Organizational rationality, performance, and social responsibility: results from the hospital industry

Drawing on stakeholder theory and Weber's distinction between formal and substantive rationality, we posit that: (1) for-profit organizations manage stakeholders in ways that result in the organization being more efficient and less socially responsible than organizations that are not as profit oriented, and (2) organizations with major corporate relationships that are not local manage stakeholders in a manner that results in the organization being more efficient and less socially responsible than organizations without such arrangements. We test these hypotheses with 1994 data on 4,705 of the nation's short-term general hospitals using two measures of hospital efficiency and four measures of social responsibility. Results confirm that for-profit hospitals and hospitals lacking local ties are managing stakeholder relationships in ways that increases the efficiency of these hospitals but decreases their social responsiveness. We conclude by speculating that organizational efficiency and social responsibility may be inversely related and then summarize some of the academic, managerial, and policy implications, with emphasis on the implications for stakeholder theory.