Organizational Legitimacy and Stakeholder Information Provision¹

Abstract

One interpretation of the concept of organizational legitimacy is that it stems from the cultural values of society, and suggests that businesses operate under a mandate that may be withdrawn if organizations are seen not to be doing the 'right' things. This suggests there is something in the nature of a principal-agent relationship in existence, and that some form of accountability is then owed by the agent (the organization) to the principal (society). This paper seeks to investigate the nature of this accountability, distinguishing between the accountability which exists towards those elements of society with which an organization has a contractual relationship, and those where it does not. Adopting a pluralist stance, stakeholder theory is then used to illustrate the possible nature of both the form of legitimacy relationship extant, and of the accountability that the principal might expect of the agent.

Climate Change and Corporate Environmental Responsibility

“…Thus it creates a 'threat' for the organization's survival (or it acts as a legitimacy threat). Threats to an entity's perceived legitimacy are predicted to lead to responsive actions by management who will try to minimize such impacts of legitimacy threats and one of these minimizing strategies is the disclosure-related strategies (Islam andDeegan, 2008 andWoodward et al, 1996). Disclosure can be a solution to overcome the legitimacy threats:…”

Performance disclosure on the web: an exploration of the impact of managers’ perceptions of stakeholder concerns

“…Disclosure of this information on corporate websites depends on whether managers think the information is important to one or several stakeholder groups or because specific stakeholder groups such as regulators and governments require its disclosure. The second box indicates the eight potential stakeholders used in previous research (e.g., Woodward et al, 1996;Agle et al, 1999;Harvey and Schaefer, 2001) or suggested as being important to companies (Leighton and Thain, 1997;Lev, 1992). These stakeholders are: investors, lenders, employees, suppliers, customers, governments, regulators and the public.…”

A comprehensive literature review on, and the construction of a framework for, environmental legitimacy, accountability and proactivity

“…Unlike the traditionally accepted principal-agent relationship (i.e., involving business and shareholders or creditors) in which the responsibilities and rights of both parties are formally established, the same condition does not apply to relationships dealing with social and environmental concerns. The responsibilities and rights of the parties are both legally (contractual) and morally (communal) defined and determined by organisations, society, and other stakeholders (Gray, 2001;Gray et al, 1996;Woodward et al, 1996). In this sense accountability can also be seen as originated from the idea of a social contract, but it further extends the scope of responsibility by making explicit the essentials of disclosure to serve the stakeholders" rights to information.…”

“…The conditions of the social contract include granting of legal standing to organisations and offering support to an organisation by supplying resources and labour (Mathews, 1983). In return, organisations are expected to pursue various socially desirable goals in a socially acceptable manner (Ashforth and Gibbs, 1990;Shocker and Sethi, 1973;Woodward et al, 1996). Such expectations can be explicit (formal, and in the form of laws and regulations) or implicit (informal, hypothetical and based on moral justifications) (Gray et al, 1996;Mathews, 1983).…”