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Two important managerial practices in quality movement influence the quality of firms' strategies and their business excellence. One is 'downsizing', which often accompanies the lean production method, and the other is 'stakeholder satisfaction', which has been proven to increase the probability of a firm's long-term success. Stakeholder satisfaction also mitigates the negative impacts from downsizing. This research examines how institutional legitimacy influences the union stakeholders in their strategy selection during corporate downsizing. A quantitative survey was deployed, followed by a qualitative exploration of the phenomenon uncovered in the survey. The research findings showed an overwhelming conditioning effect of institutions which led a majority of labour unions to select a direct negotiation strategy as their reaction to business downsizing decisions. Institutional factors such as legal requirement, social expectation, well-publicised best practices, etc., dominated union leaders' decision on the best initial influence strategy. The findings carry practical implications for firms in managing the quality of labour relations during business downsizing and also contribute to the affirmation of institutional factors as an important dimension of stakeholder influence strategy theory.