A lesbian, gay, bisexual, and transgender workplace equality policy (LGBT-WEP) helps signal and reinforce the organizational commitment to workplace equality and diversity. Prior evidence suggests that LGBT-WEP is viewed favorably by stakeholders (customers, employees, and channel partners) and influences firm performance. Drawing on stakeholder theory and the resource-based view of the firm, the authors examine whether LGBT-WEP influences customer satisfaction through marketing capability and whether demand instability dampens these associations. To alleviate endogeneity concerns of LGBT-WEP, they exploit the plausibly exogenous state-to-state variations in workplace equality policies determined by statewide laws on nondiscrimination based on sexual orientation. Empirical results indicate that LGBT-WEP positively influences customer satisfaction both directly and through enhanced marketing capability. Demand instability, however, dampens these associations. Additional analyses with alternate measures of key variables, alternate distributional assumption, and alternate model specifications yield consistent results.
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