Part I: COVER ESSAY
2 Theoretical Foundation
2.5 Legitimacy in Organisational Institutionalism
Today’s market pushes companies to adopt social and environmental responsibilities within their strategies and management systems (Peng et al., 2019; Werbach, 2009). This pushes large established companies to develop their own activities in a more sustainable way, or to develop new sustainable activities and enter new markets. Therefore, it is important for large established companies undergoing complex transformation to build their own legitimacy when introducing new technologies (Deephouse & Suchman, 2008; Galaskiewicz, 1985; Hargadon & Douglas, 2001).
Established companies need resources and experiences from both internal and external stakeholders to create an initial base of legitimacy (Bitektine, 2011; Tolbert & Zucker, 1983;
Zimmerman & Zeitz, 2002). However, securing legitimacy from internal stakeholders is essential during organisational change in order to address external concerns, increase wider public image and align organisational identity within the desired future image (Bridwell-Mitchell & Mezias, 2012; Clark et al., 2010; Gioia et al., 2000). In addition, the ability to achieve stakeholders’ judgment of appropriateness is considered essential to the survival success of companies (Guerreiro, 2015; Lamin & Zaheer, 2012; Petkova, 2016). Furthermore, stakeholders’ engagement is identified as an essential factor in implementing companies’
sustainability visions (Hillman & Keim, 2001; Stubbs & Cocklin, 2008). This entails that both structural (organisation structure, policies and processes) and cultural (norms, values and attitudes) factors affect the success of stakeholder engagement (Stubbs & Cocklin, 2008).
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However, legitimacy involves a process of ‘justification’, by which a company strives to justify itself to its actors or to the society at large (Maurer, 1971). Legitimacy theory also helps provide explanations for a company’s existence and functioning (Meyer & Scott, 1983). According to this, legitimacy helps us understand the internal selection environment in companies undergoing a change.
In addition, in order to achieve a sustainable change, a company must experience some institutional changes such as new rules, regulations, strategy, in addition to change stakeholders’ behaviours. This is why legitimacy theory is used in this thesis. However, as noted earlier, this thesis focuses mainly on internal legitimacy which is the focus of this thesis, because an established company is responsible, internally, for shaping its strategic action, introducing its new sustainable technologies and framing their identity (Drori & Honig, 2013;
Li & Tang, 2010). Consequently, internal legitimacy refers to how people direct the actions that would be beneficial for their companies (Drori & Honig, 2013).
However, in order to understand how legitimacy theory has been emerged in organisational theory, let us first define the terms ‘institutionalisation’ and ‘new institutionalism’. On one hand, Selznick (1992) defines institutionalisation as ‘the emergence of orderly, stable, social integrating patterns out of unstable, loosely organised, or narrowly technical activities’. Thus, organisations are considered stable and integrated when they have a commitment to the society (Scott, 2014). On the other hand, new institutionalism has developed a sociological view of institutions in order to explain why and how an institution emerges in a certain way, by enhancing institutional economics with political outcomes (Powell & Dimaggio, 1991). Thus, the transformation from an organisation into an institution can be achieved through creating formal structures and rules (called regulatory) that aim to solve an environmental social problem (Selznick, 1992) in addition to the individuals who are committed to adapt to the new changes in the organisation (called normatory) (Selznick, 1992). In addition, researchers such as Scott (1995b, 2014) has made a crucial contribution in adapting new institutionalism by adding a shared belief system in institutionalisation (called cognitive).
This shows that legitimacy theory is a central concept in organisational institutionalism, however, research on legitimacy theory evolved slowly in social science (Deephouse &
Suchman, 2008). The concept of legitimacy allows researchers to understand how organisations survive, how they behave and understand the relationship between organizational performance and organisational behaviour (Yüncü, 2020). The term legitimacy has been introduced into sociological theory and, thus, into organisation studies by Weber (Johnson et al.,2006; Ruef &
Scott, 1998; Suchman, 1995). Weber discusses the importance of social practices being oriented to rules, and suggests that legitimacy can result from social norms and laws (Weber, 1946).
Thus, Parsons (1956; 1960) applies Weber’s ideas on legitimacy and views it as congruence of organisational values with social laws, norms and values.
This formulation was later adopted by many organisation theorists, and researchers have developed different typologies of legitimacy theory. These typologies overlap in many respects, but at some points, they may differ considerably from each other due to the theoretical contexts used, in addition to the object and method of analysis (Díez-de-Castro et al., 2018). Maurer (1971, p. 361) for example stated that ‘legitimation is the process whereby an organization justifies to a peer or superordinate system its right to exist’. In contrast, Pfeffer and his colleagues suggested that legitimacy is a source of evaluation, and focused more on cultural conformity rather than self-justification (Dowling & Pfeffer, 1975; Pfeffer, 1981; Pfeffer &
Salancik, 1978). In this view, legitimacy is seen as a ‘congruence between the social values associated with or implied by [organizational] activities and the norms of acceptable behaviour in the larger social system’ (Dowling & Pfeffer, 1975, p. 122).
However, Meyer and Scott (1983, p. 201) stated that ‘Organizational legitimacy refers to ... the extent to which the array of established cultural accounts provide explanations for [an organisation's] existence, function, and jurisdiction, and lack or deny alternatives’. This indicates that Meyer and Scott (1983) and Scott (1991) discussed legitimacy by connecting the organisation to its cultural environment and focused more on the cognitive rather than the evaluative side, which means that organisations are legitimate when they are understandable and acceptable rather than when they are desirable. Finally, Suchman (1995) adopted ‘an inclusive, broad-based definition of legitimacy that incorporates both the evaluative and the cognitive dimensions and that explicitly acknowledges the role of the social audience in legitimation dynamics’.
This shows that legitimacy theory is well developed in research, but there is still a lack of empirical research on the micro-level of legitimacy (Binz et al., 2016; Kishna et al., 2017), and it still demands more investigation on the topic related to institutional change (Imerman, 2018).
In fact, connecting the micro-level to the macro-level remains disputed among social scientists such as Harper and Lewis (2012); Raub et al. (2011), and among organizational, management, and strategy scholars in particular (Felin et al., 2012). In addition, researchers know little about how large established companies carry out a sustainable action in practice (Engert et al., 2016;
Moldavska, 2017), what role internal legitimacy plays in developing new sustainable strategy (Thomas & Lamm, 2012), how new initiatives are engaged (Hargadon & Douglas, 2001;
Schrettle et al., 2014) and how large established companies undergoing change legitimise their new technologies (Patala et al., 2019).
Therefore, this thesis focuses on internal legitimacy theory by adopting Suchman (1995) and Scott (1995a) point of views, because my purpose is to take a picture of the status quo rather than expanding on each view. On one hand, Suchman (1995) focuses on the social basis of the term of legitimacy that represents the desirability of an entity depending on socially constructed system of norms, values, beliefs and definition. Thus, Suchman (1995) defines legitimacy as ‘a generalised perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions.
Suchman (1995) views legitimacy as ‘how the organisation is built, how it is run, and simultaneously, how it is understood and evaluated’. Thus, it is essential for companies during organisational change to secure their legitimacy from internal stakeholders in order to align organisational identity with the desired future image (Bridwell-Mitchell & Mezias, 2012; Clark et al., 2010; Gioia et al., 2000).
Suchman (1995) considers three types of legitimacy as moral, pragmatic and cognitive. First, moral legitimacy includes evaluation of an organisation and its activities (Aldrich & Fiol, 1994;
Parsons, 1960), and asks whether a particular action, practice or a new business activity is ‘the right thing to do’ Suchman (1995, p. 579). Second, pragmatic legitimacy ‘rests on the self-interested calculations of an organization's most immediate audiences’ (Suchman, 1995, p.
578), and aims to achieve practical outcomes in its immediate environment. Pragmatic legitimacy involves the direct exchanges between an organisation and its audiences (Suchman, 1995). Third, cognitive legitimacy is based on cognition rather than evaluation (Aldrich & Fiol, 1994), involves knowledge or product acceptance and is considered as state of the art, where the highest level of cognitive legitimacy is ‘taken-for-grantedness’ (Bitektine, 2011). Jepperson (1991, p. 147) noted that taken-for-grantedness ‘is distinct from evaluation: one may subject a pattern to positive, negative, or no evaluation, and in each case (differently) take it for granted’.
In addition, Suchman (1995) considers cognitive legitimacy as ‘the most subtle and the most powerful’ as well as the most difficult to obtain and manipulate.
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On the other hand, Scott (1995a, 2003) focuses on the organisation’s cultural environment that is shaped by general belief systems. In this regard, legitimacy is defined as a ‘condition reflecting cultural alignment, normative support and consonance with relevant rules or laws’
(Scott, 1995a). Thus, legitimacy in this perspective offers explanations and interpretations for the social relations through which organisations gain legitimacy (Scott, 1995a). In addition, Scott (1995b) makes a decisive contribution to the legitimacy theory and proposes a broadly similar trichotomy using what he called the three pillars of legitimacy: regulative, normative and cultural-cognitive. Thus, using Scott’s framework in this thesis is essential to understand company’s culture and what makes its internal stakeholders to shift their conventional social norms and believes.
First, regulative pillar refers to ‘the degree to which an organization complies with explicit regulative processes-rule setting, monitoring and sanctioning activities’ (Scott, 1995a, p. 42).
it also enables the company to establish new laws and rules in order to influence future behaviour (Alexiou & Wiggins, 2019; Scott, 2014). Second, normative pillar is considered as informal values and norms (Scott, 1995a, p. 37). Whereas, values is defined as ‘conceptions of the preferred or the desirable’ associated with ‘standards to which existing structures or behaviours can be compared and assessed’, while norms contain the notions of ‘how things should be done’ (Scott, 2001, pp. 54-55). Third, cognitive pillar refers to ‘the spread of knowledge about a new venture’, which can be estimating by measuring the level of public knowledge of it (Aldrich & Fiol, 1994, p. 648). Thus, it is seen as an evaluation or judgment that is required to determine the company’s understandings and interpretations in a wider belief system and cultural frame (Dart, 2004; Munir, 2002; Scott, 2014). In other words, it measures the level of public knowledge of the new action (Aldrich & Fiol, 1994).
According to this, in this section provides a big picture-overview of legitimacy theory through revealing the divergences and convergences among Suchman’s and Scott’s typologies. This helps provide a better understanding of the general process of legitimacy theory, how it works and how fundamental arguments raised by Suchman and Scott. Each discipline embraces the concept of legitimacy through its own contextual elements, however, the two typologies by Suchman and Scott are found to be overlapping in many aspects. For instance, Suchman’s (1995) moral legitimacy includes evaluating a company’s activities and investigating whether it is doing the right thing. This means that moral legitimacy is responsible for evaluating the company’s actions, reshaping its strategy and developing new policies and rules. In addition, Suchman’s (1995) pragmatic legitimacy focuses on the direct exchanges between a company and its direct audiences. This means that pragmatic legitimacy is ensured when a company’s internal stakeholders are engaged in the new action and are being able to facilitate this new action. However, Scott’s (1995a) regulative pillar refers to the development of the formal laws and rules. This means that regulative pillar encompasses new strategies and policies in a company. While normative pillar refers to the informal values (common opinions that evaluate the existing situation) and norms (evaluation of how things should be done). This means that normative pillar is ensured when internal stakeholders evaluate a company’s actions and are engaged in the new change. In this sense, Suchman’s moral and pragmatic legitimacy and Scott’s regulative and normative pillars are overlapping but focus on different perspectives, because they focus on evaluating a company’s activities, developing new rules, strategies and policies, and engaging employees in a new change. However, cognitive legitimacy does not differ significantly from its uses in Suchman’s and Scott’s typology since both of them focus on company’s acceptance and understanding of knowledge.
Therefore, in order to explore how internal legitimacy theory can be used to understand the sustainable shift that occurs in a large established company. In the first step, I chose to use Suchman’s legitimacy theory in paper 1 as it represents a guiding approach of this thesis. This
helps understands how people act toward a company, how they understand it and how they accept its new actions. Suchman’s theory was used in paper 1 because it works better with qualitative research, and it enables us to understand individuals’ different viewpoints and personal explanations about what happens inside a company during a change. In the second step, I chose to use Scott’s theory in paper 2 and 3 in order to develop and test a model. The institutional theory by Scott works better with quantitative research because it has already been measured and tested in previous studies such as Busenitz et al. (2000); Oftedal (2008); Oftedal et al. (2018); Åmo et al. (2006).
As a result, internal legitimacy theory helps me investigate how a large established company builds its internal legitimacy and understand who is responsible for introducing and developing a new sustainable change in the company. By this, this thesis contributes to the literature on organisational legitimacy by linking organisational legitimacy and strategy change, especially in the context of sustainability in the OG industry.