Organizational strategies in the context of legitimacy loss: Radical versus gradual responses to disclosed corruption

Abstract

How do organizations respond to the loss of legitimacy in the context of disclosed corruption, and what drives the particular responses adopted? In this article, we study the organizational strategies of three multinational companies before, during, and after legitimacy loss due to disclosed organizational corruption. We explore why some multinational companies exceed regulatory expectations and choose radical strategies that substantially influence their environment by defining a new benchmark of anticorruption practices, while others follow a more gradual approach. We build on the concept of legitimacy in institutional theory and focus on three strategies that organizations tend to adopt to regain legitimacy: isomorphic adaptation, moral reasoning, and strategic manipulation. Based on our empirical study, we suggest that when a transgression is accompanied by a strong legitimacy shock, transgressors are likely to see no alternative but to react both radically and instantly. We identify two distinct extremes of strategic manipulation: decoupling and substantial influence.

Tax governance: the balance between tax regulatory requirements and societal expectations

“…The second stage of the Starbucks response went beyond mere rhetoric and had consequences in substance as Starbucks made changes in their transfer pricing and structural conditions. This situation further demonstrated that Starbucks was experiencing what Schembera and Scherer (2017) depict as a strong 'legitimacy shock', in which organizations are likely to go beyond symbolic responses and are more likely to react 'radically and instantly'. This study reveals similar dynamics and confirms the dramatic nature of the substantive changes that were associated with such responses (Schembera and Scherer, 2017).…”

“…This situation further demonstrated that Starbucks was experiencing what Schembera and Scherer (2017) depict as a strong 'legitimacy shock', in which organizations are likely to go beyond symbolic responses and are more likely to react 'radically and instantly'. This study reveals similar dynamics and confirms the dramatic nature of the substantive changes that were associated with such responses (Schembera and Scherer, 2017). Accordingly, the influence on organizational practices appears to be not only substantive but also irreversible because changes in tax practices cannot be reversed and were later followed up by a major restructuring to move the European headquarters to London.…”

“…Third, the consequences of legitimacy processes may be symbolic or material and correspond to what institutional theory refers to as decoupling or substantial influence (Schembera and Scherer, 2017). It is easy to see that responses to social pressure may either be rhetorical and seek to explain corporate activities to outsiders or serve as window-dressing and the manipulation of public perceptions and attempt to paint a certain picture of corporate behavior.…”

“…For example, in the US pulp and paper mill industry, an analysis shows that many companies surpass environmental regulatory requirements and incur significant additional costs for their inputs and business processes to comply with the Clean Water Act beyond its formal content (McClelland and Horowitz, 1999). Other studies examine company responses to pressure due to, e.g., perceived unacceptable labor conditions (Connor and Atkinson, 1996) or disclosed corruption (Schembera and Scherer, 2017). However, the interplay between the tax-related measures of tax compliance and community pressure for MNE tax contributions (i.e., payments) has not been subject to empirical analysis.…”

Mudança No Conteúdo De Documentos Institucionais Após Escândalo De Corrupção Em Multinacionais Brasileiras Da Indústria Da Construção

“… O sistema de governança deve espelhar a eficácia da MNC, diminuindo os riscos morais, ao controlar seus agentes, por meio de procedimentos e rotinas que reduzam o problema da assimetria de informações (EISENHARDT, 1989), com objetivo de prevenir e combater a grande corrupção.2.4.3. Pressupostos da literatura de governança corporativa e responsabilidade social A MNC envolvida em crise pública, devido à divulgação de práticas de corrupção na mídia, adota estratégias para recuperar a reputação, reconstruir a imagem e manter sua legitimidade(BLANC et al, 2017;BLANC et al, 2019;HAUSER;HOGENACKER, 2014;PFARRER et al, 2008;SCHEMBERA;SCHERER, 2017;SROKA;SZÁNTÓ, 2018). As MNCs estabelecem valores ou princípios, procedimentos e rotinas para atender às demandas das instituições reguladoras internacionais e nacionais (BARKEMEYER; PREUSS; LEE, 2015; BARKEMEYER; PREUSS; OHANA, 2018; GORDON; MYIAKE, 2001). Esta aderência deve estar evidenciada por meio de seus códigos de conduta e relatórios anuais.…”