Freeman, 1984).

Stakeholder theory has deep roots in the notion of

corporate social responsibility (Carroll, 1979;

Clarkson, 1995; Wartick and Cochran, 1985;

Wood, 1991) and in Freeman�s (1984) seminal book,
Strategic Management: A Stakeholder Approach. Free-

man�s main thesis is that the firm is responsible for
managing and coordinating the constellation of

competitive and cooperative interests of various

constituencies or stakeholders. Thus, firms have

multiple goals in addition to the singular end of

maximizing shareholder�s value, as proposed by tra-
ditional economic theory (Friedman, 1970).

In applying stakeholder theory, we can distinguish

two almost entirely separate methodological

approaches: (1) the theoretically–based normative

stakeholder approach, which emphasizes the ethical and

moral standards as the only acceptable mode for

corporate behaviour, independent of the repercus-

sions of these behaviours on the firm�s performance
and (2) the instrumental stakeholder approach, which

focuses primarily on stakeholder orientation as a

means of achieving corporate success. Research

employing the latter perspective is more empirically

based (Berman et al., 1999; Donaldson and Preston,

1995; Jones and Wicks, 1999).

Recently, however, some scholars have attempted

to integrate the two approaches (Gibson, 2000;

Jones, 1995; Jones and Wicks, 1999). The underly-

ing rationale of their studies is that ethical behaviours

(a normative orientation) can result in a significant

competitive advantage (an instrumental orientation).

Ethical principles and behaviours foster trusting and

cooperative relationships with stakeholders, which,

in turn, lead to a reduction in opportunism and

contracting costs. In the end, there is an improve-

ment in the firm�s competitive advantage over those
firms that do not rely on ethical principles. Although

some scholars have expressed skepticism over this

integrated perspective (Donaldson, 1999; Freeman,

1999; Schwab, 1996; Treviño and Weaver, 1999),

we believe that it provides a key avenue for research

into the ethical and social issues of firms.

Following this integrated line of research, we

borrow from the normative approach to examine

the relevance of business ethics as the driving force

for SS and from the instrumental approach to assess

38 Pascual Berrone et al.

the link between SS and better financial perfor-

mance. Figure 1 illustrates our theoretical model and

presents the central arguments, concepts, and rela-

tionships of this study.

SS through CEI: a normative approach

The normative approach is characterized by the

incorporation of ethical and moral principles into the

firm�s decision making – in particular, into decisions
relating to the way in which a firm manages its

stakeholders (Donaldson and Dunfee, 1994; Evan

and Freeman, 1983; Philips, 1997; Wicks et al.,

1994). The normative approach is characterized by

two main positions: (1) stakeholders have legitimate

interests in corporate activities independent of the

corporation�s instrumental interests in them and (2)
each stakeholder is of intrinsic worth (Donaldson

and Preston, 1995). Thus, the normative core of the

stakeholder approach prescribes that a firm should

incorporate ethical standards in order to achieve SS.

Under the normative approach, SS should be the

final goal of the firm because of the intrinsic worth

of stakeholder interests. These interests are based on

ethical and moral principles and are not necessarily

related to their instrumental worth to the corpora-

tion (Berman et al., 1999; Donaldson and Preston,

1995; Evan and Freeman, 1983).

Stakeholders have a set of expectations relating to

an organization�s ethical activities and various groups,

such as managers, employees (Das, 2005; Grojean et

al., 2004), government (Rockness and Rockness,

2005), consumers (Rawwas et al., 2005), and other

constituencies (Phillips and Reichart, 2000) reveal

these expectations. As previously argued, CEI pro-

vides a reference or standard for stakeholders to use in

evaluating a firm�s actions (behaviours and commu-
nications). When there is congruence between

stakeholder expectations and CEI, we predict a

greater degree of SS. Since stakeholders expect a firm

to fulfil its ethical responsibilities and its philan-

thropic duties (Ferrell et al., 2000), ethical manifes-

tations stimulate the formation of trust and

commitment between the stakeholders and the firm,

resulting in stronger relationships and greater satis-

faction (Fritz et al., 1999; Hosmer, 1994; Strong et

al., 2001). Hence, our first hypothesis is:

Hypothesis 1a: The CEI of the firm has a positive

influence on stakeholder satisfaction.

However, we expect that the two components of CEI

will have differential effects on SS: that CAE will have

a greater impact than CRE. Whereas CRE signals the

ethical stance of the firm and acts as a declaration of

purpose for the firm�s future actions, CAE involves
specific concrete activities to serve the needs of

stakeholders who demand ethical behaviour from the

firm. Stakeholders evaluate how well companies

perform according to their ethical expectations and

standards and exhibit a certain degree of fulfilment

only when they experience tangible results from such












Instrumental approach Normative approach

Figure 1. Corporate ethical identity and its effects on stakeholder satisfaction and financial performance.

Corporate Ethical Identity As Determinant of Firm Performance 39

ethical corporate behaviour (Logsdon and Yuthas,

1997). This suggests that the manifestation of ethical

values decoupled from ethical actions may be not

valued by stakeholders. Therefore, we expect that the

revelation of a firm�s ethical beliefs is less effective in
boosting satisfaction than are the tangible ethical

initiatives that align with stakeholder demands. These

arguments are captured in:

Hypothesis 1b: CAE has a stronger influence on

stakeholder satisfaction than does CRE.

Financial performance through SS: an instrumental


The other main approach of stakeholder theory is the

instrumental approach. It indicates that a stakeholder

orientation gives the firm a source of competitive

advantage which, in turn, will result in better financial

performance. A key assumption of this approach is

that the firm�s ultimate goal is market success and that
satisfying stakeholder claims helps to achieve this goal

(Donaldson and Preston, 1995; Freeman, 1984). This

ultimate objective may not be related to the wellbeing

of stakeholders in general, but it may be in the interest

of shareholders. Thus, stakeholder management has a

strategic value with a ‘‘means to an end’’ perspective

(Berman et al., 1999), which is opposed to the

intrinsic value of the normative approach.

The instrumental approach advocates the formu-

lation and implementation of processes that satisfy

stakeholders because they control key resources

(Pfeffer and Salancik, 1978) and suggests that SS, in

turn, will ensure the long-term survival and success

of the firm (Freeman, 1984; Freeman and McVea,

2001; Hillman and Keim, 2001; Post et al., 2002).

Accordingly, stakeholders that own resources rele-

vant to the firm�s success will be more willing to
offer their resources to the extent that their different

claims and needs are fulfilled (Strong et al., 2001).

Therefore, we expect that SS leads to a higher

commitment, to greater effort, and, ultimately, to

superior performance (Hosmer, 1994; Stevens et al.,

2005), as articulated in:

Hypothesis 2: Stakeholder satisfaction has a positive

influence on the firm�s financial performance.

Financial performance through CEI: the mediating

role of SS

Whether or not business ethics has a positive influ-

ence on financial performance is an open research

question. Some authors (Friedman, 1970; Jensen,

2001; Schwab, 1996) assert that the only social

function of the firm is to maximize shareholder value

while complying with the rules of the market. These

scholars argue that ethical investments are in conflict

with the primary profit-oriented strategies of the

company, and that if investors cared enough about

ethical behaviour to punish it by divesting, firms

would have a market-based incentive to behave

ethically. The necessity of regulations such as the US

Sarbanes-Oxley legislation (Rockness and Rockness,

2005), which levies severe penalties for unethical

behaviour, suggests that such market incentives are

highly uncertain.

In contrast, other authors have argued that

proactive ethical initiatives have a positive impact

on financial performance because ethical behav-

iours result in the creation of intangible assets,

which are vital to long-term business success

(Jones, 1995; Jones and Wicks, 1999). Intangibles

like good reputation, trust, and commitment are

generated through a strong ethical stance (Fomb-

run et al., 2000; Hosmer, 1994). We agree with

this latter perspective. By behaving ethically, a

company generates intangible gains that improve

its ability to attract resources, enhance perfor-

mance, and build competitive advantages while

satisfying its stakeholders� needs (Fombrun et al.,
2000). As discussed with respect to Hypothesis 1a,

we propose that CEI has a positive effect on SS

because stakeholders expect the firm to fulfil their

ethical demands. To the extent that the firm at-

tends the stakeholders� ethical claims, their satis-
faction levels increase and they are more willing to

provide their resources and effort which, in turn,

produces enhanced performance (Hypothesis 2).

Therefore, we suggest that the relationship

between business ethics and financial performance

is not straightforward, but is mediated by the

level of SS. That is, we expect an indirect effect

between the CEI of the firm and its financial


40 Pascual Berrone et al.

Hypothesis 3a: Stakeholders satisfaction mediates the

relationship between CEI and the firm�s financial

However, when we break CEI into its two

dimensions, we expect distinguishable effects on

financial performance.

Traditional capital market studies have largely

acknowledged the role of information disclosure

on the performance of firms. Asymmetries of

information and incentive problems obstruct the

efficient allocation of resources in a capital market

economy and disclosure plays a key role in miti-

gating these problems (Healy and Palepu, 2001).

Prior research has extensively examined the level

of disclosure of social activities and its effect,

particularly when analyzing the relationship between

corporate social performance and CFP (see Margolis

and Walsh, 2003; Orlitzky et al., 2003; Walsh

et al., 2003 for recent reviews). In addition,

environmental accounting scholars have shed some

light on the subject by analyzing the impact of

voluntary environmental disclosure on firm per-

formance (Cragg, 2002; Lorraine et al., 2004). As

a whole, these two lines of research offer sup-

porting evidence for a positive relationship

between social disclosure and financial performance.

Similarly, we expect CRE to have a positive

impact on the financial performance of a firm. CRE

can have beneficial value to for several reasons. (1) It

attends to the investors� need for ethical and social
information which, in turn, helps to achieve better

long-term investment decisions (Hummels and

Timme, 2004; Sethi, 2005). (2) It provides a clear

signal about the stance and beliefs of the firm,

reducing uncertainty about future actions and long-

term risks (Sethi, 2005), which can stimulate trust

and commitment between shareholders and top

management and reduce opportunistic behaviours

and transactional costs (Hosmer, 1994; Jones, 1995).

(3) It may be a valuable tool for creating such

intangible assets as good corporate image and en-

hanced reputation, which can be sources of com-

petitive advantage (Fombrun, 1996; Fombrun and

Foss, 2004; Hillman and Keim, 2001). (4) Investors

may interpret an ethical statement as a positive signal

regarding the firm�s resources, because only com-
panies with sufficient resources can embark on eth-

ical enterprises (cf. Orlitzky et al., 2003; Waddock

and Graves, 1997). In short, CRE has an important

informational value, and we expect that investors

incorporate ethical information into their assessment

of a firm�s value.
Even though CRE is expected to increase share-

holder value because of these arguments, CAE is an

initiative oriented to specific stakeholder needs and

does not necessarily represent investments subject to

return evaluation (Fombrun et al., 2000). Following

the example presented earlier in this article, divesting

from a country to avoid corruption problems can be

considered an ethical initiative, but it does not nec-

essarily represent an optimal decision from the per-

spective of maximizing value. Similarly, investing in

HIV/AIDS programs can be of fundamental impor-

tance to people stricken with the disease, but is not

expected to have a direct impact on the financial

performance of the firm. Hillman and Keim (2001)

have presented empirical evidence to suggest that

participation in social initiatives that are not related to

primary stakeholders hinders shareholder value. Al-

though these initiatives may have potential reputa-

tional benefit and a positive impact on SS

(Hypothesis 1b), they are costly in terms of organi-

zational resources and create dubious financial pay-

offs (Hillman and Keim, 2001; Fombrun et al., 2000).

Therefore, we expect, on the one hand, that the

informational value of CRE has a positive impact on

the financial performance of a firm, even after

controlling for its effects on SS. On the other hand,

we expect no further positive impact of CAE

beyond the positive effect on SS. This implies that

the effect of CAE on performance is fully mediated

by SS. These two ideas are captured in our final


Hypothesis 3b: Corporate revealed ethics has a

positive influence on financial performance, even

after controlling for stakeholder satisfaction;

whereas CAE has no further influence.


Sample and data

We created our data sample from the 2002 SiRi


database compiled by the company Sustain-

able Investment Research International (SiRi) – the

Corporate Ethical Identity As Determinant of Firm Performance 41

world�s largest company specializing in the analysis
of socially responsible investment. SiRi comprises

eleven independent research institutions, such as the

US firm of Kinder, Lyndenburg, Domini Research

and Analytics Inc. (KLD) or the UK firm of Pensions

and Investment Research Consultants Ltd. The SiRi

reports rely on each company�s reporting proce-
dures, policies and guidelines, management systems,

and key data. This information is extracted primarily

from ongoing contact with management represen-

tatives, but also from financial accounts, company

documentation, international databases, media

reports, and interviews with key stakeholders. Each

firm�s profile contains over 350 data points that
cover all major stakeholder issues, including com-

munity involvement, environmental impact, cus-

tomer policies, employment relations, human rights,

activities in controversial areas (e.g. alcohol), sup-

plier relations, and corporate governance. We sup-

plemented the information on social and ethical

issues with financial data extracted from the OSIRIS

database for the years 2000–2003 – a comprehensive

database of listed and large unlisted companies

around the world, compiled by Bureau Van Dijk. It

contains balance sheets, income statements, cash

flow statement, and stock data. Given the differences

in accounting practices among the different coun-

tries included in the database, it is important to note

that OSIRIS�s information is standardized.
We excluded from our sample financial firms and

those that do not provide complete information on

financial data. The final sample comprised 398

companies belonging to 26 countries.

Our data

only allow a cross-sectional analysis because our

information is limited to one year from the SiRi


. This limitation is not critical in our analysis,

given the inertia associated with a firm�s ethical
policies (Agle et al., 1999).


Corporate ethical identity

We operationalized this variable through the sum of

its two basic ethical components: CRE and CAE.

Corporate revealed ethics

A mission statement is seen as the starting point for

revealing a corporate identity program, as it is an

effective vehicle by which a firm�s essential values are

communicated to its stakeholders (Leuthesser and

Kohli, 1997). Issues of business ethics are likely to be

explicit in mission statements, and mission state-

ments are included in annual reports or in other

corporate statements. To measure the CRE variable,

we used the SiRi Pro

database, which contains

business ethics report. In the first part of this report,

SiRi analysts study the various corporate statements

and determine if the company discloses relevant

information related to its ethical business behaviour.

As a result, SiRi builds a dummy variable in which

the company scores ‘‘1’’ on this item if it discloses

information on business ethics in the corporate

statements and ‘‘0’’ if it does not. In our empirical

application, we used this item provided by SiRi.

Corporate applied ethics

We measure CAE using another dummy variable. In

this case, the SiRi analysts assess the organization�s
business ethics initiatives, policies, and procedures.

Specifically, the company statements are inspected in

order to identify any specific ethical procedures (and

the scope of any such procedures) compliant with

the standards of business ethics. The company is

labeled ‘‘ethical’’ (a score of ‘‘1’’) if it conducts all of

the following actions: withdraws from a market to

avoid corruption problems; has an explicit, readily

available employee ethics policy; has a contact per-

son in case of irregularities; guarantees that the

reporting agent remains anonymous; and uses

sanctions for unethical behaviours. If the company

does not employ these business ethics procedures, it

receives a score of ‘‘0’’.

Stakeholder satisfaction

SS is viewed as a multidimensional construct

(Carroll, 1979) that captures a wide range of items –

at least one for each relevant stakeholder (Waddock

and Graves, 1997). In the past few years, the KLD

Social Index has been used extensively in empirical

research on stakeholder theory and has been found

to be one of the best measures of SS available to date

(Hillman and Keim, 2001). This index provides a

measure of the overall wellbeing of a firm�s multiple


In this study, we use the score provided by the

SiRi Pro

. This score aggregates the degree to

which the company satisfies stakeholders� interests
and rates SS from 0 (worst) to 10 (best). Taking into

42 Pascual Berrone et al.

account the score received by each stakeholder

group or area – community, corporate governance,

customers, employees, environment, and vendors

and contractors – SiRi builds an aggregate score,

which we use as our final measure of stakeholder


Corporate financial performance

A great deal of debate surrounds the use of

financial measures to assess performance. We use a

market-based measure: market value added (MVA).

In addition, for the sake of robustness, we provide

results using an accounting-based measure, return on

assets (ROA). MVA is calculated as the equity

market valuation of the company minus the capital

invested in the company, and can be interpreted as

the stock market�s estimation of net present value
(Hillman and Keim, 2001). ROA is defined as the

ratio of profits before interest and taxes to total

assets. Accounting measures of financial perfor-

mance are inadequate for conducting large cross-

sectional comparisons across industries, because the

results may mask differences in financial perfor-

mance based on the specific context of an industry

(Griffin and Mahon, 1997). Thus, we use a fre-

quently applied method for controlling industry

effects (e.g. Agle et al., 1999), a measure arrived at

by subtracting the average ROA of the industry

from each firm�s ROA.
Although many different measures of financial

performance could have been used, we emphasize

market-based measures because they better capture

the expected future impact of ethics on performance.

Specifically, the informational value of CRE can

only be measured through variables that discount the

expected future intangible investment derived from

a firm�s revealed ethical behaviour. Such variables
are forward-looking measures (market performance

variables) rather than backward-looking measures

(accounting performance variables). On this point,

several authors have acknowledged the deficiencies

of accounting measures in capturing intangible

relationships and the benefits provided by market-

based measures (Hillman and Keim, 2001; Orlitzky

et al., 2003).

Control variables

We control for R&D investment, marketing con-

troversies, firm size, industry, risk, and country fol-

lowing the lead of previous researchers (McWilliams

and Siegel, 2000; Waddock and Graves, 1997). We

operationalized these variables as follows:

R&D investment is defined as the ratio of R&D

expenses to total assets in a log scale. McWilliams

and Siegel (2000) showed that R&D is positively

correlated with stakeholder performance and

financial performance. As they point out, a major

determinant of the financial performance of firms is

their spending on R&D, because it leads to product

and process innovation and enhances firm produc-

tivity. At the same time, the correlation between

R&D and SS is explained by the fact that many

aspects that create utility for a firm�s stakeholders are
generated through product or process innovations.

Thus, in order to isolate the real impact of a firm�s
SS on financial performance, we need to control for

investment in R&D. Otherwise, we would provide

upward-biased estimators of the SS variable.

Marketing controversies is intended to capture the

marketing practices of firms – a variable that has

been shown to be an important determinant of

financial performance and SS. Consequently, an

appropriate econometric model must include a

proxy variable for marketing practices, and we use

SiRi�s dummy variable ‘‘existence of controversies
over marketing practices’’. This variable takes a va-

lue of ‘‘1’’ if the firm has controversies over product

quality and safety or if the firm benefits from market

power over its clients and a value of ‘‘0’’ otherwise.

Irresponsible marketing practices – i.e. controversies

on product quality and safety or the abuse of market

power – is expected to decrease SS (Moskowitz,

1975). Therefore, we expect marketing controver-

sies to be negatively related to SS. Consistent with

our theoretical model, we also expect that marketing

controversies will have a negative effect on financial

performance. However, there may be an opposite

effect, given that a high level of controversy could

also indicate the market power of the firm. A firm

with strong market power (e.g., a monopolist firm)

can take advantage of its power financially and pass

the costs of advertising to customers (Tannous,

1997). This practice will result in bigger advertising

budgets, which are expected to have a positive

impact on performance (McWilliams and Siegel,

2000) but result in high levels of controversy (e.g.

unhappy customers because of excessive pricing). As

Corporate Ethical Identity As Determinant of Firm Performance 43

a consequence, the influence of marketing contro-

versies on CFP is unclear because we do not know

which of these two effects will prevail.

Size is defined in terms of a firm�s total sales on a
log scale. The size of a firm is a standard factor in

explaining the ethical basis of CFP and SS. A firm�s
commitment to a particular ethical behaviour and the

instruments it has available to implement this com-

mitment is expected to be related to the size of a firm.

Risk is measured by a firm�s beta (Hillman and
Keim, 2001) as reported by OSIRIS. This variable

is recognized as a pivotal determinant in any esti-

mation of financial performance. Moreover, we

allow this variable to affect SS. Stakeholder well-

being is expected to be related to the possibility of

financial distress (Roberts, 1992). A firm with a

strong orientation towards its stakeholders may be

viewed as being better managed and therefore as

being less risky and vice versa (a firm with lower risk

is more likely to be committed to satisfying its


We control for industry and country, as there are

13 sectors and 26 countries in our sample. Industry

effects are captured by 4-digit SIC dummy variables

(DummyS). To control for country influences, we use

a set of 25 dummy variables (DummyC).

Finally, in order to prevent potential endoge-

neity problems between measures and consistent

with previous studies like that of McWilliams and

Siegel (2000), we used the mean of all our vari-

ables. The underlying idea is that by averaging

variables, it is possible to find more robust coeffi-

cients in the estimations because the error terms are

less highly correlated with the average independent


Data analysis and model specification

A test for identifying outliers in multivariate data was

performed. The method developed by Hadi (1992,

1993) indicated that we have significant outliers in

our data. It is well known that ordinary least squares

are sensitive to outliers (Berk, 1990). In this case,

robust regression may be the only reasonable statis-

tical recourse (Hamilton, 1992) because it limits the

influence of outlying observations and allows for

more robust inferences.

In our empirical application, we rely on two basic

specifications, one explaining SS and one explaining

CFP. The main independent variable in both cases is

CEI, which is also separated into its component

parts, CRE and CAE. Following previous research

(Waddock and Graves, 1997), we consider the same

set of control variables in explaining CFP and SS. In

order to explain a firm�s SS and test Hypothesis 1a,
we consider the following specification:

SSi ¼ a0 þ a1CEIi þ a2R& Di

þa4SIZEi þ a5RISKi þ





In analyzing the possible differential effect of CRE

and CAE on SS, as stated in Hypothesis 1b, we

conducted two further estimations of specification

(1) by breaking the variable CEI into its two basic

components: CRE and CAE.

The second equation is aimed at explaining CFP

and, as mentioned, we contemplate the same basic

control variables as in specification (1). Hence, the

basic specification is:

CFPi ¼ b0 þb1SSi þb2CEIi þb3R& Di

þb5Sizei þb6Riski þ



b18þKDummyC (2)

From this specification, it is possible to test

Hypotheses 2, 3a, and 3b. More specifically, to test

Hypothesis 2, we exclude the CEI variable from

specification (2) in order to study the existence of a

direct effect of SS on CFP. This hypothesis is con-

firmed when b1 is positive. To test the mediating role
of SS (Hypotheses 3a and 3b), we follow the meth-

odology described in Baron and Kenny (1986). In the

case of Hypothesis 3a, the methodology consists of

comparing two specifications: one that excludes the

SS variable and one that incorporates all the variables.

This hypothesis is confirmed when two conditions

are met: (1) b2 is positive and significant in the

44 Pascual Berrone et al.

specification that does not include the SS variable and

(2) in the specification that includes the SS variable,

b1 is positive and significant whereas b2 is neither
positive nor significant. Finally, by separating the

CEI variable into its two basic components of CRE

and CAE, we can test if there is a differential medi-

ating effect of SS in the connection between a firm�s
ethical dimension and its performance dimension. In

that case, Hypothesis 3b will be confirmed when,

jointly with the significant coefficient of SS, the

coefficient of CRE is positive, independent of

whether or not the SS variable is present in the

specification; however, the coefficient of CAE will

only be positive when the SS variable is not included

in the analysis.


Table 1 reports means, standard deviations, and

correlations among the main variables used in the

study. Descriptive statistics show the existence of

large differences between the means and medians,

especially for the MVA and firm size variables. These

data suggest the existence of outliers, an extreme

confirmed by using the method of Hadi (1992,

1993). Thus, the implementation of robust regres-

sion techniques to test specifications (1) and (2) turns

out to be particularly desirable.

Concerning the correlation matrix, we find that

CEI and SS are positively correlated offering pre-

liminary support to Hypothesis 1a. Comparing the

correlation coefficient between CAE and SS with

the one between CRE and SS, we find that the

former is larger and significant at 1% (compared to

the 5% in the case of CRE). This provides initial

support for the differential effect stated in Hypothesis

1b. Furthermore, as predicted in Hypothesis 2, SS

and CFP are positively correlated. However, this is

not true when we use ROA as a measure of financial

performance. Finally, CEI and its two basic com-

ponents, CRE and CAE, are positively related with

the market-based measure of CFP.

Table 2 summarizes the regression analysis of

specification (1), whereby we test the effect of a

firm�s CEI on SS (Model 1A). Also, we break CEI
into the two basic components: CRE and CAE

(Model 2A). Finally, we study the existence of a

possible complementarity between CRE and CAE.

To do so, in Model 3A we force CRE dummy

variable to be ‘‘1’’ when CRE = 1 and CAE = 0

and ‘‘0’’ otherwise.

Model 1A shows that the coefficient for CEI is

positive and highly significant (a = 2.182, p < 0.01)
for explaining SS. These results provide strong

support for Hypothesis 1a. Furthermore, when we

break CEI into its two basic components (Model

2A), we find that both are positive and highly sig-

nificant (p < 0.01). However, CAE (a = 1.107,
p < 0.01) contributes more than CRE (a = 0.852,
p < 0.01) to the SS, and the difference between both

is significant (F = 2.79, p > F = 0.095). Thus, there

is support for Hypothesis 1b. The last row of Table 2

presents the result of testing the complementarity

between CRE and CAE. We observe that CRE

does not affect SS whenever CAE is ‘‘0’’. Hence, SS

requires the firm to implement some tangible mea-

sures (e.g., defining a CAE policy) – not merely to

make ethical statements (CRE).

Finally, Table 2 illustrates that the control variable

for measuring R&D investment is positive, although

not significant. As expected, marketing controversies

and risk are negatively and significantly related to SS

and size has a positive and significant effect on SS.

Table 3 displays the regression analysis results for

specification (2).

Model 1B tests the direct effect of SS on CFP.

Results indicate that the effect of SS on financial

performance is positive and significant (a = 0.053,
p < 0.01), providing support for Hypothesis 2.

In order to test the mediating role of SS in the

relationship between CEI and CFP, as mentioned,

we compare Model 2B with Model 3B (Baron and

Kenny, 1986). We find that CEI, initially significant

in Model 2B (a = 0.296, p < 0.05), turns out to be
nonsignificant once the SS variable is introduced

(a = 0.186, p > 0.1). Moreover, this latter variable is
also significant (a = 0.050, p < 0.05), suggesting that
it fully mediates the connection between CEI and

CFP and confirming Hypothesis 3a.

Next, Models 4B and 5B test the differential

mediating effect of SS in the connection among the

various components of ethical identity and CFP. We

find that a differential effect exists. The significant

coefficient of SS in Model 5B is accompanied by (1)

a change in the coefficient of CAE from significant

(a = 0.145, p < 0.05; Model 4B) to nonsignificant
(a = 0.087, p > 0.1; Model 5B) and (2) a maintaining

Corporate Ethical Identity As Determinant of Firm Performance 45

of the significance of the CRE coefficient, albeit

lower in Model 5B (a = 0.156, p < 0.1) than in
Model 4B (a = 0.201, p < 0.05). Hence, we can
state that SS fully mediates the connection between

CAE and CFP but this is not found in the rela-

tionship between CRE and CFP, thereby confirm-

ing Hypothesis 3b.

Finally, in the same manner used in Table 2 for

SS, we test if a complementary relationship exists

between CRE and CAE in their connection with

CFP. To test this notion of complementarity, we use

the aforementioned dummy variable for CRE that is

equal to ‘‘1’’ when CRE = 1 and CAE = 0; and

‘‘0’’ otherwise. It is remarkable that all firms in our

sample using ethical programs (CAE = 1) revealed

their ethical posture in their corporate statements

(CRE = 1). However, some firms disclose their

ethical posture (CRE = 1) but do not conduct

ethical programs (CAE = 0). Model 6B shows that

the effect of CRE on financial performance is neg-

ligible when firms do not institute ethical initiatives

(i.e. CAE = 0). Thus, revealing ethical information

does not improve financial performance per se.

Applied ethical actions are needed in order to take

full advantage of ethical disclosure.

Concerning control variables, we find that R&D

investment and marketing controversies have a

positive and significant impact on CFP (p < 0.01 in

all models). The positive effect on CFP of marketing

controversies suggests that the aforementioned effect

of market power more than compensates for the

negative influence of controversies through a

reduction in SS. Overall, these results are consistent

with those of McWilliams and Siegel (2000). Finally,

in accordance with Hillman and Keim (2001), we

find that size has a significant effect on CFP, while

the effect of risk can be neglected.

For robustness, we replicate the previous analysis,

but making use of ROA rather than MVA as a proxy

of CFP. The results are consistent with Hypothesis 2

(a = 0.036, p < 0.1) and SS leads to improvements
in accounting measures of CFP. However, there is

no connection between the ethical stances of a firm

and its accounting measure of financial performance.

We relate this result to the difficulties of using

accounting variables to capture the future effects on

performance of the intangible resources linked to the

ethical dimension of a firm. With respect to the rest

of the predictor variables, we find that the marketing



























































































































































































































































46 Pascual Berrone et al.

controversies variable has no significantly positive

effect on ROA and that R&D investment is signif-

icantly related to ROA in two of the five regression

analyses and only at 10% level. The negative and

significant effects of size and risk on ROA are in

accordance with the evidence reported by Waddock

and Graves (1997) (Table 4).

Discussion and conclusion

In this paper we have introduced, as a way to

approach the ethical dimensions of a firm�s corporate
identity, the concept of a firm�s CEI as well as its two
basic components of CRE and CAE. We further

investigated the connections among these ethical

stances and a firm�s CFP, and the role of SS in
mediating this relationship. As predicted, this study

showed that a strong CEI was positively related to

high levels of SS, which, in turn, had a positive

influence on the financial performance of a firm.

Hence, we conclude that the relationship between

CEI and CFP is mediated by SS. Moreover, we

found that each dimension of CEI (CRE and CAE)

has a distinctive effect on both SS and CFP. On the

one hand, CAE has a greater influence on SS than

does CRE. This finding suggests that stakeholders

obtain greater value from tangible ethical actions

than they do from simple ethical revelation. On the

other hand, we found that CRE has a positive

informational effect on shareholders� value after
controlling for SS, whereas CAE has no further

impact on stock market value. This means that SS

mediates the relationship between CAE and CFP

but does not mediate the connection between CRE

and CFP. Nevertheless, both ethical concepts are

closely related, as we have found that ethical dis-

closures (CRE) only affect CFP when the disclosure

is accompanied by a positive CAE. This suggests a

complementary role between the two dimensions of


In addition, by using alternative measures of

financial performance, we have been able to capture

the intangible nature of the CEI dimension.

Accounting measures of performance are recognized

as having difficulties in capturing the long-term


Results of robust regression analyses for stakeholder satisfaction


Corporate ethic identity 2.182***

Corporate revealed ethics 0.852*** )0.497
Corporate applied ethics 1.107***



R&D 0.462 0.445 0.676

Marketing controversies )0.750*** )0.722*** )0.624**
Size 0.194*** 0.193*** 0.354***

Risk )0.499*** )0.491*** )0.626***
Sector dummies Yes Yes Yes

Country dummies Yes Yes Yes

Constant )0.217 0.594 )1.196

0.442 0.441 0.350

F Test 9.36*** 8.99*** 6.35***

N 398 398 398

Unstandardized regression coefficients are shown in the table.

The test of equality of coefficients showed that the marginal effect of applied ethics is significantly higher than that of

revealed ethics (F = 2.79; p > F = 0.095).
In this specification, we force corporate revealed ethics (CRE) dummy variable to be equal to 1 when CRE = 1 and

corporate applied ethics (CAE) = 0; otherwise this dummy is 0.

*p < 0.10; **p < 0.05; ***p < 0.01.

Corporate Ethical Identity As Determinant of Firm Performance 47

value of intangible resources, such as reputation,

corporate culture, or knowledge assets. This diffi-

culty explains the null effect of the ethical dimen-

sions on performance in the case in which we

measure performance with an accounting measure

like the ROA, thereby confirming the relevance of

intangible resources on a firm�s CEI. Furthermore,
when we focus on traditional measures of intangible

investments, like R&D investments, the relationship

between intangibles and firm�s ROA is weak.
However, when we operationalize financial perfor-

mance by means of market-based measures such as

the MVA, a clear positive connection is found

between financial performance and ethics and

between financial performance and R&D. Note that

market-based measures of performance are more

suitable in capturing the long-term value created by

these intangibles: they approximate the stock mar-

ket�s estimation of the net present value of the future
stream of income generated by intangible resources.

These results have clear implications for man-

agement researchers and practitioners, as they com-

bine theoretical aspects with other aspects that have a

clear practical content.

Implications for research

This paper contributes to the business ethics literature

by introducing constructs aimed at capturing a firm�s
business ethical identity and assessing the pattern

among these constructs, SS, and financial perfor-

mance. Theoretically, we link the relationship among

these concepts and test them empirically, enhancing

the limited evidence for a link between business ethics

and performance. Our results indicate that a strong

ethical identity can have both intrinsic and strategic

value. In this regard, there have been controversies

about the application of ethics as a strategic tool. For

instance, Queen and Jones (1999) argued that ethical

initiatives justified on a strategic basis are, in fact,

unethical. Furthermore, they suggest that because an

ethical stance is difficult to fake when its underlying

motivation is profit maximization, such a strategy is

unlikely to provide economic benefits. Hillman and

Keim (2001) have also argued that participation in

social and ethical issues may adversely affect the firm�s
ability to create shareholder wealth. However, our

results show that a well built CEI has direct and

indirect positive influences on financial performance.


Results of robust regression analyses for financial performance: market value added


Stakeholder satisfaction 0.053*** 0.050** 0.048** 0.051***

Corporate ethic identity 0.296** 0.186

Corporate revealed ethics 0.201** 0.156* 0.207

Corporate applied ethics 0.145** 0.087


R&D 1.524*** 2.284*** 2.015*** 2.240*** 1.820*** 1.443***

Marketing controversies 0.347*** 0.429*** 0.428*** 0.450*** 0.430*** 0.344***

Size 0.191*** 0.214*** 0.200*** 0.204*** 0.187*** 0.179***

Risk )0.001 )0.017 0.017 )0.005 0.023 0.003
Sector dummies Yes Yes Yes Yes Yes Yes

Country dummies Yes Yes Yes Yes Yes Yes

Constant )2.495*** )2.729*** )2.822*** )2.560*** )2.492 )2.319***

0.720 0.719 0.731 0.720 0.718 0.682

F Test 30.61*** 30.08*** 30.73*** 29.05*** 27.91*** 26.44***

N 398 398 398 398 398 398

Unstandardized regression coefficients are shown in the table.

In this specification, we force corporate revealed ethics (CRE) dummy variable to be equal to 1 when CRE = 1 and

corporate applied ethics (CAE) = 0; otherwise this dummy is 0.

*p < 0.10; ** p < 0.05; *** p < 0.01.

48 Pascual Berrone et al.

We take advantage in this paper of the integrative

line of research of stakeholder theory by combining

the normative and the instrumental approaches to

develop our theoretical framework. Overall, we

have found support for our theoretical contentions,

reinforcing the validity of the integrative approach

to stakeholder theory (Gibson, 2000; Jones, 1995;

Jones and Wicks, 1999). This approach appears to be

a promising theoretical framework for combining

ethics and business, and it is our hope that future

research can refine this concept and extend the

search for connecting elements.

Implications for practice

Consistent with the findings of previous studies

(Berman et al., 1999; Hillman and Keim, 2001), we

found that firms satisfying stakeholder demands have

higher economic benefits and achieve differentiation

from their competitors. Developing close relation-

ships with key stakeholders creates intangible re-

sources that are the basis for a sustainable

competitive advantage. Hence, managers should

recognize the importance of these relationships and

place them on their strategic agenda.

From a perspective of maximizing shareholder

value, previous research has depicted the importance

of social disclosure on the firm�s value. At the same
time, some studies have shown that investing in

ethical and social initiatives can, in some cases, be

against the shareholders� best interests (Hillman and
Keim, 2001). Our study validates the relevance of

ethical disclosure practices, as investors may be able

to internalize the expected future benefits through

their investment decisions in financial markets.

Therefore, revealing ethical values and beliefs in

accordance to those of the stakeholders appears to be

an adequate strategy for managers to follow.

Our study also demonstrates that although ethical

initiatives do not necessarily represent profitable

investments (i.e. there is not a direct influence), they

do form a key determinant of SS, and that SS, in

turn, boosts financial performance. Thus, ethical

actions have an indirect effect on financial perfor-

mance through SS.

Finally, given the complementarity between CRE

and CAE, we have demonstrated that firms that

adopt an ethical disclosure policy disconnected from

their actions may hinder their value. A company that

merely adopts ethical behaviour in a symbolic

manner (Stevens et al., 2005) decoupled from its


Results of robust regression analyses for financial performance: return on assets


Stakeholder satisfaction 0.036* 0.036* 0.036*

Corporate ethic identity 0.067 )0.010
Corporate revealed ethic 0.052 0.024

Corporate applied ethic 0.036 )0.003


R&D 0.533 0.883* 0.542 0.817* 0.495

Marketing controversies 0.135 0.126 0.136 0.128 0.139

Size )0.038** )0.032* )0.038* )0.032* )0.038**
Risk )0.432*** )0.451*** )0.434*** )0.451*** )0.432***
Sector� dummies Yes Yes Yes Yes Yes
Country�s dummies Yes Yes Yes Yes Yes
Constant 2.674*** 1.737*** 1.721*** 1.775*** 1.738***


0.368 0.353 0.367 0.355 0.369

F Test 6.88*** 6.45*** 6.61*** 6.29*** 6.44***

N 398 398 398 398 398

Unstandardized regression coefficients are shown in the table.

* p < 0.10; ** p < 0.05; *** p < 0.01.

Corporate Ethical Identity As Determinant of Firm Performance 49

actions runs the risk of jeopardizing its own future.

And ethical disclosure, it appears, is not enough: the

positive influence of ethical behaviour existed in our

study only when ethical revelation was substantively

coupled with ethical activities. Our research sug-

gests, in fact, that the effective management of eth-

ical identity implies a balance between ethical

communications and ethical behaviours.

Limitations and future research

Although we used a unique database with a number of

strengths, including its international content, we must

recognize some weakness in our empirical applica-

tion. One such limitation is the cross-sectional

regression analyses on which our findings are based.

Future work should attempt to expand the sample to

include more years, allowing the employment of

temporal lags in estimations – particularly in those

estimations that include that are based on accounting

measures of financial performance. Furthermore,

richer panel data would allow the examination of

more dynamic aspects on the connection between

ethics, SS, and performance.

A second limitation is related to the way we have

measured some of the variables. Consistent with

previous studies, for example, we have adopted the

SiRi score, which has been validated as one of the best

available (Sharfman, 1996), as a measure of SS.

However, the use of an index of aggregated satisfac-

tion precludes the analysis for particular stakeholders.

It is reasonable to expect that CEI will affect SS dif-

ferently and that some stakeholders will have a more

decisive effect on CFP than others will. Moreover,

the scope of our research did not take into account the

possibility that firms and managers may perceive the

saliency of stakeholders differently (Mitchell et al.

1997) and their importance may have differential

implications for corporate identity (Stuart, 2002).

Nonetheless, we believe that our work have initial-

ized efforts to understand the multifaceted relations

between corporate identity, ethics and firm perfor-

mance. A more fine-grained theoretical and empirical

analysis will be the subject of future research.

Final remark

Ethics and business are not unrelated worlds. Our

work provides strong support for the position that

ethical behaviour is ultimately in the company�s best
financial interest. It also demonstrates the strength of

ethical behaviour in creating positive social conse-

quences by providing greater satisfaction to stake-

holders. It seems clear, then, that the effective

management of CEI can play a significant role in the

overall performance of the firm.


The authors wish to thank Carlos Bendito, Eva Ramos

and Ramón Pueyo (Fundación Ecologı́a y Desarrollo),

Philippe Spicher (Sustainable Investment Research

International, SiRi Company), and Analistas Internacio-

nales en Sostenibilidad (AIS

) – a SiRi Company

partner firm based in Spain – for their helpful com-

ments and access to the SiRi Pro

database. We also

acknowledge the financial support of the Ministerio de

Ciencia y Tecnologia (Grant #SEC 2003-03797 and

#SEC2001-0445), and SEJ 2006-01731 and Comunidad

de Madrid y Universidad Carlos III (Grant#UC317-

ECO-05-04Z) Ministerio de Educación y Ciencia

(Grant #SEJ 2004-07877-C02-02).


There are other features that influence the corpo-

rate identity of firms: for example, the competitive

environment in which the company interacts, the per-

sonality of the original owners, the behaviours of

employees, and the products and services it offers. The

focus of our paper, however, is exclusively on the

relationship between the firm and its stakeholders. We

thank an anonymous reviewer for this clarifying sug-


The distribution of firms by country is as follows:

30.49% US, 17.28% UK, 12.23% Swiss, 6.6% French,

6.02% Japanese, 5.63% German, 4.08% Dutch, 3.3%

Italian, 2.72% Swedish, 1.94% of Spanish, 1.36% Bel-

gian, 1.36% Finnish, 1.17% Hong Kong, 0.97% Cana-

dian, 0.97% Danish, 0.78% Irish, 0.58% Australian,

0.58% Korean, 0.39% Norwegian, 0.39% Portuguese,

and one firm each from Austria, China, Luxemburg,

Taiwan, Thailand, and Singapore.

Although the debate of who is the stakeholder and

to whom the firm should turn its attention is still an

open one (Mitchell et al., 1997, Jensen, 2001, Hill and

Jones, 1992), it seems that there is more agreement on

the topic of which stakeholders are primary to the firm.

50 Pascual Berrone et al.

These primary stakeholders are those whose participa-

tion is essential for the firm�s survival (Clarkson, 1995):
typically, shareholders, employees, suppliers, customers,

the community, and the environment. Our aggregated

measure captures all major stakeholder groups and is

consistent with measures used in previous research (e.g.,

Hillman and Keim, 2001).

Corporate governance is a proxy of shareholder sat-

isfaction, as it assumes higher values when: (a) The

positions of Chairman and CEO are not combined; (b)

There is a maximum of 20% of executive directors on

the board; (c) There is no limitation of shareholders

rights; (d) the company has one class of stock or the

company�s classes of stock have equal voting rights; and
(e) There is an independent audit, remuneration, and

nomination committee.

We thank one of the referees for this suggestion.


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Pascual Berrone, Jordi Surroca and Josep A. Tribó

Department of Business Administration,

Universidad Carlos III de Madrid,

Calle Madrid 126, 28903,

Getafe, Madrid, Spain

E-mail: [email protected]

Corporate Ethical Identity As Determinant of Firm Performance 53

Satisfaction And Contribution Of Stakeholders From The
Performance Prism Model

Elizandra Severgnini †
Universidade Estadual de Maringá

Edwin Vladimir Cardoza Galdaméz Ω
Universidade Estadual de Maringá
Romildo de Oliveira Moraes ¥
Universidade Estadual de Maringá

Performance evaluation is relevant in the construction of a strategy

of organizational excellence (CHOONG, 2013). It is a practice that
emerges at a time when the organization needs to understand different
economic scenarios, create different evaluation perspectives, gauge
results and generate support for decision-making.

The process of organizational performance management, in addition
to the financial perspective, has valued non-financial perspectives.
Among the main models are the Balanced Scorecard(KAPLAN;
NORTON, 1997) and the Performance Prism– PP (NEELY et al,
2001), which promote evaluation from perspectives related to learning,
capabilities, processes, innovation, customers and stakeholders.

Nogning and Gardoni, (2015) and Wu (2009) highlight that in the
literature there is an effort to establish comparisons and complementarities
among performance evaluation models (STRITESKA; PICKOVA,
2012), in reporting the evolution (CARPINETTI; GALDÁMEZ;
GEROLAMO, 2008) and determine applicability in large organizations

One of the main contributions of the PP is the Participation and
Contribution of Stakeholders in the performance of the organization
(NEELY et al, 2001). Defining the role of stakeholders is key to

This article has a Creative Commons License – Attribution 3.0 Not Adapted.

Corresponding author:
† Universidade Estadual de Maringá
E-mail: [email protected]
Ω Universidade Estadual de Maringá
E-mail: [email protected]
¥ Universidade Estadual de Maringá
E-mail: [email protected]

Received: 03/28/2016.
Revised: 05/12/2016.
Accepted: 08/11/2016.
Published Online: 08/01/2017.

DOI: http://dx.doi.org/10.15728/bbr.2018.15.2.2


In the process of performance evaluation it is essential to define the needs,
capacities and contributions of stakeholders. The objective of this paper
is to analyze the perception of managers of Micro, Small and Medium
Enterprises (MSMEs) in relation to the Satisfaction and Contribution of
Stakeholders to organizational performance. The research was conducted
with 7 MSMEs. The results from the interviews showed that (i) there is
a broader understanding of who are the most important stakeholders,
opposing the view of the owners and customers and (ii) the contribution
of stakeholders expected by the business is more subjective, considering
the continuity of the relationship with the parties and a delivery of
superior value. Finally, the results provided the basis for the proposition
of new dimension called Expectations of Continuity and Partnership as
an element to assess stakeholder contribution.

Keywords: Stakeholders, Performance Prism, Small and Medium Enterprises.



planning, implementing and delivering feedback on proposed improvement actions from
different organizational perspectives.

Stakeholder Theory is a useful lens to explain how stakeholders influence and are
influenced by the organization and other stakeholders (FREEMAN, 1984; CLARKSON,
(2012), from on a literature review, comments on the relevance of studying stakeholders and
evaluating performance, but does not generate empirical evidence. Rodrigue, Magnan and
Boulianne (2013) also investigated the relationship between stakeholder and environmental
management, but did not consider a performance evaluation model.

We can observe that there is an opportunity to investigate how the Stakeholders Theory
helps to understand or even broaden the perspective of stakeholders of the PP. This study
becomes more evident when considering the application of Stakeholder Theory and PP
in Micro, Small and Medium Enterprises (MSMES) with respect to the performance
management process, since the literature disseminates results only on large organizations

The objective of this study is to use an analysis of the perception of managers of MSMEs
regarding the Satisfaction and Contribution of Stakeholders to the process of performance
evaluation of the organization. Specifically, the Stakeholders Theory is considered as a
basis for scientific observation and the PP Model as a reference for identifying needs,
perspectives and contributions of stakeholders on organizational performance.

From the research it is possible to expand the analysis of Stakeholders Theory from three
to four perspectives, proposed by Donaldson and Preston (1995) and used to assess and
define the role of stakeholders in the process of performance evaluation. The contribution
is made by identifying who the organization’s stakeholders are and what the owners expect
from them. The PP dimension analysis was constructed using a multiple case study of several
MSMEs (STAKE, 2013), interviewing managers regarding stakeholder perspectives.

In the next item we present the Stakeholders Theory, the PP Model and the relationship
between the Stakeholders Theory and the PP Model. Subsequently, the empirical research
method is highlighted: multiple case study in MSMEs. Following, we list the final
considerations and suggestions for future research.


2.1. Stakeholders Theory
For the Stakeholder Theory, developed by Freeman (1984), the definition of stakeholders –

denominated as those interested parties or interest groups of an organization (HORNEAUX,
2010; HORNEAUX et al., 2014), it is “…all persons or institutions that have, in any way,
claims, interests, property rights in a company or in its activities, in the present, past or
future” (CLARKSON, 1995, p. 106).

In the traditional view, shareholders or stockholders are the owners of the organization,
who has the duty to put their needs first, increasing their value (FREEMAN; REED,
1983). Thus, the goal is profit (FREEMAN; WICKS; PARMAR, 2004). However, in the
stakeholder theory view there are other stakeholders (HORNEAUX, 2010) and considers
that people or institutions are understood as employees, consumers, suppliers, financial
institutions, communities, government, political parties and groups, business and trade
associations and workers or labor unions (FREEMAN 1984; 1994).

The Theory of Stakeholders broadens the organization’s vision to the external
environment and allows the use of non-financial indicators and to verify the relationship of
the external environment with the organizational behavior (FREEMAN, 1984). Therefore,



several actors are taken into account for the decision-making and elaboration of strategies
(HARRISON; FREEMAN, 1999). There is a perspective of placing Stakeholders as
actors that influence strategies (FROOMAN, 1999) and the responses to natural disasters

One contribution of the Stakeholders Theory is that the change in the management model
can occur from the business strategy (FREEMAN, 1984). A change leads to stakeholder
integration in strategic planning and management (PLAZA-ÚBEDA, 2010). And the
strategic vision provided to the organization of “who” is in fact the Stakeholder, defined
by three aspects: (i) descriptive aspect: it is concerned with identifying the needs and
interests depending on the business; (ii) instrumental aspect: it aims at evaluating the
impact on the organization’s performance for its continuous improvement (iii) normative
aspect: it has the purpose of giving due recognition of its importance (FREEMAN, 1984;

After the development of the Stakeholder Theory (80’s), several studies have gained
space with the purpose of conceptualizing and categorizing the typologies of Stakeholders
(BRUGHA; VARVASOVSZKY, 2000). The studies are discussed (SOLEIMANI;
SCHNEPER; NEWBURRY, 2014) and offer different views of the classifications of
WOOD, 1997). For this study, we adopted the classification of Stakeholders proposed by
Clarkson (1995), highlighted below:

a) Primary Stakeholders: customers, suppliers, investors, employees, among others,
committed to the survival of the company and have a relationship of interdependence
between the stakeholders (CLARKSON, 1995).

b) Secondary Stakeholders: composed of “those who influence or affect, or are
influenced or affected by, the company, but do not have direct contact with the
transactions and are not essential for its survival” (CLARKSON, 1995), e.g., the
media, government and local community (VASI; KING, 2012).

Another outstanding classification is by Mitchell, Agle and Wood (1997), who created
the Stakeholder Salience Model with the objective of stating the importance of each
Stakeholder before the perceptions of the managers. In the Stakeholder Salience model,
stakeholders’ capacity influences organizations in the face of attributes of power, legitimacy
and urgency (TASHMAN; REALIN, 2013).

Mainardes, et al., (2011) Highlight that the two types of relevant stakeholders are
latent – which have only one attribute and receive little attention from the company; and
expectant – who have two attributes and have a more active posture. Given the definitions
and classifications of Stakeholders presented, it is necessary for organizations to define
who they are and what the needs and desires of the Stakeholders are in order to guide the
strategies and obtain value creation in the business (AGLE; MITCHELL; SONNENFELD,

We can also observed that the definition of stakeholders is a condition for evaluating
the performance of the business (FREEMAN, 1984; CLARKSON, 1995; DONALDSON;
PRESTON, 1995). To emphasize this emphasis, the Performance Prism Model is proposed.

2.2. Performance Prism
Neely, Gregory and Platts (1995), Neely (1999), Neely, Adams and Crowe (2001),

proposed the PP as a performance evaluation model (NEELY; KENNERLEY; ADAMS,



2002) used in several areas (SMULOWITZ, 2015, NAJMI; ETEBARI; EMAMI, 2012;

Neely (2007) highlights the PP as a response to criticism from previous models such
as the Balanced Scorecard (KAPLAN and NORTON, 1997), and built on four aspects
(NEELY, ADAMS and CROWE, 2001).

Initially, for Neely (2007, p.141-142) “the PP unifies other measures (e.g. Stakeholders,
employees, suppliers) and is built upon the strengths of individuals in the organization.
“Second, the model incorporates budgetary measures (e.g. management cycles, front-line
teams, forecasts) and the degree of adaptation of the company, aiming at raising performance
(NEELY; ADAMS; CROWE, 2001). Third, the model enhances the subjectivity that exists
in accounting practice, as it exists in the valuation of goodwill and in the application
of depreciation (NEELY, 2007). For Neely, Adams and Kennerley (2002, p.142), this
improvement occurs because “some accountants orientations assume that they reflect the
truth”. Fourth, the model advances the distinction between the value of a measure and
the performance of a measure, generating points of reflection and dependence on the two
elements (NEELY, 2007).

Figure 1 presents the PP. The first dimension is stakeholder satisfaction, which seeks
to understand the key stakeholders and their needs, since these agents play a fundamental
role in the organization’s performance (NEELY, 2007).

The second dimension, strategy, weighs whether strategies are implemented,
communicated within the organization, encouraged by employees and whether they are as
planned (NEELY; ADAMS; CROWE, 2001). We highlight that the company should seek
answers to the question: what strategies should be put into practice to meet the needs and
desires of the organization’s key stakeholders? (NEELY; ADAMS; KENNERLEY, 2002).

The processes correspond to the structure of the demand, the development of the product
or service and the management of the organization (NEELY, 2007). For Neely, Adams and
Crowe (2001), the processes dimension concerns what makes the organization work. From

Figure 1. Performance Prism Model.

Source: Neely, Adams and Crowe (2001).



the point of view of measurement, the critical aspects are: quality, quantity, time, ease of
use and finances (NEELY, 2007). According to Neely and Adams (2001), the main question
of this facet is: What are the critical processes we need to operate and grow these processes?

Capacities are the competencies and skills that the parties involved need to have
for the operationalization of the short and long term processes, through a combination
of people, practices, technology and infrastructure (NEELY; ADAMS; KENNERLEY,
2002). Sometimes organizations need to understand what their capabilities are in terms
of production, distribution, credit management, consumer needs and market structure
(NEELY, 2007).

Finally, the stakeholder contribution emphasizes that not only should the organization
contribute to stakeholders, but stakeholders should also return the benefits to the organization
(NEELY, 2007). For Neely, Adams and Crowe (2001), the stakeholder contribution
is associated with consumer satisfaction, as it meets the needs of investors, consumers,
distributors, employees, regulatory agencies, communities and suppliers. Based on what
has been discussed, Figure 1 presents the Performance Prism.

2.3. Stakeholder Theory and the Performance Prism Model
When considering the interests of other Stakeholders, in addition to the owner, the

Stakeholder Theory inserts the analysis of other elements in the performance evaluation
(FREEMAN, 1984). These elements are part of a complete elaboration of the organizational
strategy in order to meet the needs and wishes of the Stakeholders (HARRISON; FREEMAN,
1999; FROOMAN, 1999). From an economic and social perspective, the organization goes
through the creation and distribution of increased wealth and value for all (CLARKSON,
1995). In this context, a point of relationship between the two elements can occur through
the fact that the PP takes into account the perspective of the stakeholder for the formation
of performance measurement metrics, generating social value to interest groups.

In Clarkson’s (1995) perspective, an organization can move towards performance when
there is clarity and recognition of needs, desires, responsibilities and obligations with
all Stakeholders, being fundamental to observe the position of the stakeholders and to
understand what is expected in terms of performance to satisfy the different stakeholders. In
this connection, a second point of relationship between the two elements can occur through
description of indicators of needs, desires, expectations and stakeholder satisfaction to
measure as inputs in the formation of organizational strategies.

Based on the aforementioned, the PP complements Clarkson’s (1995) point of view
when analyzing (i) who are the most relevant stakeholders for the organization’s operation,
(ii) what these agents expect and desire from the company and (iii) what the organization
wants from these interest groups, through the perspectives of stakeholder satisfaction and

The method we used is the case study, since it analyzes several companies as a

phenomenon of study (THOMAS, 2015), grouping the findings around the key qualitative
terms. In the study, we considered MSMEs, configuring a case study with multiple cases
(HANCOCK; ALGOZZINE, 2015; SMITH, 2007). The organizations are located in the
states of Mato Grosso do Sul, Rio Grande do Sul and Paraná.

Stake (1978) distinguishes three types of case studies from the purposes: intrinsic
(understanding of a case), instrumental (the understanding of something wider) and



collective (the author collectively studies some cases to investigate a given phenomenon).
The type of case study we used in the research is the multiple case type (STAKE, 1978), as
it deals with multiple MSMEs to understand stakeholder dynamics. Regarding the nature of
the objective of this research, we adopted the interpretative case study type, which “seeks
to describe in detail a phenomenon studied and to find patterns in evidence, developing
conceptual categories that make it possible to illustrate, confirm or oppose theoretical
assumptions” (DA-SILVA et al, 2010, p.124).

The search for several companies in a random way is indicated for qualitative research
(SEAWRIGHT; GERRING, 2008). In total, seven MSME’s were selected and the number
of cases was defined by saturation, allowing the comparison and obtaining more robust
evidence (DA-SILVA et al, 2010).

For the Selection of Cases we adopted the criterion of Several Cases, seeking to contrast
different organizational dynamics and “cover a wide variation in order to reinforce the
representativeness of the sample of cases chosen” (SEAWRIGHT; GERRING, 2008,
p.301). The selection was made based on the criteria: (1) type of sales to the final consumer
(clothes workshop) and to the corporate consumer (distribution network of beverages); (2)
type of service companies (network of auto centers) and products (distributor of electrical
materials); (3) billing volume; (4) gender of the manager (male gender of the manager (male
vs. female); and (5) number of employees. The criterion of selection of the studies meets
the requirements by Curtis et al (2000, p.1002), being “sequential by a rolling process”.

In the Evidence Collection stage interviews were conducted via recorded messages
(with the consent of the interviewees) and transcribed. The open semi-structured interview
script follows the proposal by Neely, Adams and Crowe (2001) with two questions for
each aspect of the PP analyzed: satisfaction and contribution of stakeholders. In order
to understand and interpret managers’ perceptions regarding the understanding of who
are the most relevant stakeholders for their business and what are the satisfactions and
contributions that their company needs to be aware of, we opted for this method of collecting
because it “allows us to obtain a great deal of information, providing the researcher with the
opportunity to clarify and segment questions and answers in a direct and flexible interaction”
(DA-SILVA et al, 2010, p.306).

In methodological terms, caution should be exercised for Limiting the key Construct in
the study for the purpose of theory development (PARKHE, 1993). In this regard, to increase
the rigor of the research and define the element of theoretical discussion, we opted to study
the two dimensions of the PP that deal with stakeholder: contribution and satisfaction. This
delimitation of the construct and scope seeks to ensure greater reliability of the findings
(EISENHARDT, 1991). Table 1 presents the research constructs, as well as their purposes,
which are referenced in the studies by Neely, Adams and Crowe (2001).

In the Evidence Analysis we used the narrative analysis technique of the gnosis type.
“succession of events is of less importance than the perception one has of them, the degree
of knowledge one has or can acquire from them” (DA-SILVA et al, 2010, p.410).

The choice of the narrative analysis technique also allows the “absence of the receiver”
at the moment of responses (DA-SILVA et al, 2010, p.406), since they were recorded
and subsequently transcribed. We conducted the analysis of the narratives in five phases:
(1) organization: ordering of the recordings, according to the semi-structured script for
transcription; (2) transcription of interview recordings; (3) fluctuating reading: search for
preliminary knowledge of narratives; (4) exploration of the material: moment of refining
the narratives to generate comprehension of the text, in a more detailed way, guided by
the defined methodology; and (5) treatment of evidence: inference and interpretation of



Table 1. Constructs of the research

Construct Question Objective

Stakeholder satisfaction (NEELY;

In your opinion, who are the most important
people or institutions to run your business?

To comprehend the understanding of the
managers regarding the recognition of who are
the main stakeholders that generate value to
their business.

What do you think each of these people or
institutions need from your company?

To understand and interpret how managers
understand and perceive the needs and desires
of the stakeholders involved.

Contribution of Stakeholders

As a company manager, what do you want from
these people or institutions?

To comprehend the understanding of the
managers on the clarity regarding the return
that one has or is expected from the main
Stakeholders involved.

What do you actually receive as a result, when
the interests of the actors relevant to your
business are met?

To understand and interpret whether there is a
perception by managers that key Stakeholders
help the company achieve its objectives.

Source: Adapted from Neely, Adams and Crowe (2001)


4.1. Multiple Case Analysis
Table 2 describes the main characteristics of the 7 MSMEs surveyed, related to the

variables that highlight the number of employees, revenue, foundation, size, gender and
location. We option that the companies remain anonymous, and show that on average the
operating time is 17 years.

The selected cases are located in three states. The supermarket is set up as a small
business and is situated in the fourth largest city of Paraná. The distributor of hydraulic
materials and connections focuses on industrial sales to construction companies, being the
largest distributor in the city. The clothing atelier makes women’s clothing. The average
value of each piece is 2,500.00 (BRL), ranging from 1 thousand to 50 thousand (BRL).

The engineering and asphalt paving company operates in several segments: highways,
industrial infrastructure and asphalt production. The multi-store network (15) of Auto
Centers focuses on the sale of tires, wheels and vehicle accessories, operating in the capital
of RS. This company recently underwent through the implementation of the stakeholder

In addition, a franchisee that is part of Brazil’s largest residential and industrial security
and monitoring network was part of the selection of cases. The manager of the local
franchisee was interviewed and provided the basis for, limiting the interpretation to that
unit. Finally, a network of beverage distribution of a multinational brand, which is present
in more than 280 cities, was analyzed through the responses of the managers.

For the interviews analysis, we used the narrative analysis (DA-SILVA et al, 2010). The
first dimension analyzed is the Stakeholder Satisfaction, addressed by the question: In
your opinion, who are the most important people or institutions for your business to
keep running? Bellow, we have the narratives of the respondents about the dimension of
Stakeholder satisfaction:

In my opinion, the stakeholders are customers, employees, suppliers, managers,
competitors and the state. For if one of these is missing, we lose the business cycle
(…). [Acknowledgment of Stakeholders] (Supermarket).

[…]The most important people for our company are [sic] us, company directors
[…].And, of course, Tigre, as a supplier, […].And on the other hand constructing
companies are our main focus as our clients. […]Of course, the more the Caixa
Econômica Federal (Bank) approves financing, […].And if the government paid



right, the constructors will be able to give us a good return. […] [Acknowledgment
of Stakeholders] (Distributor of Hydraulic Materials).

The basis of our company is our team, from embroiderers and seamstresses (outsourced)
to saleswomen and stylists. [Acknowledgment of Stakeholders] (Atelier Company).

We provide services to the population, all are important, […] our job is to facilitate
people’s access and life, from the street where they live to the busiest highways […]
[Acknowledgment of Stakeholders] (Engineering company).

Our directors, who contribute their knowledge so that the projects can be carried
out for the development and profitability of the company. Collaborators as a whole
[…].Clients, as agents that keep our group strong and with the possibility of growth.
Our suppliers, who make it possible to have competitive products with quality and
differentiated prices. [Acknowledgment of Stakeholders] (Auto Centers Network).

I consider them as to be the suppliers, customers and employees of the company,.[
Acknowledgment of Stakeholders] (Franchisee monitoring company).

I consider them to be customers, suppliers and employees. [Acknowledgment of
Stakeholders] (Beverage Distribution Network).

The analysis shows that the seven companies define Stakeholders to be: owners,
customers, suppliers and employees. In this regard, we can observe that the Stakeholders
of the organization are in agreement with that which is pointed out by Horneaux (2010)
and Horneaux et al (2014). The PP suggests that stakeholder satisfaction shows how the
organization views stakeholders in its business and acknowledges their wants and needs in
order to seek solutions that serve those purposes (NEELY; ADAMS; CROWE, 2001).

We note that the company in the supermarket sector considers as relevant stakeholders
to their business to be customers, employees, suppliers, managers, competitors and the
government. An interesting point raised is that this company was the only one to include
in the list competitors as stakeholders, corroborating with Freeman (1984) and Freeman,
Wicks and Parmar (2004), who emphasize all these actors as important parts for the
elaboration of business strategies and they understand that the competition motivates them
for the continuous improvement of the company.

The distributor of hydraulic materials, complementarily, considers, in addition to all the
actors mentioned above, the banks as significant for the operation of their enterprise. The
bank was an element discussed by Neely (2007) as a financial actor relevant to the business
in terms of economic and financial transactions. Finally, the company in the segment of
Clothing Atelier pointed to the production and sales teams as the most important Stakeholders
for the operation of its business. These teams may be internal or even external (outsourced
apparel faction). Therefore, this latter organization seems to observe the employees or the
teams as elements of union for the business.

Table 2. Cases analyzed in the multiple study

Company No. of Employees

Time of

Classification according
to the Revenue Service State Annual revenue

Neighborhood Supermarket 10 Female 29 (years) Micro Enterprise PR 2.1 million (BRL)

Distributor of Hydraulic Materials 15 Female 19 (years) Small Enterprise PR 7 million (BRL)

Party Clothes Atelier 4 Male 24 (years) Micro Enterprise PR NA

Engineering 987 Male 20 (years) Large Enterprise PR R1.2 billion (BRL)

Auto Centers Network 139 Male 20 (years) Medium Enterprise RS 72 million (BRL)

Monitoring Franchise 20 Female 7 (years) Micro Enterprise MS 1 million (BRL)

Beverage Distribution Network 130 Male 9 (years) Medium Enterprise RS 50 million (BRL)
Source: Research data, 2015



Another relevant point in the analysis that has been identified is the Stakeholder
denominated local community or population, as reported by the engineering company. The
engineering company builds roads (product) for the Government (primary stakeholder),
who authorizes the population (secondary stakeholder) to use it. The local community is
then the secondary actor of product use.

Clarkson (1995), when classifying the types of Stakeholders, makes mention to all those
that are affected or influenced by the organization, but are not essential for their survival
and have no direct relation to the transactions, which could be the media, the government
and the local community. In this regard, the population is essential for the survival of the
company, since it does not make direct payments of the use of the road, but it does indirectly.
Therefore, the secondary and primary elements already discussed by Vasi and King (2012)
appear to be coherent and existent within the studied phenomenon.

In addition, according to the theoretical classification by Clarkson (1995), The respondent
from the engineering firm suggests the population as a primary Stakeholder, because they
understand that the built highways are not for the governments use, but for those who
actually pay for the final product.

The second question used to measure and analyze the satisfaction dimension of the PP
of Stakeholders is: And what do you think each of these people or institutions need
from your company? (NEELY; ADAMS; CROWE, 2001). The analysis highlights the
main factors of meeting the desires of stakeholders in the direction of their expectations
in the relationship with the organization interviewed. It is worth noting that this issue
measures the owners’ perception of the desires and needs of stakeholders, as portrayed by
the respondents:

For me, the employee sales their labor force in exchange for a cash benefit. The
supplier gives visibility to their product and earns income. The client, […] the

Competitor, avoids monopoly, free initiative and fair competition. The state:
development of the economy, generating employment and income for the state (taxes
and fees). [Acknowledgement of Stakeholders’ desires and needs] (Supermarket).

First, we, as directors, expect from our company to be “our breadwinner” […]. For
Tigre (supplier), […]regarding sales sees us as a sure sale every month. For the
construction companies, I believe it is the fact that they know they will find what they
are looking for and that they will have the amount they need, […]. Caixa Econômica,
as a bank, I believe it is the turnover of money […].and for the Government, the
payment of taxes for sure[…]. [Acknowledgement of Stakeholders’ desires and
needs] (Distributor of Hydraulic Materials).

The team needs something in addition money […]I FEEL that they have a great need
to feel as an important part of the growth […]. [Acknowledgement of Stakeholders’
desires and needs] (Atelier Company).

[…]We have usually seen the population’s satisfaction when the work is completed
[…]. [Acknowledgement of Stakeholders’ desires and needs] (Engineering company).

Both management and employees need guidance, training, valuation, career plan and
autonomy to carry out their activities. Suppliers need the group to work ethically and
transparently, […].Customers need our group to meet their needs, offering quality
products and services […]. [Acknowledgement of Stakeholders’ desires and needs]
(Auto Centers Network).

I believe that they expect our company to comply with the agreement, each one in its
sphere, the collaborators, who have good working conditions and who receive the
combined deadlines. The suppliers: that the payment of the obligations is carried
out according to previous negotiations, […].Customer and employee satisfaction



are often measured, each in a different way. [Acknowledgement of Stakeholders’
desires and needs] (Franchisee monitoring company).

We believe that they (customers) expect a good service delivery, with respect, agility,
creativity and credibility […]. [Acknowledgement of Stakeholders] (Beverage
Distribution Network).

The findings showed that employees are expected to receive a monetary wage, the
feeling of being a part of the business, giving opinions, receiving training and qualification,
feeling valued, having a system of career plans in Human Resources, having autonomy
to perform the tasks and having good working conditions. These responses are congruent
with the aspect of acknowledgement of Stakeholders proposed by Donaldson and Preston

The findings pointed out that suppliers are looking for an improvement in sales,
good product exposure, guaranteed or exclusive sales (long-term relationship), ethics,
transparency and up-to-date payment. These observations are consistent with Harrison and
Freeman (1999).

From competitors it is expected that there will be no monopoly creation, no single
competition or timely and unilateral market aspects. These information shows how
respondents are concerned about a possible dependency on a single provider for economic

The results show that managers believe that customers expect the convenience,
personalized service, a list of products and mix of solutions that require an attractive price,
a quality and agility and a responsible interaction of the company with the environment.
From management it is expected that there will be a satisfactory remuneration, with
consistent values.

The Contribution of Stakeholders perspective presupposes a relationship of
interdependence between the organization and the actors that relate to it (NEELY; ADAMS;
KENNERLEY, 2002). The question of the interview reported on: As a company manager,
what do you want from these people and institutions? (NEELY; ADAMS; CROWE,
2001). The main responses from managers are:

We expect vendor partnership, customer loyalty and ethics, employee commitment
to the growth of all. [Dimension of the Prism/Contribution of Stakeholders]

[…]From me, (director) I hope that I give more orders to my employees, make them
obey me and enable them to sell all the items we own. From Tigre (supplier),I hope
she continues being our partner, always being able to give us [sic]exclusive prices
and special conditions […]From the Government, we expect them to properly apply
our taxes, […].From Caixa (bank), I hope that our manager will continue to see the
best package for our needs […].From the constructors (clients), I hope they will
undertake more and more building works, that they succeed, that they will build
more and more with their commitments up to date […]. [Dimension of the Prism/
Contribution of Stakeholders] (Distributor of Hydraulic Materials).

We look forward to the team’s commitment and dedication. This pursuit of a dream
together with the company, both from senior employees and the new ones. [Dimension
of the Prism/Contribution of Stakeholders] (Atelier Company).

We expect acknowledgment […] [Dimension of the Prism/Contribution of
Stakeholders] (Engineering company).

From the managers, dedication, commitment, seriousness with the Corporate Policies
of the Company. […].Employees – working in this Company as if they were owners,
really engaging, compromised with the results, being confident about the company



and meeting the need of the client. Customers – always leaving satisfied and
suggesting our company to family and friends. Suppliers – work ethically, always
offering the best negotiation conditions with sustainable margin and quality products.
[Dimension of the Prism/Contribution of Stakeholders] (Auto Centers Network).

From employees, who perform the contracted functions, with disposition, punctuality,
and since we offer a 24 hour service that they do it with extra commitment. From
clients, who make the fair payment for the service performed in the agreed schedule,
and also suggest the service to potential clients. From the suppliers, that the delivery
of the contracted merchandise/service to be on time, according to what was agreed,
with quality, warranty in cases that are necessary, and long-term partnership.
[Dimension of the Prism/Contribution of Stakeholders] (Monitoring Franchisee).

We want them to continue to believe in our company, strengthening the relationship
we have, to grow together more and more. [Dimension of the Prism/Contribution of
Stakeholders] (Beverage Distribution Network).

In the process of Contribution of Stakeholders in the business, the owner expects
from the supplier loyalty, partnership, better conditions for negotiations and delivery of the
products within the agreed time. The respondent managers have the following expectations
from the client: commitment, continuity in the purchase of the products, fair payment for
the service and satisfaction. The continuity of the relationship between client and company
is highlighted in aspects of the present, past or future, conditions reinforced by Clarkson

In addition, managers expect employees’ personal growth, empowerment (or even with
a use of power “obedience”) commitment to results, trust in the company and customer
orientation. These findings are congruent with stakeholders for the survival of the company,
understood as primary stakeholders according to Clarkson (1995).

A significant evidence is on aspects of social responsibility and governance, as
managers are expected to be dedicated, committed, serious about the corporate policies
of the company, concerned about the environment, concerned about the quality of life and
interaction with society.

The respondent from a company stressed his desire for continuity and mutual cooperation
in the business, saying they want “that they [the agents involved] continue to believe in our
company [supermarket], strengthening the relationship we have, to grow together more and

Another element related to the Contribution of Stakeholders is the organization’s
expectation regarding the actors involved (NEELY; ADAMS; KENNERLEY, 2002).
Therefore, in terms of application, it means understanding what is the contribution of the
actors previously mentioned by the manager as relevant to their company. In order to meet
this prerequisite, the question presented to the respondent is: What do you actually receive
as a result, when the interests of the actors relevant to your business are met? (NEELY;
ADAMS; CROWE, 2001), According to respondents:

As a result, we receive feedback from customers and employees working more
spiritedly and more efficiently.[Dimension of the Prism processes/Contribution
Received Effectively] (Supermarket).

We have received the dedication of the directors, suppliers’ partners and loyal
customers and banks that recommend us. [Dimension of the Prism processes/
Contribution Received Effectively] (Distributor Hydraulic Materials).

We have received from the oldest … And we are trying to put the younger ones in the
same mood. [Dimension of the Prism processes/Contribution Received Effectively]
(Atelier Company).



Recognition, respect and especially recommendation[…]. [Dimension of the Prism
processes/Contribution Received Effectively] (Engineering company).

We are immensely satisfied whenever our Employee delivers Quality Services, bringing
to the company the Profit as a form of sustainability for company maintenance and
growth, providing new business, generating new jobs […]. [Dimension of the Prism
processes/Contribution Received Effectively] (Auto Centers Network).

Our company receives it in several ways, for example, if employees perform a
quality service in the delivery to the customer, the customer will be satisfied and will
recommend the services performed for other clients, and will make the payments
on time, Which will enable a more effective partnership with suppliers obtained
through the discharge of commitments as agreed. [Dimension of the Prism processes/
Contribution Received Effectively] (Monitoring Franchise).

Our main result for the work we carry out is our customers and partners who believe
in our company and make it grow more and more. [Dimension of the Prism processes/
Contribution Received Effectively] (Beverage Distribution Network).

Evidence shows that companies receive the employee’s determination in terms of
motivation to stay in business, the respect of the municipal or state government in terms
of the product it delivers, customer satisfaction in terms of purchase and commitment to
continue and the belief and expectation of prosperity regarding the suppliers’ businesses, so
that all the agents involved win in the relationship.

The responses also highlighted expectations of continuity and partnership over time for
business prosperity. In this regard, the element of expectations of continuity and partnership
is proposed as a dimension to evaluate the stakeholder. This new perspective is not in
the PP, but is discussed separately by Leach et al (2002). Therefore, there is theoretical
and empirical support for the proposal of this dimension, which can be useful to redefine
sustainable organizational development (BÄCKSTRAND, 2006).

Based on the perspective of Stakeholders Theory and two dimensions of the PP model,

we identify the perspectives of the Stakeholders present in the performance evaluation.
Stakeholders are understood as owners, customers, suppliers, employees, managers,

competitors and government, banks and staff, these who are responsible for the union
of the business. These definitions are aligned with Stakeholders Theory and arise in the
responses of the companies surveyed, creating the need to build a broader view on who are
the stakeholders that influence organizational performance.

The results showed that the owners expect from employees: motivation at work,
efficiency and quality in the services provided; from suppliers: improvement of sales; from
competitors: that there is no monopoly creation; from clients: a list of products and mix
of solutions; from management: that there is a satisfactory remuneration, with coherent
values and, finally, from the government: the payment of taxes and fees.

Results that allow us to understand how the organizational strategy will be shaped
from the needs of the owners on the various agents that define, construct and represent the
stakeholders. Also, they are possible indicators to define and achieve multiple organizational

Although it is common for external influence to prevail on the organization, there is the
perspective of the contribution of Stakeholders in the opposite direction. The owner expects
to give a bigger return to the business with more action in the definition and direction of
the company. In this context, respondents expect to increase the value of the business and
stakeholders, as proposed by Neely, Adams and Crowe (2001).



In the research, a new dimension is identified to evaluate the stakeholder, defined as
Continuity and Partnership Expectations. It is a perspective of future thinking for the
assessment of MSME’s and the survival of all involved in the business, highlighted by
Leach et. al (2002) and Bäckstrand (2006). We can observe that the relationship and loyalty
of a customer’s purchase will be continuous from the added value over time, resulting in
profitability (REINARTZ; KUMAR, 2000).

Research is limited by cases and the random choice. It is a non-probabilistic type
selection, determined by subjects that represent characteristics of different business models,
size, among other variables. There is a risk to the analysis, since different points of view can
be generated when interviewed by other managers. For a more robust contribution, a more
homogeneous selection of cases is needed.

The research indicates the importance of knowing the needs and desires, as well as the
retribution of the main stakeholders to reach the goals and targets, in relation to business
practice. However, to consolidate the theoretical contribution, it is necessary to develop
future research on this new perspective, in line with the PP model. Another proposal is to
use the Stakeholder Salience Model with the objective of stating the importance of each
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Stakeholders’ satisfaction as a key
determinant of critical success factors in
renewable energy projects
Rashid Maqbool1*, Xiaomei Deng2* and Yahya Rashid3*


Renewable energy projects (REPs) are critical to providing a clean and sustainable environmental perspective
alongside the economic prosperity of any country. Unfortunately, recent trends in renewable energy projects (REPs)
are not positive enough regarding their successful completion within the budgeted cost, planned time, proposed
quality, and other necessary constraints. Although the pertinent literature has discussed the critical success factors
(CSFs) for such projects, their influencing mechanism with respect to the role of key stakeholders is still overlooked.
This study recognizes several critical success factors (CSFs) and their influencing mechanisms onto renewable energy
projects (REPs) in order to evaluate direct influences onto project success as well as indirect influences through
stakeholders’ satisfaction (SS) as mediation on the project success of small and medium-sized renewable energy projects
(REPs) in Pakistan’s energy sector. A sample of about 272 respondents working with renewable energy projects (REPs),
including key stakeholders, has been collected to perform data analysis and draw inferences. A structural equation
modeling (SEM) approach was used for data analysis and inference drawing. The results show that though there is a
positive and direct association between critical success factors (CSFs) and project success, a partial mediating role of
stakeholders’ satisfaction (SS) between CSFs and project success was still determined. Hence, it was found that CSFs
significantly contribute to renewable energy projects (REPs) through mediating influences of stakeholders’ satisfaction (SS).
The findings confirmed that stakeholders’ satisfaction (SS) is a key determinant for critical success factors (CSFs) in
renewable energy projects (REPs). Moreover, stakeholders’ satisfaction (SS) emerged to be a crucial element for the
completion of such projects. The empirical findings of this study might have a useful effect on academicians and the
practitioners engaged with renewable energy projects (REPs).

Keywords: Critical success factors, Renewable energy projects, Stakeholders’ satisfaction, Project success

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* Correspondence: [email protected]; [email protected];
[email protected]
1Department of Construction Management, Tsinghua University, Beijing,
People’s Republic of China
2Department of Construction Management, Tsinghua University, Beijing,
People’s Republic of China
3Department of Mechanical Engineering, Prince Sattam Bin Abdulaziz
University, Al-Kharj, Kingdom of Saudi Arabia

Energy, Sustainability
and Society

Maqbool et al. Energy, Sustainability and Society (2020) 10:28

Apart from the eradication of poverty in any country,
the influence of energy is fierce for economic prosperity
and development. Sustained energy supply is an utmost
concern for every country in the world today. Succeed-
ing in economic prosperity relies significantly on the
extended accessibility of energy from sources that are
cost-effective, convenient, and eco-friendly [1]. Safe fu-
ture, global warming, and community hygienic environ-
ments are intimately connected with energy [2]. An
overwhelming growth in population will lead to a con-
tinuously rising demand for energy, whose demand
streams might only be met by economies using renew-
able energy projects (REPs). Moreover, these REPs might
also assist lower-carbon economies to align with the
Paris agreement.
Since 1987, the importance of sustainability has been

highlighted and until now, insufficient action has been
taken to achieve environmental sustainability [3]. On-
going pollution, deterioration of the environment, de-
clining of fresh water supply, and foremost, numerous
natural mega-disasters, e.g., landslides, earthquakes, and
typhoons, are happening all over the world. Due to this
reason, we have tried to focus the world’s attention on
the urgent need for more research and practical steps in
environmental issues dealing with the sustainable objec-
tives of this study. It is increasingly clear that today sci-
entists have to take steps to achieve sustainability for all
aspects of the environment in order to overcome and
control environmental disasters and to make sure that
the world we live in can be sustained.
Renewable energy projects (REPs) play an imperative

part in securing this world as well as its natural atmos-
phere, human beings, and environmental health, along-
side framing modernization and fulfilling our needs
without conceding the needs of the upcoming genera-
tions [1, 2]. These days, we as human beings face the
harmful effects of a worldwide temperature rise as well
as environmental changes due to hasty and unrestrained
industrial developments. The danger linked with climate
change grows with each day. It is a fact that climate
change is the utmost crucial matter currently challen-
ging this globe. It is today well recognized that climate
change is the major cause behind the severe downturn
in agricultural production, serious water tension,
expanding sea levels, and alarming hazards to human
health, particularly in the developing areas of the world
[4]. Hence, with the current study, we aim to address
the need for high-performance renewable energy re-
sources, as one of the imperative pillars for a sustainable
environment of our society, and for the convey of our
findings to scientists, regulation makers, environmental-
ists, decision-makers, students, politicians, officials from
business, industry, NGOs, experts, and investigators who

understand the significance of environmental sustain-
ability while overcoming the after-effects of global
warming and climate change.
Hence, the aim of this research is to determine several

CSFs and their influencing mechanisms on REPs. First
of all, the direct influences of CSFs onto the success of
the project have been checked. The indirect influences
are identified by measuring the mediating role of stake-
holders’ satisfaction (SS) in between the CSFs and the
project success of small and medium-sized REPs in Paki-
stan’s energy sector. Accordingly, inferences are drawn
based on a statistical data analysis, and recommenda-
tions are suggested for practitioners working with REPs.

Potential and progress of ongoing renewable energy
projects (REPs) in Pakistan
Despite being observably influenced and among the top
ten “most-defenseless” nations on the planet, Pakistan
continues the endeavor of a solution to its energy crises
in fossil fuel [5, 6]. Nevertheless, Pakistan is a nation fa-
vored with renewable energy (RE) sources, which can be
exploited for power production. An ample amount of
water, wind, and solar energy potentials are available in
a land area of approximately 800,000 km2 [7]. There are
also additional tremendous possibilities for biomass from
animal dung and agriculture residues. Altogether, renew-
able energy projects (REPs) can possibly deliver abun-
dant energy for the nation, which will eradicate the
requirement of fossil fuel. For this segment, we provide
a comprehensive view of accessible resources and poten-
tials in the country of Pakistan.
Pakistan has huge potential to produce renewable en-

ergy through the successful use of biomass, solar and
geothermal energy, wind power, and small hydropower
plants. According to some reliable resources, Pakistan
has a potential to provide renewable energy of 1600 GW
through solar energy projects [8], up to 44,000 MW
through wind power projects [9, 10], 13,900 GWh
through biomass projects [11], 100,000 MW through
geothermal resources [12], and 100 GW through small
hydropower projects [13].
In spite of the enormous potential of renewable energy

(RE) in Pakistan, many of such on-going projects are not
generating their expected results. The failure of these
projects to provide the planned operational performance
is mainly due to multiple challenges such as lack of data
and transparency, an unstable economy, corruption, pol-
itical instability, financial constraints, and socio-cultural
challenges; as distinct from those faced by their counter-
parts elsewhere. The list of Pakistan’s renewable energy
projects (REPs), which have been recently abandoned or
delayed due to poor operational performance, is quite
long [14]. Hence, there is an important research call to

Maqbool et al. Energy, Sustainability and Society (2020) 10:28 Page 2 of 15

explore such aspects that can tackle these issues while
helping policymakers in the country.

Critical success factors in constructing renewable energy
Projects in the construction industry are considered to
be successful if completed within their scope, schedule,
and budget constraints while ensuring the desired qual-
ity of the customers [15]. Renewable energy projects
(REPs) are usually conducted in the complex environ-
ment where a lot of stakeholders and resources are in-
volved. Thus, apart from the role of key stakeholders,
success in the REPs relies on multiple CSFs. This section
of the current research presents a comprehensive review
of former empirical studies on the aspect of CSFs, which
might hypothetically direct current research towards in-
cluding influencing factors in the renewable energy pro-
jects (REPs). Previous empirical studies on CSFs, such as
those carried out by Standish [16], Baccarini and Collins
[17], Zhao et al. [18], Ika et al. [19], Xu et al. [20], Maq-
bool and Sudong [1], Maqbool [2], and Maqbool et al.
[4], have been considered as follows.
According to Standish [16], the critical success factors

(CSFs) for constructing projects include administrative
backing, customer/client participation in the project,
well-defined objectives, realistic expectations, and work-
able forecasting. In the study performed by Baccarini
and Collins [17] with 150 participants of the Australian
Project Management Institute (APMI), fifteen CSFs have
been found indispensable for project success (PS),
among which project know-how and a capable project
team, determined as key factors for successful projects.
The significance of this research is that it is based on a
survey of diverse project types, for instance, construc-
tion, telecommunication, information technology (IT),
education, and defense. However, about 45.3 proportion
of survey respondents were part of the construction in-
dustry. Another significance of their study is that no
considerable aberrations are observed in the data com-
posed from the diverse industrial settings.
The empirical research conducted by Zhao et al. [18]

has found CSFs be included in the BOT thermal and
wind power/energy projects in China. The survey find-
ings of their research have demonstrated that there are
five categories of CSFs, which are project planning, pro-
ject atmosphere, project cooperation, project suppliers,
and project contractors.
The empirical study done by Ika et al. [19] investigated

CSFs in the World Bank’s sponsored projects, which
amounted to a 2.7 proportion of energy-related projects.
The research study based upon 147 diverse project areas,
has recognized 5 groups of CSFs, namely training, de-
sign, coordination, monitoring, and organizational at-
mosphere. Xu et al. [20] have established several CSFs of

energy performance contracting (EPC) required for the
building energy efficiency retrofit (BEER) of hotel build-
ing projects carried out in China. Their study is based
on a pragmatic approach, in which a mixed method of
data collections is used, which also includes semi-
structured interviews for qualitative data research and a
questionnaire survey for quantitative data research for the
important participants of the construction projects. The
outcomes of their research implement 21 success factors
in the 6 major categories of critical success factors (CSFs).
Their classifications include EPC funding for the project
of hotel retrofit, execution of a sustainable construction
plan, firm’s processes, sustainable development (SD), and
measurement and verification (M&V), external financial
situation, and contractual procedure.
Alongside three important and recent studies by Maq-

bool and colleagues [1, 2, 4] conducted for Pakistani
REPs contexts have also been considered in order to
recognize the CSFs required for REPs.
In the first study, Maqbool and Sudong [1] have put a

lot of work into the identification process of CSFs for
constructing REPs in Pakistan. Moreover, they have also
identified the significant success factors (SSFs) behind
each critical success factor category. While using a sys-
tematic process, they have investigated the five “impera-
tive” classes of CSFs required for the on-going REPs,
namely communication factors (CF), team factors (TF),
technical factors (Tech.F), organizational factors (OF),
and environmental factors (EF). Moreover, the authors
have succeeded in confirming a linkage of these categor-
ies with project success (PS) by using bivariate correl-
ation analysis (BCA) and multiple linear regression
The second research by Maqbool et al. [4] is an exten-

sion of a previous study conducted by Maqbool and
Sudong [1]. In this research, they have recognized a dir-
ect as well as an indirect linkage of CSFs with project
success (PS). Their results confirm that all the CSFs
groups have a positive and direct linkage to project suc-
cess (PS), whereas the environmental factors (EF) belong
to the only CSFs category, which also indirectly contrib-
utes to project success (PS). This has led the environ-
mental factors (EF) to become the leading critical
success factors (CSFs) category among other CSFs re-
quired in renewable energy projects (REPs).
The third and most important study conducted by

Maqbool [2] has highlighted the influencing mechanisms
of critical success factors onto the short-term success
(efficiency) and long-term success (effectiveness) in re-
newable energy projects (REPs). Structural equation
modeling (SEM) analysis was employed in the research
to examine and prove the hypotheses. The outcome has
demonstrated that although the efficiency (short-term
success) and effectiveness (long-term success) of CSFs

Maqbool et al. Energy, Sustainability and Society (2020) 10:28 Page 3 of 15

are likewise mandatory in constructing renewable energy
projects (REPs), the effectiveness (long-term success) in
such kinds of projects is heavily relying on the efficiency
(short-term success) of the CSFs of such REPs. Table 1
presents the most important reference studies with the
suggested CSFs discussed for the REPs.
Despite the significant contributions of researches

conducted by Maqbool and colleagues [1, 2, 4], none of
their studies is focused on the stakeholders’ satisfaction
of renewable energy projects (REPs). Project completion
is not the real success of such projects, the ultimate pur-
pose is to attain the stakeholders’ satisfaction of REPs.
According to earlier studies, the findings of the literature
are still inconclusive and cannot be generalized regard-
ing the stakeholders’ satisfaction and project success
(PS) of REPs. Thus, there is a need for a comprehensive
analysis of this largely overlooked research area of stake-
holders’ satisfaction and its linkage to CSFs and project
Several important factors need to be incorporated for

determining the accomplishment or disappointment of

developing a renewable energy project aiming at success-
ful completion and efficient operational performance.
Such objectives are the major reason in the identification
process of the CSFs for the REPs and the support in an
efficient circulation of capital. However, according to
Chua et al. [40], CSFs can be recognized based on either
practitioner’s viewpoints or on quantifiable procedures.
Table 1 highlights the critical success factors mentioned
in earlier studies.
Scholars have acknowledged several important factors

to boost project success (PS); these factors are com-
prised of team members, project managers, the external
setting, and the organization itself [41]. Likewise, some
of the other factors include the team capabilities and cli-
ent involvement [42]; administrative backing; project ob-
jectives, and project resources [43]. Table 1 highlights
the CSFs categories identified in earlier studies.
Grounded on an extensive review of the pertinent litera-
ture, five important factor groups were recognized as
CSFs for the development of REPs (1)-Communication
factors (CF), (2)-Team factors (TF), (3)-Technical factors

Table 1 Identification of factors influencing the renewable energy projects (REPs)

Reference Communication
factors (CF)

Team factors (TF) Technical factors (Tech.F) Organizational
factors (OF)

factors (EF)

Zhao and Chen [21] ✓ ✓ ✓ ✓

Kirchhoff et al. [22] ✓ ✓

Maqbool and Sudong [1] ✓ ✓ ✓ ✓ ✓

Maqbool [2] ✓ ✓ ✓ ✓ ✓

Maqbool et al. [4] ✓ ✓ ✓ ✓ ✓

Xu et al. [20] ✓ ✓ ✓ ✓ ✓

Zhao et al. [18] ✓ ✓ ✓ ✓ ✓

Liang et al. [23] ✓ ✓ ✓ ✓

Zhao et al. [24] ✓ ✓ ✓

Dong et al. [25] ✓ ✓

Lin and Moubarak [26] ✓ ✓

Young and Brans [27] ✓ ✓ ✓ ✓

Carlisle et al. [28] ✓ ✓

Zhao et al. [29] ✓ ✓ ✓ ✓

Xavier et al. [30] ✓ ✓ ✓

Ansari et al. [31] ✓ ✓ ✓ ✓ ✓

Pantaleo et al. [32] ✓ ✓ ✓ ✓

He et al. [33] ✓ ✓ ✓

Goh et al. [34] ✓ ✓ ✓

Zhao et al. [35] ✓ ✓ ✓ ✓

Lam et al. [36] ✓ ✓ ✓ ✓

Qi et al. [37] ✓ ✓

Kaldellis et al. [38] ✓ ✓ ✓

Wu et al. [39] ✓ ✓ ✓ ✓

Total 17 11 21 14 24

Maqbool et al. Energy, Sustainability and Society (2020) 10:28 Page 4 of 15

(Tech.F), (4)-Organizational factors (OF), and (5)-Envir-
onmental factors (EF).

Hypothesized model development
The necessary critical success factors for managing REPs
can be divided in a number of ways. There are no limita-
tions with regard to the creativity of names for the CSFs
or of how to group them. After passing through these
steps of a systematic process, the categories of critical
success factors have been identified for REPs (the
complete details are presented in Table 1.
The categories of CSFs used in this study are mostly in

line with the CSFs framework discussed by Maqbool [2],
Maqbool and Sudong [1], and Maqbool et al. [4] for the
quantitative analysis, compared to other possible options
(see Table 1). Firstly, Maqbool’s [2], Maqbool and
Sudong’s [1] and Maqbool’s et al. [4] framework presents
a comprehensive and balanced list of success factors,
which are comprised of communication factors (CF),
team factors (TF), technical factors (Tech.F),
organizational factors (OF), and environmental factors
(EF). Most other categories of factors solely focus on
subsets of critical success factors. Secondly, the compo-
nents in each category of Maqbool’s [2], Maqbool and
Sudong’s [1], and Maqbool’s et al. [4] framework are de-
rived from the results of empirical research. Thirdly, and
most importantly, all of the informants in this study are
project management practitioners in the field of the RE
construction sector, which matches Maqbool’s [2], Maq-
bool and Sudong’s [1], and Maqbool’s et al. [4] research
context. Moreover, this categorization will be easily
understood by the survey respondents, which are the
focus of this study of the categorization of CSFs. It is
easier and more acceptable for respondents to
conceptualize the types of CSFs that correspond to their
industry because they may not be so familiar with the
technical terms of CSFs.
Based upon the foregoing research, it can be con-

cluded that critical success factors perform an impera-
tive role in determining the success of renewable energy
projects (REPs). Nonetheless, minimal empirical research
has been conducted in this area. Maqbool [2], Maqbool
and Sudong [1], and Maqbool et al. [4] attempted to
ascertain the important success factors in the REPs’ con-
text based upon a questionnaire survey from RE industry
experts. These findings have yet to be quantitatively veri-
fied in the contexts of RE stakeholders. Importantly,
most of the listed success factors are context-free and
their suitability for application in different circumstances
is not indicated. Hence, there is a need to refine the
needed CSFs with respect to particular stakeholders with
different RE project characteristics. Accordingly, the fol-
lowing propositions have emerged to be tested in this

H1: Communication factors (CF) are positively related
to the project success (PS).
H2: Team factors (TF) are positively related to the
project success (PS).
H3: Technical factors (Tech.F) are positively related to
the project success (PS).
H4: Organizational factors (OF) are positively related to
the project success (PS).
H5: Environmental factors (EF) are positively related to
the project success (PS).

Stakeholders’ influence in constructing successful
renewable energy projects
In any sort of projects, particularly in renewable energy
projects (REPs), numerous distinct and occasionally di-
verse interests must be contemplated. Representatives of
such interests are referred to as the project stakeholders.
A project stakeholder is a person or group of people
who have a devolved interest in the project output and
the environmental settings among which also the project
wields [44]. In constructing a renewable energy project,
for instance, the activities are largely dependent on mul-
tiple key stakeholders. Understanding all these key
players’ viewpoints can contribute to the conclusion of a
successful project, avoiding undesirable situations [45].
Owed to having major control on project resources by
key stakeholders, the stakeholder theory suggests to for-
mulate and implement those processes, which would
lead to stakeholders’ satisfaction [46], and likewise en-
sure the long-term survival of the project firm [47–49].
Chinese project management practices are widely influ-

enced by “relation/guanxi,” which encourages strong rela-
tionships with key stakeholders of the project [50, 51].
Project managers in China endeavor to please the client
(owner) and contractor by thoroughly developing personal
relation/guanxi. Therefore, it can be said that “relation/
guanxi” is the key indicator of the stakeholders’ satisfac-
tion in any project setting, including REPs. The import-
ance of stakeholders’ satisfaction has also been observed
in the literature of REPs [42, 52–56].
Based upon the aforementioned debate, we hypothesize

that this applied to key stakeholders, so that:

H6: Project stakeholders’ satisfaction (SS) is positively
related to project success (PS).

Critical success factors, stakeholders’ satisfaction, and
project success
Researchers have diverse opinions about the stake-
holders’ role in project management. Some of the au-
thors consider it as one of the CSFs [57–59], however,
others regard it as key determinants for CSFs affecting
project success [60–66]. This study is also an effort to
identify the stakeholders’ satisfaction in the REPs.

Maqbool et al. Energy, Sustainability and Society (2020) 10:28 Page 5 of 15

From a management viewpoint, all CSFs including
stakeholders’ satisfaction are interlinked. For instance,
while considering the value co-creation approach, em-
ployees are obviously at the very essential of the whole
perception, which entitles to be “employee first, customer
second” [[60] , p. 207]. However, particularly in the last
decade, all “stakeholders’ satisfaction” has been identified
as crucial to co-create value in the long term [60, 61].
According to Lester [62], the role of CSFs in project suc-

cess largely depends on stakeholders’ satisfaction. Belassi
and Tukel [63] have also argued that the factors affecting
project success are closely interlinked with each other.
They present four categories of factors affecting project
success, among which the stakeholders’ influence, and that
factor which is interlinked with each other are two of
them. Pisarski and Brook [64] have found that the tech-
nical skills of the project managers are also vital for creat-
ing stakeholder relationships. Clarke [65] has studied the
mega projects, which mostly have a large number of key
stakeholders. Such projects are often organized in matrix
structures, with managers managing multiple project
teams and multiple stakeholders while having multiple
communication channels, handling diverse technical as-
pects of the project, and providing a rich environment for
organizational growth [66].
Based on the aforementioned discussion and the prin-

ciples of stakeholders’ theory, it could be hypothesized
(see Fig. 1) that:

H6a: The effect of communication factors (CF) on
project success (PS) is mediated by stakeholders’
satisfaction (SS).

H6b: The effect of team factors (TF) on project success
(PS) is mediated by stakeholders’ satisfaction (SS).
H6c: The effect of technical factors (Tech.F) on project
success (PS) is mediated by stakeholders’ satisfaction
H6d: The effect of organizational factors (OF) on
project success (PS) is mediated by stakeholders’
satisfaction (SS).
H6e: The effect of environmental factors (EF) on
project success (PS) is mediated by stakeholders’
satisfaction (SS).

The study consists of five stages. In the first stage, from
prior studies, the authors recognize the significant suc-
cess factors (SSFs) that play a vital role in the REPs. The
second stage of the study consists of the classification of
SSFs into the five most relevant CSFs based on their spe-
cific features. The third stage is about the selection of
engineering and the construction organizations operat-
ing with renewable energy projects (REPs). Moreover,
for the desired survey data, information from the survey
respondents is collected. The fourth stage is about two
analyses, bivariate correlation analysis (BCA) and struc-
tural equation modeling (SEM). The BCA is useful to
determine the significant correlation values between the
variables. Similarly, SEM is helpful to understand the
direct and indirect effects of CSFs on the PS. The last
stage of the study examined the outcomes and suggested
valuable recommendations for project management
practices to the REPs development field.

Fig. 1 Conceptual framework

Maqbool et al. Energy, Sustainability and Society (2020) 10:28 Page 6 of 15

Instrument development
In this research, we used five independent variables (CF,
TF, Tech.F, OF, and EF), one dependent variable (PS)
and one mediating variable (SS). All the constructs’
items of CSFs (mediating and independent variables)
were adapted from preceding and pertinent studies. Fur-
ther, the items of PS adopted by Maqbool et al. [15], a
total of 57 items were used in the questionnaire along
with a 5-point Likert scale (5 “strongly agree” and
1“strongly disagree”). Then, a pilot study was performed
to check the reliability and validity of the instrument.
The pilot study respondents suggested some modifica-
tions in the questionnaire. Thus, the questionnaire was
revised according to the recommended feedback from
pilot study respondents. The revised questionnaire was
circulated for the collection of survey responses.

Variables and measures
Communication factors
The items of communication factors are adopted from
Prabhakar [41], Li [67], and Sudhakar [68]. The measure-
ment approach incorporated 7 dimensions; i.e., leadership,
reduced ambiguity, communication, balance flexibility and
rigidity, maximized stability, the relationship between cli-
ent and project leadership, and cooperation. A total of 11
items were used for communication factors with a 5-point
Likert scale (5 “strongly agree” and 1“strongly disagree”).
The Cronbach’s alpha value of communication factors
was 0.887 (see Table 4).

Team factors
The items of team factors are adopted from previous
studies. The measurement approach incorporated six
dimensions; i.e., teamwork, task orientation, team com-
petence, team empowerment, choosing the right project
team, and team commitment [41, 68]. For the measure-
ment of team factors, 8 items were used with a 5-point
Likert scale (5 “strongly agree” and 1“strongly disagree”).
The Cronbach’s alpha value of team factors was 0.829
(see Table 4).

Technical factors
The technical factors used 9 items developed by Prabhakar
[41] and Sudhakar [68]. The technical factors consisted of 8
diverse dimensions. These dimensions include the tasks of
quality testing, troubleshooting, removing legacy systems,
technical implementations, technical tasks, and technology
support, and technical uncertainty. All items were designed
with a 5-point Likert scale (5 “strongly agree” and
1“strongly disagree”). The Cronbach’s alpha of technical
factors was 0.821 (see Table 4).

Organizational factors
The organizational factors used 11 items developed by
Sudhakar [68], which include realistic expectations,
power, personnel recruitment, top management support,
attrition, organizational politics, business process re-
engineering, market intelligence, reduction in cost base,
personnel recruitment, and enhancement in efficiency.
All the items were designed with a five-point Likert scale
(5 “strongly agree” and 1“strongly disagree”). The Cron-
bach’s alpha value of organizational factors (OF) was
0.757 (see Table 4).

Environmental factors
The environmental factors used 9 items developed by
Zhao et al. [18], Sudhakar [68], and Fang and Zeng [69].
This measurement approach incorporated 8 dimensions,
i.e., legal environment, political stability, credit manage-
ment system, policy of paying foreign currencies, con-
tinuity of policies, domestic capital markets and credit
rating, community involvement, and domestic interest
rate. All items were designed with a five-point Likert
scale (5 “strongly agree” and 1“strongly disagree”). The
Cronbach’s alpha value of environmental factors was
0.893 (see Table 4).

Stakeholders’ satisfaction
Stakeholders’ satisfaction was measured by means of
earlier developed and used scales [70–72]. The total of 4
items for measuring the scale was adopted from Mazur
and Pisarski [70], Fisher et al. [71] and Abdel-Halim’s
[72]. The scale was rated on a five-point Likert scale
(1“strongly disagree” and 5 “strongly agree”). The Cron-
bach’s alpha value was found to be 0.889 for SS (see
Table 4).

Project success (PS)
The PS was adopted by Maqbool et al. [15]. A total of 9
items were designed with a five-point Likert Scale (5
“strongly agree” and 1“strongly disagree”). The measure-
ment approach incorporated four dimensions, i.e., bud-
geted cost, scheduled time, stakeholder’s satisfaction,
and desired quality. The Cronbach’s alpha value of pro-
ject success was found to be 0.905 (see Table 4).

Control variables
In this study, the authors considered three control vari-
ables, i.e., age, gender, and education, as these aspects
have been regularly connected with project success and
stakeholders’ satisfaction. The t test and ANOVA were
carried out to measure whether gender, age, and educa-
tion have an influence on project success and stake-
holders’ satisfaction. Thus, the results confirmed that
there is no effect on project success or stakeholders’

Maqbool et al. Energy, Sustainability and Society (2020) 10:28 Page 7 of 15

Target population and survey procedure
The target population of this study was project mem-
bers, including project directors, project managers,
functional managers, and team leaders from different
construction organizations operating with renewable
energy projects (REPs) in different areas of Pakistan.
Survey respondents of current research did not carry
experience of any specific project; instead, they
responded vis-à-vis their own knowledge and experi-
ences of REPs. During instrument designing, a pilot
study was performed. The respondents of the pilot
study were aware of the topic of this research. The
respondents of the pilot study numbered 20 (project
members including project managers and supporting
staff). The authors personally visited construction or-
ganizations and RE project sites. They distributed 450
questionnaires among the targeted population and re-
ceived 277 filled questionnaires, among them 5 were
still incomplete. Thus, the completed sample size of
the research was 272 and the overall response rate
was 60.44%. The details of the demographics of this
study are presented in Table 2.

Results analysis and discussion
Data analysis
We used SPSS-20 for analysis as well as the findings,
respondents’ demographics, reliability, descriptive statis-
tics, and correlations. In addition, particularly for regres-
sion and mediation analysis, we employed structural
equation modeling (SEM), using AMOS-18, to confirm
the hypotheses. In SEM, we employed much from previ-
ous literature of project management to link the solved
management problems of construction projects with
other engineering projects [2, 4].

Data evaluation
Prior to initiating the data analysis phase, the survey re-
sponses were thoroughly examined for outliers, missing
values, normality, and multi-collinearity. No outliers
were detected in the entire data, because all the response
values were found to be within the ranges (as of Q1 −1.5
IQR, Q3 + 1.5 IQR). Tabachnick and Fidell [73] sug-
gested that for the missing data three methods, i.e., “im-
putation, list-wise deletion, and pairwise deletion” might
be used. In this study, we adopted the “imputation”
method to prevent useful data loss. Only 1 or 2 missing
values were observed in the whole survey data. More-
over, the non-normality of data was also tested by using
kurtosis and skewness. Tabachnick and Fidell [73] rec-
ommend that the standard values of normal data distri-
bution are −2 and 2.

Descriptive evaluation
Table 3 shows the descriptive statistics of this study. The
results indicate that PS has a maximum uniformity
among the items (α = 0.902). Thus, it can be run as a
single index—the mean value (M = 4.31, SD = 1.03)
demonstrating that the PS is a significant concern for
the stakeholder. However, PS will be effective if stake-
holders do synergy work as a team with common goals
and develop procedures for mutual problem solving
[74]. Table 3 demonstrates that the values of the inter-
vening variable are within a range of (α = 0.8886, M =
4.19, SD = 1.01) for stakeholders’ satisfaction (SS).
Moreover, Table 3 also indicates that the independent
variables are in acceptable ranges, respectively CF (α =
0.887, M = 4.20, SD = 1.04), TF (α = 0.829, M = 4.025,
SD = 1.16), Tech.F (α = 0.821, M = 3.87, SD = 1.37), OF
(α = 0.757, M = 4.04, SD = 1.02), and EF (α = 0.893, M
= 4.18, SD = 1.067).
Hence, it is observed that the values of all constructs

are found to be higher than the projected standard value
of the reliability scales. Therefore, composites can be
measured by taking an average of the particular scale’s
items. Further, the skewness and kurtosis values are ob-
served to be higher than the projected standard value.
Thus, the data is relatively normal.

Validity of the construct
To assess the validity of all the variables, an exploratory
factor analysis (EFA) was conducted through the princi-
pal components analysis (PCA) technique. Factor ana-
lysis of the consortium of all the constructs was
measured via Varimax rotation. Table 4 indicates that all
variables factor loadings were higher than 0.70 or 0.50
(standard value), i.e., they are significant. The variable
items, which were less than 0.50, were removed from the
final analyses to guarantee the convergent validity of the
scales [75]. In addition, the factors having eigenvalues

Table 2 Respondents’ demographic

Characteristics Category Frequency Percentage

Gender Male 218 80.15%

Female 54 19.85%

Educational background PhD/Master 77 28.31%

Bachelor 132 48.53%

< Bachelor 63 23.16%

Experience > 15 years 133 48.90%

10-15 years 108 39.71%

5-10 years 31 11.39%

Designation Project director 36 13.24%

Project manager 95 34.93%

Functional manager 79 29.04%

Team leader 52 19.12%

Other 10 3.68%

Maqbool et al. Energy, Sustainability and Society (2020) 10:28 Page 8 of 15

higher than 1 were also removed, which were only two
to three. Table 4 shows the results of the factor analysis.
The results represent the factor loadings of PS (8 items)
that are higher than the standard value (0.719 to 0.935).
The factor loading of CF (11 items) is also higher than
the proposed value; only one item was less than the
standard value, which was removed from the final ana-
lyses. Table 4 depicts the value of CF (0.762 to 0.902).
The outcome also indicates the factor loadings of TF (8
items) as higher than the standard value (0.686 to 0.905).
The factor loading of Tech.F (7 items) amounts to 0.491
to 0.897. Only two items were removed because the
value of these items was less than the standard value.
The factor loadings of OF and EF are higher than the
standard value 0.696 to 0.909 and 0.719 to 0.930, re-
spectively. Finally, the factor loadings of the mediating
variable stakeholders’ satisfaction (4 items) are higher
than the proposed standard value of 0.708 to 0.924.

Confirmatory factor analysis
Confirmatory factor analysis (CFA) is a method of infer-
ence collection from the data and is associated with
structural equation modeling (SEM). In this paper, the
model is measured by confirmatory factor analysis
(CFA) using the SPSS statistical software [76]. The
model enhancement was active for improvement appro-
priate to the proposed levels. We exclude some items,
and numerous trails were performed to reach the pro-
posed scale levels. As recommended by Hair et al. [75],
the ideal value for data reliability is more than 0.7. Thus,

all the constructs were measured according to a stand-
ard value. The results indicate that the factor loadings of
all the items were greater than 0.5, which is well in line
with the suggestions of Fornell and Larcker [77], and is
also measured at a 5% significant level (see Table 4).
Moreover, passable convergent validity was confirmed
for all the constructs. Discriminant validity determined
the unique measuring concepts, so all the constructs
were measured compared to the discriminant validity
[75]. Firstly, the outcomes of each group of the variable
were paired with the outcomes of another group. Then,
each model was analyzed twice as suggested by Li and
Cavusgil [78]. The model was analyzed again by per-
forming the correlations between two variables to unity
and a second time by excluding this condition.
In this way, the discriminant validity of the constructs

was measured for the specified data results. Table 5
shows the CFA and final model fitness indicators.
The validity of the dimensions was determined by con-

struct validity [79]. However, the validity of constructs
was measured by employing factor analysis. According
to Malhotra [80], the ideal standard value of KMO
(Kasier Meyer Olkin) is from 0.5 to 1.0. The KMO value
of the data amounted to (0.5 to 1.0) according to the
standard value. Additionally, statistical assessment for
the Bartlett test of sphericity was found significant at p =
0.000 and d.f. = 93 for the correlations of all the vari-
ables as expressed in the correlation matrix, Table 6
[[81] , p. 159]. The outcomes of principal components
analysis (PCA) and varimax rotation analysis confirmed

Table 3 The descriptive statistics

Variable Mean S.D Skewness Kurtosis Cronbach’s α Items

Project success (PS) 4.3142 1.03563 0.181 1.029 0.905 5

Stakeholders’ satisfaction (SS) 4.1942 1.01264 −0.224 0.302 0.886 4

Communication factors (CF) 4.2037 1.04341 −0.265 −0.178 0.887 11

Team factors (TF) 4.0256 1.16541 −0.149 −0.527 0.829 8

Technical factors (Tech.F) 3.8742 1.36624 −0.055 −0.730 0.821 9

Organizational factors (OF) 4.0436 1.02517 −0.249 0.376 0.757 11

Environmental factors (EF) 4.1837 1.06716 −0.212 0.359 0.893 9

Table 4 Findings of factor analysis

Factor Items Factor loading % of variance explained Eigenvalue

Project success (PS) 5 0.719-0.935 79.14 6.41

Stakeholders’ satisfaction (SS) 4 0.708-0.924 77.60 5.67

Communication factors (CF) 11 0.762-0.902 84.45 5.35

Team factors (TF) 8 0.686-0.905 72.40 4.51

Technical factors (Tech.F) 9 0.591-0.897 67.76 3.94

Organizational factors (OF) 11 0.696-0.909 73.17 3.70

Environmental factors (EF) 9 0.719-0.930 75.04 4.58

Maqbool et al. Energy, Sustainability and Society (2020) 10:28 Page 9 of 15

the eigenvalues of all the study constructs to be higher
than a level of 1. The factor loadings of the study con-
structs are higher than 0.50. Each specific measuring
construct was loaded collectively, and the outcomes spe-
cify that the factor loading was above a 0.5 level. Thus,
the findings show that the convergent validity is higher
in the examined measurement scales. Moreover, the re-
sults confirmed a discriminant validity, where the items
were not cross loading and rather slightly supported the
particular constructs, because all the items were allotted
according to the diverse constructs. The results of R-
square and average variance extracted (AVE) are
highlighted in Table 6.

Correlation analysis
Table 7 shows the bivariate correlations among the
independent, mediating, and dependent variables. All
variables are significant (p < 0.05) and correlated with
each other except correlations between Tech.F and
CF (γ = 0.094, p > 0.05). Therefore, no problem ap-
peared in the correlation among the independent, me-
diating, and dependent variables.

Hypothesis testing and discussion
At the time of data analysis, there was not any kind of a
multi-co-linearity problem in the variables. It was noticed
that the maximum co-relations existed between CF and
PS. The correlation value between CF and PS was 0.552.
All the factors were significantly and positively correlated
with each other, except Tech.F and CF. In this study, we
investigated the relationship between CF, Tech.F, EF, TF,
and stakeholders’ satisfaction (SS) and their collective im-
pact on the project success. Moreover, stakeholders’ satis-
faction (SS) mediates between the abovementioned five

factors and the project success. Prior literature advocates
that there is a significant and positive linkage between
productive communication and strengthening in technical
capabilities, steady usage of an organizational factor, and
an external setting of the organization [82–84]. The find-
ings highlight that the outcomes of the structural equation
modeling confirmed by the direct relationship that all hy-
potheses are significant with the PS. Table 8 demonstrates
that the hypotheses H1, H2, H3, H4, and H5 are sup-
ported. Jugdev and Mathur [85] explain in their study that
communication is the main reason for the successful com-
pletion of any project. Thus, this study is a fine contribu-
tion in the context of the construction project industry in
Pakistan. Some prior studies confirm that PS is transferred
at the international level through technical, organizational,
environmental, and team factors [86–89]. This study
could be beneficial for Pakistani renewable energy projects
(REPs) if one employs these five factors in the construc-
tion organization. Moreover, during the realization of re-
newable energy projects (REPs) were these five factors to
be considered as a stockholder, the performance of con-
struction organizations would improve. The path analysis
and final SEM of the interrelationship framework is pre-
sented in Fig. 2. Path analysis is a good way to present the
pictorial view of the hypothesized relationships among the
The SS mediates association among CSFs and PS, as

shown in Table 7, hence hypotheses 6a, 6b, 6c, 6d, and 6e
were supported. After the addition of the mediation effect,
the direct relation between CSFs and PS was significantly
reduced, however, still over 0, which indicates the role of
partial mediation. The outcome confirms that through
mediation (SS), the CSFs increase the PS. Hence, stake-
holders’ satisfaction of the renewable project improves the
PS. The organizations occupied with renewable energy
projects (REPs) should apply emphasis on the SS because
the SS plays a vital role in the completion of the projects.
The findings of this study recommend that stakeholders’
satisfaction does in fact reduce the time and cost of a pro-
ject as well as increase the product quality of the project.
All in all, such factors enhance the project success. The
reason behind failed projects is poor stakeholders’ satisfac-
tion. Thus, we might conclude that if renewable energy
projects (REPs) want to achieve the long-term benefits of
the organization, then these organizations should focus on
the short-term gains. Short-term gains are generally re-
lated to winning the confidence of key stakeholders, so
that it might become a continuous relationship in the
form of mutual successful future renewable energy pro-
jects (REPs) as a long-term gain for project organization.
Table 8 indicates the regression weights of structural
equation modeling.
Holland and Light [90] and Shenhar et al. [91] argue

in their study that CF enhances the success of the

Table 5 CFA and the final model GOF indicators


CFA model 2.73 0.00 0.97 0.93 0.83 0.095

Final model 2.69 0.00 0.98 0.94 0.91 0.0092

Threshold 1.00 to 3.00 ≥ 0.9 ≥ 0.9 ≥ 0.9 ≥ 0.9 ≤ 0.1

Table 6 Results of R2 and average variance extracted (AVE)

Factor R-square AVE

Project success (PS) 0.924 0.761

Stakeholders’ satisfaction (SS) 0.784 0.686

Communication factors (CF) 0.875 0.462

Team factors (TF) 0.932 0.756

Technical factors (Tech.F) 0.794 0.590

Organizational factors (OF) 0.816 0.621

Environmental factors (EF) 0.911 0.719

Maqbool et al. Energy, Sustainability and Society (2020) 10:28 Page 10 of 15

Table 7 Correlation analysis
Variable Correlation

1 2 3 4 5 6 7

1 Project success (PS) 1

2 Stakeholders’ satisfaction (SS) 0.472** 1

3 Communication factors (CF) 0.552** 0.405** 1

4 Team factors (TF) 0.517** 0.374** 0.365** 1

5 Technical factors (Tech.F) 0.226** 0.242** 0.094 0.156* 1

6 Organizational factors (OF) 0.242* 0.234** 0.196* 0.274** 0.214** 1

7 Environmental factors (EF) 0.398* 0.356* 0.366** 0.418** 0.316** 0.425** 1

**Correlation at ≤ 0.01 level
*Correlation at ≤ 0.05 level

Table 8 Regression weights

Hypothesis Estimate S.E. C.R. P

Hypothesis 1

Project Success (PS) < — Communication-Factors (CF) 0.198 0.046 4.657 ***

Hypothesis 2

Project Success (PS) < — Team-Factors (TF) 1.069 0.147 7.491 ***

Hypothesis 3

Project Success (PS) < — Technical-Factors (Tech.F) 0.136 0.046 2.725 ***

Hypothesis 4

Project Success (PS) < — Organizational-Factors (OF) 0.171 0.049 3.684 ***

Hypothesis 5

Project Success (PS) < — Environmental-Factors (EF) 0.514 0.086 5.871 ***

Hypothesis 6

Project Success (PS) < — Stakeholders’-Satisfaction (SS) 0.506 0.064 3.424 ***

Hypothesis 6a

Stakeholders’ Satisfaction (SS) < —Communication-Factors (CF) 0.360 0.032 0.827 ***

Project Success (PS) < — Communication-Factors (CF) 0.119 0.024 4.028 ***

Project Success (PS) < — Stakeholders’-Satisfaction (SS) 0.462 0.068 5.016 ***

Hypothesis 6b

Stakeholders’ Satisfaction (SS) < — Team-Factors (TF) 0.890 0.076 10.124 ***

Project Success (PS) < — Team-Factors (TF) 0.324 0.025 0.643 ***

Project Success (PS) < — Stakeholders’-Satisfaction (SS) 0.363 0.082 0.864 ***

Hypothesis 6c

Stakeholders’ Satisfaction (SS) < — Technical-Factors (Tech.F) 0.828 0.060 10.022 ***

Project Success (PS) < — Technical-Factors (Tech.F) 0.168 0.014 1.629 ***

Project Success (PS) < — Stakeholders’-Satisfaction (SS) 0.094 0.025 0.746 ***

Hypothesis 6d

Stakeholders’ Satisfaction (SS) < — Organizational-Factors (OF) 0.768 0.068 9.604 ***

Project Success (PS) < — Organizational-Factors (OF) 0.078 0.026 0.632 ***

Project Success (PS) < — Stakeholders’-Satisfaction (SS) 0.168 0.020 3.152 ***

Hypothesis 6e

Stakeholders’ Satisfaction (SS) < — Environmental-Factors (EF) 0.794 0.060 10.132 ***

Project Success (PS) < — Environmental-Factors (EF) 0.070 0.023 0.689 ***

Project Success (PS) < — Stakeholders’-Satisfaction (SS) 0.149 0.015 3.158 ***

Maqbool et al. Energy, Sustainability and Society (2020) 10:28 Page 11 of 15

projects. In the current research, the relationship be-
tween CF and PS of the construction industry of
Pakistan was tested. The results confirm that in the con-
text of Pakistan the above relationship is correct. Like-
wise, internal and external settings of the construction
firms derived as a key factor for the completion of the
ultimate outcome and the process of project manage-
ment. Similarly, Wüste and Schmuck [92] and Rajkumar
[93] claimed that the EF effected the PS. The outcomes
are exceptional in the setting of Pakistan due to the
organizational culture of the results, which is unique
[94]. The failing percentage of renewable energy projects
(REPs) on an international scale is shocking, and the
findings of the current study would support the policy-
makers in framing constructive plans aimed at attaining
maximum stakeholders’ satisfaction.
This research was initiated by asking the important

question that, in spite of the tremendous progress in
project management, very little is known about the influ-
ential connection between CSFs and REPs in encircling
PS at a level that satisfies all the major partners. The pri-
mary objective of this research was to recognize CSFs,
and introduce and approve a framework grounded on
hypothetical ideas that openly instigates the interpret-
ation of project stakeholders’ aims in order to act aggres-
sively for a high performing renewable energy (RE)
project, while simultaneously assessing the apparent suc-
cess level and acceptance in well-defined stakeholders’
satisfaction (SS) contexts. However, through the SEM, a
positive and significant connection was found between
CSFs and PS of REPs. Moreover, the mediating role of
SS was also confirmed among the five categories of CSFs
(CF, TF, Tech.F, OF, and EF) and PS. The findings of

this study also supported the theoretical conceptualized
proposed model that explains the relationship between
the five CSFs and PS in renewable energy projects
(REPs). Similarly, it was observed that EF is the major
CSFs in determining the REPs. Moreover, the framework
of this study indicated that the idea of project success is
developed on the basis of CSFs, which is a novel and ori-
ginal contribution in the context of REPs. Finally, this
research is a pioneer study that applies the impact of
CSFs on the stakeholders’ satisfaction in renewable en-
ergy projects (REPs). Therefore, this study will be pro-
ductive for construction projects in the renewable
energy industry.
The outcomes of the current research report allowed

for providing a solid comprehension toward a distin-
guishing proof of critical success factors (CSFs) and their
relationship with the achievement of the REPs. The
study makes some mandatory contributions. It (1) distin-
guishes the significant success factors (SSFs) for REPs
extends in pertinent literature; (2) classes the SSFs into
five CSFs clusters; i.e., communication factors (CF), team
factors (TF), technical factors (Tech.F), organizational
factors (OF), and environmental factors (EF); (3) affirms
a comprehensive framework that envelops the pertinent
CSFs to cultivate project achievement in the form of
stakeholders’ satisfaction (SS), noticed as the first time
in the literature of sustainable power source projects; (4)
initiates the discourse and directs the route to the re-
elucidation of project success (PS) in the pertinent litera-
ture, as indicated by projects operational performance.
Success, not exclusively to the activities yet to the associ-
ation taking a shot at sustainable power source projects
itself can be build up on the CSFs for those who are

Fig. 2 Final SEM of interrelationship framework—path analysis

Maqbool et al. Energy, Sustainability and Society (2020) 10:28 Page 12 of 15

required to predict the intended outcomes in renewable
energy investments.

In this study, our results support the linkages among
CSFs and project success (PS). The empirical findings of
the current research indicated that CSFs are those fac-
tors that increase the success of the REPs. Moreover,
stakeholders’ satisfaction (SS) as a mediating variable
plays a vital role in boosting the actual success of the
project in the RE industry. This study advances the de-
bate on numerous success factors and identifies five sig-
nificant CSFs, i.e., communication factor (CF), team
factors (TF), technical factors (Tech.F), organizational
factors (OF), and environmental factors (EF). These five
factors had been identified on the basis of some current
and prior studies, as well as the survey interview with
project specialists, i.e., project directors, project man-
agers, and project team leaders of REPs. Moreover, on
the basis of previous studies, the authors clearly identi-
fied stakeholders’ satisfaction (SS) as a mediating vari-
able in this study. The model and theoretical concept of
this study showed that the CSFs had affected the project
success (PS) by using stakeholders’ satisfaction (SS) as a
mediating variable, which is a novel contribution in the
context of renewable energy projects (REPs). This is the
first and only research, which applies the impact of CSFs
on stakeholders’ satisfaction (SS) and project success in
Our results confirmed the theoretical prediction that

CSFs have a positive and significant effect on the success
of REPs. The literature on CSFs was adequately used to
demonstrate how construction organizations can effi-
ciently use CSFs to increase project success (PS). More-
over, the proposed hypotheses have also confirmed that
CSFs have a significant association with the success of
REPs, and stakeholders’ satisfaction (SS) mediates in the
relationship between CSFs and project success (PS).
Thus, the CSFs were found to be dynamical for project
success (PS), where stakeholders’ satisfaction (SS) being
a significant component to create the connection among
critical success factors (CSFs) and project success (PS).
It was clearly shown that project success (PS) in renew-
able energy projects (REPs) can only be achieved
through project stakeholders’ satisfaction (SS). These
empirical findings have useful implications for academi-
cians and practitioners. This research will help project-
oriented organizations in weighing the CSFs from differ-
ent perspectives that have not yet been discussed. In the
future, such kinds of research should be cautiously car-
ried out at an international level and be applied to en-
sure performance in other relevant sustainable projects
besides renewable energy projects (REPs). Likewise, the
current study is based upon the project team members’

perceptions with regard to the given success factors. A
future research with an experimental technique should
be encouraged for comparing its results with the results
of the current work to better understand the CSFs in

CSFs: Critical success factors; SSFs: Significant success factors; RE: Renewable
energy; REPs: Renewable energy projects; SS: Stakeholders’ satisfaction;
PS: Project success; CF: Communication factors; TF: Team factors;
Tech.F: Technical factors; OF: Organizational factors; EF: Environmental
factors; SEM: Structural equation modeling

This study was supported by a grant from the National Natural Science
Foundation of China (No.: 71872094). The writers would like to thank the
support of the Foundation. The authors also appreciate financial support
from the deanship of scientific research, Prince Sattam bin Abdulaziz
University, Al-Khaarj, Saudi Arabia.

Authors’ contributions
The authors read and approved the final manuscript.

National Natural Science Foundation of China (No.: 71872094).

Availability of data and materials
The data generated or analyzed during the study are available from the
corresponding author on reasonable request.

Ethics approval and consent to participate
Ethics approval is not applicable in the study.

Consent for publication
The survey respondents of the study have given their consent for the data
to be used and published in this scientific article.

Competing interests
The authors declare that they have no competing interests.

Received: 4 January 2018 Accepted: 28 June 2020

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  • Abstract
  • Background
    • Potential and progress of ongoing renewable energy projects (REPs) in Pakistan
    • Critical success factors in constructing renewable energy projects
    • Hypothesized model development
    • Stakeholders’ influence in constructing successful renewable energy projects
    • Critical success factors, stakeholders’ satisfaction, and project success
  • Methods
    • Instrument development
    • Variables and measures
      • Communication factors
      • Team factors
      • Technical factors
      • Organizational factors
      • Environmental factors
      • Stakeholders’ satisfaction
      • Project success (PS)
      • Control variables
    • Target population and survey procedure
  • Results analysis and discussion
    • Data analysis
    • Data evaluation
    • Descriptive evaluation
    • Validity of the construct
    • Confirmatory factor analysis
    • Correlation analysis
    • Hypothesis testing and discussion
  • Conclusions
  • Abbreviations
  • Acknowledgements
  • Authors’ contributions
  • Funding
  • Availability of data and materials
  • Ethics approval and consent to participate
  • Consent for publication
  • Competing interests
  • References
  • Publisher’s Note

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