When Stakeholder Representation Leads to Faultlines. A Study of Board Service Performance in Social Enterprises

Abstract

Following the growing interest in sustainability and ethics, organizations are increasingly attentive to accountability toward stakeholders. Stakeholder representation, obtained by appointing board members representing different stakeholder groups, is suggested to be a good ethical practice. However, such representation may also have nefarious implications for board functioning. Particularly, it may result in strong faultline emergence, subsequently mitigating board performance. Our study aims at understanding the process through which faultlines affect board performance, and particularly the board service role through which the board is involved in providing counsel and strategic decision-making. We study the relationship between faultlines and board service performance in the particularly relevant context of social enterprises. We find that faultline strength is negatively related to board service performance and that this relationship is mediated by board task conflict. Furthermore, our study reveals the importance of clear and shared organizational goals in attenuating the negative effects of faultlines.

Balancing a Hybrid Business Model: The Search for Equilibrium at Cafédirect

“…Active management of partners and governance systems can, therefore, be seen to open up possibilities to new ways of working, which help to promote both commercial and societal value capture. This further supports the work of Crucke and Knockaert (2016) who warned of the dangers of fault lines occurring in complex governance structures which were not aligned to the hybrid mission.…”

“…However, social enterprises have a challenge in establishing their legitimacy with different stakeholders (Kraatz and Block 2008;Zuckerman 1999). Crucke and Knockaert (2016) in their study of WISEs in Belgium found that boards that appoint representatives from different stakeholder groups have been found to encounter fault lines between the interests of different subgroups. This may render the social enterprise hybrid slow to respond to opportunities or threats and impact on commercial, social, and environmental goal achievements.…”

Board Advisory Tasks: The Importance to Differentiate between Functional and Firm‐Specific Advice

“…() do. However, looking at different diversity dimensions individually also often does not capture the inherent complexity and ignores for instance the underlying faultlines (Lau and Murnighan, ; Crucke and Knockaert, ) and their activation (Veltrop et al ., ). A multi‐level approach therefore is encouraged to address previous shortcomings on the topic (Nielsen, ).…”

“…Future research may examine more specifically the various dimensions of the complex concept of diversity (Hillman, 2015), as for instance Torchia et al (2015) do. However, looking at different diversity dimensions individually also often does not capture the inherent complexity and ignores for instance the underlying faultlines (Lau and Murnighan, 2005;Crucke and Knockaert, 2016) and their activation (Veltrop et al, 2015b). A multi-level approach therefore is encouraged to address previous shortcomings on the topic (Nielsen, 2010).…”

Entrepreneurship as a Platform for Pursuing Multiple Goals: A Special Issue on Sustainability, Ethics, and Entrepreneurship

“…Another fruitful area for research would not be so much in the longitudinal dynamics just discussed, but in the cross-level ones. As the articles on distributed entrepreneurship (Akemu et al, 2016) and on stakeholders (Crucke and Knockaert, 2016;Waldron et al, 2016) showed, researchers need to take an inside-out-outside-in perspective on SEE enterprises. It is important to further examine the lineages between resources, legitimacy, reputation, and fitting uncertain environments.…”