Legitimacy Theory Essay

genuineness is a generalized perception or assumption that the actions of an entity ar desirable, proper, or appropriate within to a greater extent or less genially constructed system of norms, nurses, beliefs, and definitions (Suchman, 1995, p. 574, tenseness in original) Legitimacy surmisal has become one of the well-nigh cited theories within the kind and environmental accounting atomic number 18a. Yet on that point remains deep scepticism amongst many researchers that it offers any real insight into the voluntary disclosures of potentiometers. This brief paper outlines responses to dickens specific concerns identified in the literature. It leave alone eventually form part of a much larger project addressing a range of issues associated with authenticity opening.First, the paper brings some of the more recent developments in the management and ethical literature on genuineness and corporations to the accounting table. Second, there are contributions to the theory that have already been make by accounting researchers that are yet to be fully recognised. The author believes that authenticity theory does offer a powerful mechanism for collar voluntary social and environmental disclosures made by corporations, and that this understanding would provide a vehicle for engaging in critical public debate.The problem for genuineness theory in contributing to our understanding of accounting disclosure specifically, and as a theory in general, is that the term has on occasion been used fairly loosely. This is not a problem of the theory itself, and the observation could be equally applied to a range of theories in a range of disciplines (see for example Caudill (1997) on the abuse of Evolutionary Theory).Failure to adequately specify the theory has been identified by Suchman (1995, p. 572, emphasis in original), who observed that Many researchers employ the term legitimacy, but few define it. Hybels (1995, p. 241) comments that As the tradesmen sic of social science have groped to build elaborate theoretical structures with which to shelter their careers anddisciplines, legitimation has been a blind mans hammer. This paper begins to address these issues.Not angiotensin-converting enzyme Theory but Two (at least)An important issue which needs to be acknowledged is that there are in fact two major classes of legitimacy theory. These are graphically presented in common fig 1 below. The macro-theory of legitimation, known as Institutional LegitimacyTheory, deals with how organisational structures as a whole (capitalism for example, or government) have gained betrothal from indian lodge at large. Within this tradition, legitimacy and institutionalization are virtually synonymous. Both phenomena empower organizations primarily by making them seem natural and meaningful (Suchman, 1995, p. 576, emphasis in original).In terms of accounting research, habituated the time frames involved and questions chiefly being considered, the c urrent business environment, including the capitalist structure, democratic government, etc. are generally taken as a given, a static context within which the research is situated. This assumption would, however, need to be carefully considered for a longitudinal study of any signifi elicitt length. Figure 1 Layers of Legitimacy TheoryINSTITUTIONAL LEVELGOVERNMENT RELIGION SOCIETY CAPITALISMORGANISATIONAL LEVEL(IN THIS slip of paper COMPANY LTD BY SHARE)Establishment Defence Extension aidFrom the Moral to the MeasurableOne layer down from the Institutional Level is what in Figure 1 is called the Organisational Level (sometimes referred to as Strategic Legitimacy Theory). Underlying organizational legitimacy is a process, legitimation, by which an organization seeks approval (or avoidance of sanction) from groups in society (Kaplan and Ruland, 1991, p. 370).It is from this levelthat most accounting research tends to draw its understanding of legitimacy. Mathews (1993, p. 350) provi des a good definition of legitimacy at this level Organisations seek to establish congruousness between the social values associated with or implied by their activities and the norms of acceptable behaviour in the larger social system in which they are a part. In so far as these two value systems are congruent we can speak of organisational legitimacy.When an actual or potential disparity exists between the two value systems there depart exist a scourge to organisational legitimacy. At its simplest, within the Organisational view legitimacy is an operational resource that organizations extract often competitively from their cultural environments and that they employ in pursuit of their goals (Suchman, 1995, p. 575 6, emphasis in original). Legitimacy, just like money, is a resource a business requires in order to operate. accepted actions and events increase that legitimacy, and others decrease it. Low legitimacy will have particularly dire consequences for an organisation, wh ich could ultimately lead to the forfeiture of their right to operate.Although we can describe a household as being legitimate, and conceive of amounts of legitimacy, it becomes a very subjective exercise to try and directly measure legitimacy. Although it has concrete consequences, legitimacy itself is an abstract concept, given reality by multiple actors in the social environment. For a researcher to try and directly establish, or even rank, the legitimacy of various organisations would seem to be a necessarily subjective undertaking, preferencing the researchers own views. As Hybels (1995, p. 243) argues, I reject this view because it is based on a conflation of the roles of observer and actor in social science.As an alternative, rather than trying to subjectively measure a firms legitimacy directly it can preferably be inferred from the fact that being legitimate enables organizations to attract resources necessary for survival (e.g., scarce materials, patronage, policy-maki ng approval) (Hearit, 1995, p. 2). Hybels (1995, p. 243) develops this in some detailLegitimacy often has been conceptualized as simply one of many resources that organizations mustiness obtain from their environments. But rather than viewing legitimacy as something that is exchanged among institutions, legitimacy is unwrap conceived as both(prenominal) part of the context for exchange anda by- result of exchange. Legitimacy itself has no material form. It exists only as a symbolic representation of the collective military rank of an institution, as evidenced to both observers and participants perhaps most convincingly by the flow of resources. resources must have symbolic import to function as value in social exchange. But legitimacy is a higher-order representation of that symbolism a representation of representations. Hybels (1995, p. 243) argues that good models in legitimacy theory must try on the relevant stakeholders, and how Each influences the flow of resources crucia l to the organizations establishment, growth, and survival, either through direct control or by the communication of good will. He identifies (p. 244) quartet critical organisational stakeholders, separately of which control a deed of resources.These are summarised in Table 1 below. Table 1 overcritical Organisational Stakeholder STAKEHOLDER RESOURCES CONTROLLED Contracts, grants, legislation, regulation, tax (Note that the (1) The state farthermost three of these could be either a negative or positive depending on the implementation) (2) The public (3) The financial community (4) The media Few direct resources however, can easily influence the decisions of stakeholders (2) & (3) (if not (1)) Patronage (as customer), support (as community interest), labour InvestmentThe die of these has received considerable attention. The power of the media has been noted by a number of researchers, including Patten (2002, p. 153), who states that while increased media attention can certainl y lead to the potential for increased pressures from any of the three sources dissatisfaction of public new or proposed political action increased regulatory worry, increases in pressure canalso arise, particularly with respect to regulatory oversight. See also Deegan et al. (2000, 2002). Companies try to manage their legitimacy because it helps to ensure the continued inflow of capital, labour and customers necessary for viabilityIt also forestalls regulatory activities by the state that might occur in the absence of legitimacy and pre-empts product boycotts or other disruptive actions by external parties By mitigating these potential problems, organizational legitimacy provides managers with a degree of autonomy to decide how and where business will be conducted (Neuet al., 1998, p. 265).Researchers need to move away from trying to directly assess legitimacy, and instead focus on measuring it in terms of the resources relevant stakeholders provide. kind of than engage in the fur ther development of entirely abstract constructions of the legitimation process researchers should investigate the flow of resources from organizational constituencies as well as the digit and content of communications (Hybels, 1995, p. 244).But Wait Theres MoreAs shown in Figure 1 Organisational Legitimacy Theory suggests that a firm whitethorn be in one of four phases with regard to its legitimacy. These phases are outlined below, some examples of industries/firms that might be considered to be operating in each of these phases are included (further research needs to be undertaken in this area). Establishing Legitimacy. (E.g. Stem Cell based bio-tech).This first phase represents the early stages of a firms development and tends to revolve around issues of competence, particularly financial, but the organisation must be aware of socially constructed standards of quality and desirability as well as perform in accordance with accepted standards of professionalism (Hearit, 1995, p. 2). Maintaining Legitimacy. (The majority of organisations). This is the phase that most firms would generally expect to be operating in, where their activities include (1) ongoing role death penalty and symbolic assurances that all is well, and (2) attempts to anticipate and prevent or forestall potential challenges to legitimacy (Ashford and Gibbs, 1990, p. 183). until now the maintenance of legitimacy is not aseasy as it may at first come in. Legitimacy is a dynamic construct. Community expectations are not considered static, but rather, change across time thereby requiring organisations to be responsive to the environment in which they operate. An organisation could, accepting this view, lose its legitimacy even if it has not changed its activities from activities which were previously deemed acceptable (legitimate) (Deegan et al., 2002, p. 319 20). Extending Legitimacy. (E.g. Alternative Health Providers). There may come a point where an organisation enters new markets or c hanges the way it relates to its current market.This can give rise to a need to extendlegitimacy which is apt to be intense and proactive as management attempts to win the confidence and support of wary potential constituents (Ashford and Gibbs, 1990, p. 180). Defending Legitimacy. (E.g. Uranium Mining). Legitimacy may be threatened by an incident (internal or external), and therefore require defence. Legitimation activities tend to be intense and reactive as management attempts to tabulator the threat (Ashford and Gibbs, 1990, p. 183).Even barring a major incident it is likely in the Western Capitalist system that almost every corporation will regularly need to defend its legitimacy, by the mere fact that corporations must fulfil both a competence and community requirement to realize legitimacy Satisfaction of stockholder interests often occurs at the expense of community concerns (e.g., the despoiling of the environment, the use of labour) while, conversely, responsibility to the larger community often occurs at the expense of the stockholder (Hearit, 1995, p. 3).It is this last phase that has tended to be the main focus of accounting researchers. It also provides us with the clearest opportunity to examine the crucial link between legitimacy and resources. Lindblom (1994), a fundamental paper cited by many Social and Environmental method of accounting researchers, also seems relevant specifically to this phase only. An example of work in this area is Deegan et al.s (2000) study of five major incidents (including the Exxon Valdez oil spill and the Bhopal Disaster) which provided a context to examine the annual reports of related (in industrial terms) Australian firms to see if there had been a significant change in their social or environmental reporting.They concluded The results of this study are consistent with legitimacy theory and show that companies do appear to change their disclosure policiesaround the time of major company and industry related so cial events. These results highlight the strategic nature of voluntary social disclosures and are consistent with a view that management considers that annual report social disclosures are a useful device to reduce the effects upon a corporation of events that are perceived to be unfavourable to a corporations image (Deegan et al., 2000, p. 127).The Diagnosis Needs RefinementThis is where the traditional legitimacy model stops. However my ownresearch, into the tobacco industry, Tilling (2004), and that of other researchers, including experimental research undertaken by ODonovan (2002), suggest a further development of the Organisational Legitimacy Level, as depict in Figure 2 below. Added to the model is the possibility that a firm may not successfully (or may be unable to) defend the threat to its legitimacy and actually start to lose legitimacy. Figure 2 Refinement of the Organisational Level of Legitimacy TheoryEstablishment LossDefence Disestablishment ExtensionMaintenanceIn t his model the defence phase is usually entered by an organisation after some form of one-off incident or accident which threatens its legitimacy. This phase could be characterised as being acute, it can be serious, some times even fatal, but usually, with proper management, the organisation can maintain, or at least recover, its legitimacy. However should there be an ongoing series of events,indicative of a systemic issue, e.g. the nuclear power industry, or a single event with unceasing consequences which cannot be effectively managed, e.g. realisation that the organisations product is not safe such as the tobacco industry, an organisation is likely to have its legitimacy eroded over a period of time (the loss phase), which can be characterised as chronic. The issue can be difficult to manage, and generally leads to declining legitimacy, however the loss may be managed and slowed over a long period of time, or significant change could lead to reestablishment of legitimacy.The loss phase is most likely to be preceded by sustained media and NGO scrutiny, and accompanied by increasing government regulation, monitoring and possibly taxation. Within this phase there are likely to be periods where the company will increase its voluntary social and environmental disclosure in an effort to meet specific threats (such as to give in or defeat proposed regulations) or to communicate systemic corporate change(similar to the defence phase). However, with each new restriction average total disclosure can be expected to decrease.This idea is alluded to by ODonovan (2002) who argues, based on experimental evidence, that the lower the perceived legitimacy of the organisation, the less likely it is to bother providing social and environmental disclosure.Watch This SpaceLegitimacy theory offers researchers, and the wider public, a way to critically unpack corporate disclosures. However the understanding and study of the theory must become more sophisticated, drawing on develo pments both within the accounting literature and beyond. Only then will the full potential of legitimacy theory for examining a wide range of disclosures be fully realised. Areas that would provide useful insights include at the moment the asbestos industry (as it goes through the disestablisment phase), brothels (as they become much more legitimate within the Australian context), and the forestry industry (as it tries to defend its legitimacy), to name but a few.The knowledge gained will then be used to provide better and more useful information to inform decision making by stakeholders. In this way society is empowered to have greater control and oversight over the way resources are allocated.ReferencesAshford, B. E. and B. W. Gibbs (1990) The Double-Edge of Organizational Legitimation, Organization Science, Vol. 1, No. 2, pp. 177 194. Caudill, E. (1997) Darwinian Myths The Legends and Misuses of a Theory, Knoxville, University of Tennessee Press. Deegan, C., M. Rankin and J. Tob in (2002) An Examination of the Corporate Social and Environmental Disclosures of BHP from 1983-1997 A runnel of Legitimacy Theory, Accounting, Auditing and Accountability Journal, Vol. 15, No. 3, pp. 312 343. Deegan, C., M. Rankin and P. Voght (2000) Firms Disclosure Reactions to Major Social Incidents Australian Evidence, Accounting Forum, Vol. 24, No. 1, pp. 101 130. Hearit, K. M. (1995)Mistakes Were Made Organizations, Apologia, and Crises of Social Legitimacy, Communication Studies, Vol. 46, No. 1-2, pp. 1 17. Hybels, R. C. (1995) On Legitimacy, Legitimation, and Organizations A Critical Review and Integrative Theoretical Model, Academy of ManagementJournal, Special Issue crush Papers Proceedings, 1995, pp. 241 245. Kaplan, S. E. and R. G. Ruland (1991) Positive Theory, Rationality and Accounting Regulation, Critical Perspectives on Accounting, Vol. 2, No. 4, pp. 361 374. Lindblom, C. K. (1994), The Implications of Organizational Legitimacy for Corporate Social Performanc e and Disclosure, Critical Perspectives on Accounting Conference, New York. Mathews, M. R. (1993) Socially Responsible Accounting, UK, Chapman & Hall.Neu, D., H. Warsame and K. Pedwell (1998) Managing Public Impressions Environmental Disclosures in Annual incubates, Accounting, Organizations and Society, Vol. 23, No. 3, pp. 265 282. ODonovan, G. (2002) Environmental Disclosures in the Annual Report Extending the Applicability and Predictive Power of Legitimacy Theory, Accounting, Auditing and Accountability, Vol. 15, No. 3, pp. 344 371. Patten, D. M. (2002)Media Exposure, Public Policy Pressure, and Environmental Disclosure An Examination of the Impact of Tri Data Availability, Accounting Forum, Vol. 26, No. 2, pp. 152 171. Suchman, M. C. (1995) Managing Legitimacy Strategic and Institutional Approaches, Academy of Management Journal, Vol. 20, No. 3, pp. 571 610. Tilling, M. (2004), Communication at the Edge Voluntary Social and Environmental Reporting in the Annual Report of a Legitimacy Threatened Corporation. APIRA Conference Proceedings, Singapore, July.