J Management Studies - 2012 - Scherer - Managing Legitimacy in Complex and Heterogeneous Environments Sustainable

Managing Legitimacy in Complex and Heterogeneous Environments

Authors

• Andreas Georg Scherer, University of Zurich

• Guido Palazzo, University of Lausanne

• David Seidl, University of Zurich

Abstract

• Sustainability challenges regarding the production, distribution, and consumption of goods undermine corporate legitimacy.

• Corporations commonly respond to legitimacy problems through three strategies:

  • Adapt to external expectations.

  • Manipulate stakeholder perceptions.

  • Engage in dialogue with legitimacy challengers.

• Three approaches to select response strategies are discussed:

  • One-best-way approach.

  • Contingency approach.

  • Paradox approach.

• The paradox approach is argued to be superior in maintaining legitimacy amid conflicting demands.

• A framework for responding to sustainability challenges through structural, contextual, or reflective means is presented.

Keywords

• Corporate legitimacy, Corporate responsibility, Globalization, Institutional theory, Paradox, Sustainability

Introduction

Sustainable Development (SD)

• Defined by the UN's World Commission on Economic Development (1987) as:

  • 'Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.'

• Based on three principles:

  • Environmental Integrity.

  • Social Equity.

  • Economic Prosperity.

Legitimacy Challenges

• Globalization exacerbates issues like:

  • Climate change

  • Pollution

  • Water scarcity

  • Biodiversity loss

• Lowered legitimacy of businesses noted historically (Porter and Kramer, 2011).

Shifting Power Dynamics

• Decline of nation-state regulatory power.

• Shift from state to private and civil society actors in defining public standards (Chandler and Mazlish, 2005).

Challenges in Maintaining Legitimacy

• Isomorphic adaptation and perception manipulation becoming less effective in addressing legitimacy.

• Complexities result from a fragmented regulatory environment and diverse societal expectations (Kobrin, 2009).

Major Assumptions Challenged

1. Legitimacy as a singular perception versus multiple, conflicting perceptions based on various SD issues.

2. The belief that corporations must choose one legitimacy strategy over the others is contested.

Corporate Engagement with Legitimacy Strategies

Corporate Strategies for Legitimacy

• Isomorphic Adaptation: Aligning practices with societal expectations.

• Strategic Manipulation: Influencing stakeholder perceptions to maintain legitimacy.

• Moral Reasoning: Engaging in open discussions with stakeholders to reach consensus.

Factors Influencing Strategy Choice

• Cost of Organizational Change: Costs associated with altering structures or practices.

• Heterogeneity of Environmental Demands: Multiple, potentially conflicting expectations.

Paradox Approach Advantages

• Offers flexibility by allowing simultaneous use of all three legitimacy strategies tailored to specific issues.

• Requires organizations to handle contradictions inherent in applying different strategies.

Framework for Managing Legitimacy in Complex Environments

• Legitimacy is linked to social acceptance and contingent upon societal perceptions.

• Three distinct legitimacy strategies:

  • Isomorphic Adaptation: Corporations change to align with societal expectations.

  • Strategic Manipulation: Corporations manipulate perceptions to influence stakeholder approval.

  • Moral Reasoning: Engage in discourse to derive mutually acceptable solutions.

Conditions Impacting Corporate Legitimacy

• Corporations operate in environments influenced by:

  • Legal standards.

  • Institutional pressures.

  • Public expectations.

Empirical Illustrations of Legitimacy Strategies in Practice

1. Chiquita Brands International: Experience with strategic manipulation amidst environmental criticism.

2. Nike: Publication of supplier names reflects proactive adaptation to emerging standards.

3. Wal-Mart: Shifted from manipulation to moral reasoning following widespread criticism.

4. Puma: Application of multiple legitimacy strategies to manage stakeholder expectations and conflicts.

Conclusion

• Corporations must engage with sustainability to enhance legitimacy.

• Emphasizing a paradox approach provides a framework for navigating complex legitimacy challenges in a rapidly changing global landscape.

Contributions to Literature

• Provides a systematic framework for understanding corporate legitimacy in relation to sustainable development.

• Highlights the need for organizations to develop capabilities for managing conflicting legitimacy strategies simultaneously.