The Cost of Values: The Moral Legitimacy and Performance Challenges of Hybrid Organizations

Organizations combining a market logic with a social welfare logic – hybrid organizations – attract growing scholarly attention. While they pursue intrinsically moral goals, their moral legitimacy is rarely questioned – provided they avoid mission drift. Yet, the moral market literature suggests that the market logic is often seen as incompatible with goods or goals imbued with moral meanings. This suggests that hybrids may face more moral concerns than previously thought. In this paper, we examine when and why hybrids face moral legitimacy challenges from consumers, and how this affects their financial performance. We argue the combination of market and social welfare logics is in and by itself a source of moral concerns, which intensifies when consumers encounter cues suggesting that social welfare values are compromised by market considerations. As exposure to such cues increases, consumers are more likely to downgrade their moral legitimacy judgments, resulting in lower demand and weaker financial performance for hybrid organizations. We also examine three factors influencing audiences' reactions to such cues: the dilution of their attention by more positive cues, their propensity to generalize across similar organizations, and their moral assessment criteria determined by their own logics. Our findings shed light on how external audiences perceive hybrid organizations and the implications for their financial viability – a key condition for fulfilling their social or environmental missions.