SUMMARY
Why do some firms profit through crises while others falter, even when facing similar disruptions? Our research on United States (U.S.) firms during COVID-19, published in the Journal of Management Studies, shows that performance depends on how firms align their stakeholder strategy with their financial and operational resources and the degree of their exposure to the crisis. Findings suggest that there is no single best practice, but a smart fit among these conditions that helps firms weather the crisis.
Why Do Some Companies Thrive During a Crisis While Others Struggle?
When a major crisis hits, whether a pandemic, a geopolitical shock, or a sudden market collapse, leaders are flooded with advice. Engage more stakeholders, conserve cash, diversify risk, and move fast. However, companies that followed the same advice often experienced very different outcomes. Some remained resilient or even outperformed, while others struggled, despite facing similar disruptions. Why?
Our research, published in the Journal of Management Studies and based on more than 2,700 publicly listed U.S. firms during the early weeks of the COVID-19 pandemic, points to a clear answer: there is no single best practice in a crisis. What matters instead is strategic fit. More specifically, we identify the importance of how well a company’s stakeholder strategy aligns with its financial flexibility, operational structure, and level of exposure to the shock. In short, companies don’t succeed in crises by doing more of everything. They succeed by doing what fits.
The Myth of the One-Size-Fits-All Stakeholder Strategy amid Crisis
In a crisis, managers often feel forced to choose between two extremes. One option is to narrow their focus, concentrating resources on the most critical stakeholders to preserve cash and simplify decision-making. The other is to broaden engagement, reaching out to employees, customers, suppliers, and communities to build trust and goodwill. Both have their advantages, but neither works universally.
Our research shows that the effectiveness of a stakeholder strategy depends on how well it fits with a company’s financial flexibility and how directly the crisis affects its operations. In other words, stakeholder engagement isn’t a magic bullet. It doesn’t automatically improve performance just by doing more of it, nor is it always better to cast a wider net. Instead, stakeholder strategy is one piece of a larger puzzle. Companies perform well in a crisis not because they pick the ‘right’ strategy, but because their strategy aligns with their resources, business structure, and the specific challenges they face. For example, First Bancorp Inc. achieved superior performance during the onset of the COVID-19 pandemic despite having low financial slack. Facing high crisis exposure, it succeeded by adopting an encompassing approach that leveraged strong relationships with customers, employees, and the community. In contrast, Enzo Biochem Inc. achieved high performance under low crisis exposure by taking a minimalist approach, focusing primarily on customers, which was effective because the firm possessed substantial cash reserves to buffer against uncertainty.
When the Crisis Hits
For firms directly in the path of a crisis—think retail storefronts, freight companies, or beauty services—financial slack alone is often not enough. Companies in these situations benefited when they had already built broad, trust-based relationships with stakeholders. This is because strong ties with employees, customers, and local communities often translate into unexpected support when operations are under severe strain. Loyal customers showed patience or actively supported firms. Employees accepted temporary sacrifices. Communities rallied behind firms they trusted.
That said, firms with substantial financial flexibility could sometimes afford a more focused approach, relying on cash to buy time and adapt. The key lesson is not that broad engagement is always superior, but that either trust or cash can buffer a severe shock. Yet these benefits arise only if the strategy aligns with the firm’s strengths before the crisis begins.
However, not every firm faced existential threats during COVID-19. Companies in relatively stable sectors, such as cloud services or home improvement, often remained operational, even as uncertainty rose. For these firms, trying to engage every stakeholder group broadly was often counterproductive. Leadership attention became diluted, and decision-making slowed. The more effective approach was focused engagement. We found that prioritizing the relationships that mattered most in the moment (e.g., customers, employees) while keeping broader outreach lean. If your operations remain stable during a crisis, motion is not the same as progress. Financial slack is most valuable when it supports clarity, speed, and selective investment, not when it fuels unfocused activity.
Why Diversification Isn’t the Safety Net You Think It Is
Diversification is commonly viewed as a safety net. The held idea is to spread operations across markets or business lines, and risk will average out. But in a systemic crisis like COVID-19, where shocks hit many regions and sectors simultaneously, diversification often increased complexity rather than resilience.
Managing multiple regulatory regimes, lockdown policies, and stakeholder expectations simultaneously slowed responses and strained leadership capacity. In contrast, more focused firms with clear stakeholder priorities were often able to pivot faster. The implication is not that diversification is inherently bad, but that in systemic crises, alignment matters more than reach. Complexity without coordination can become a liability.
What Managers Should Take Away
Ultimately, there’s no universal playbook for thriving in a crisis. Our research shows that success doesn’t hinge on any single factor, such as stakeholder strategy, financial slack, or diversification, but on how well these elements align with a company’s specific situation. Just as broad stakeholder engagement can be a lifeline when disruption is severe, focused engagement works better when exposure is limited and financial flexibility is strong. Diversification, often seen as a safety net, offers less protection when shocks hit everywhere at once. Consider two homeowners facing a storm. One lives in an older, vulnerable house (high exposure) and survives because they spent years building deep trust with neighbors who rush in to help. The other lives in a modern, fortified home (low exposure) and prioritized an emergency savings fund (financial slack). For them, success comes not from rallying the neighborhood, but from efficiently using their own stockpiles and backup generators to wait it out.
For leaders, this means crisis preparation should start with clarity. Rather than imitating peers, ask: How exposed are we likely to be? What resources can we count on? And which relationships are truly mission-critical when things go sideways? The goal isn’t to do everything; instead, it’s to do what fits. Alignment, not abundance, is what makes companies resilient when the unexpected hits.
