Legitimacy Theory Essay

authenticity is a generalized perception or assumption that the actions of an entity be desirable, proper, or suppress at heart some lovingly constructed system of norms, values, beliefs, and definitions (Such humankind, 1995, p. 574, emphasis in original) genuineness possibility has become one of the almost cited theories within the social and environmental accounting bea. Yet on that tear remains deep scepticism amongst numerous researchers that it offers both real insight into the voluntary disclosures of companionships. This brief paper outlines responses to twain specific concerns identified in the literature. It entrust eventually form interpreter of a much larger project addressing a prescribe of ejects associated with authenticity opening.First, the paper brings some of the more(prenominal) recent emergences in the management and ethical literature on legitimacy and corporations to the accounting table. Second, there are contri moreoverions to the theor y that have already been make by accounting researchers that are besides to be fully recognised. The author believes that legitimacy theory does offer a provideful mechanism for mind 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 legitimacy theory in modify 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 detestation 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, still few define it. Hybels (1995, p. 241) comments that As the tradesm en sic of social science have groped to sort elaborate theoretical structures with which to shelter their careers anddisciplines, legitimation has been a blind mans hammer. This paper begins to address these issues. zero(prenominal) One Theory but Two (at least)An important issue which needs to be ac familiarityd is that there are in point two major classes of legitimacy theory. These are graphically presented in form 1 below. The macro-theory of legitimation, known as institutional LegitimacyTheory, deals with how brassal structures as a whole (capitalism for example, or brass) have gained betrothal from society at large. Within this tradition, legitimacy and institutionalization are virtually synonymous. two phenomena empower organizations primarily by making them seem natural and meaning(prenominal) (Suchman, 1995, p. 576, emphasis in original).In scathe of accounting research, exceedn the while frames involved and questions generally being considered, the current ped igree environment, including the capitalist structure, egalitarian 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 meditate of any material length. Figure 1 Layers of Legitimacy TheoryINSTITUTIONAL LEVELGOVERNMENT worship SOCIETY CAPITALISMORGANISATIONAL LEVEL(IN THIS CASE COMPANY LTD BY SHARE) arrangement Defence Extension MaintenanceFrom the Moral to the MeasurableOne point down from the Institutional train is what in Figure 1 is called the Organisational Level (some generation 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) provides a goodly definition of legitimacy at this level Organisations seek to establish congruity between the social values associated with or implied by their activities and the norms of satisfactory deportment 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 placemental legitimacy.When an actual or electric potential difference exists between the two value systems there will exist a threat to organisational legitimacy. At its simplest, within the Organisational view legitimacy is an operational imaginativeness that organizations extract often competitively from their cultural environments and that they employ in interestingness 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. Certain actions and events increase that legitimacy, and some others decrease it. wretched legitimacy will have particularly dire consequ ences for an organisation, which could ultimately slip away to the forfeiture of their right to operate.Although we can describe a firm as being legitimate, and conceive of amounts of legitimacy, it becomes a very subjective exercise to savour and influencely measure legitimacy. Although it has concrete consequences, legitimacy itself is an abstract concept, given ingenuousness by multiple actors in the social environment. For a researcher to undertake and now 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 establish on a conflation of the usages of observer and participant in social science.As an alternative, rather than difficult to subjectively measure a firms legitimacy directly it can instead be inferred from the fact that being legitimate enables organizations to earn resources necessary for survival (e.g., scarce materials, patronage, political approval) (Hearit, 1995, p. 2). Hybels (1995, p. 243) develops this in some percentage pointLegitimacy often has been conceptualized as simply one of many an(prenominal) resources that organizations moldiness obtain from their environments. But rather than viewing legitimacy as something that is inter permute among institutions, legitimacy is better conceived as both part of the context for switch anda by- increase of exchange. Legitimacy itself has no material form. It exists only as a symbolic representation of the collective evaluation of an institution, as demonstrate to both observers and participants perhaps most convincingly by the flow of resources. resources moldiness 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 come crossw ays the relevant stakeholders, and how Each influences the flow of resources crucial to the organizations establishment, growth, and survival, either through direct control or by the communication of good will. He identifies (p. 244) four critical organisational stakeholders, each of which control a number of resources.These are summarised in Table 1 below. Table 1 Critical Organisational Stakeholder STAKEHOLDER RESOURCES CONTROLLED Contracts, grants, legislation, regulation, taxation ( zero(prenominal)e that the (1) The state last three of these could be either a negatively charged or positive depending on the implementation) (2) The public (3) The financial community (4) The media hardly a(prenominal) direct resources however, can substantially influence the decisions of stakeholders (2) & (3) (if not (1)) Patronage (as customer), second (as community interest), labour InvestmentThe last of these has received considerable attention. The power of the media has been noted by a n umber of researchers, including Patten (2002, p. 153), who states that while increase media attention can certainly lead to the potential for increase pressures from any of the three sources dissatisfaction of public new or proposed political action increased regulatory prudence, increases in pressure canalso arise, particularly with remark to regulatory oversight. See also Deegan et al. (2000, 2002). Companies try to manage their legitimacy because it helps to visit the continued inflow of capital, labour and customers necessary for viabilityIt also prevents regulatory activities by the state that cleverness 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, a nd instead focus on on measuring it in terms of the resources relevant stakeholders provide. Rather than engage in the move on development of completely abstract constructions of the legitimation process researchers should investigate the flow of resources from organizational constituencies as well as the pattern and content of communications (Hybels, 1995, p. 244).But search Theres MoreAs shown in Figure 1 Organisational Legitimacy Theory suggests that a firm may be in one of four arranges 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 include (further research needs to be undertaken in this area). Establishing Legitimacy. (E.g. Stem Cell establish 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 st andards 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 performance 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). However the maintenance of legitimacy is not aseasy as it may at first pop. 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). Extendi ng Legitimacy. (E.g. Alternative Health Providers). There may come a point where an organisation enters new markets or changes 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 represent 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. legalisation activities tend to be intense and reactive as management attempts to reverberation the threat (Ashford and Gibbs, 1990, p. 183).Even barring a major incident it is liable(predicate) 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 necessary to realize legitimacy Satisfaction of stockholder interests often occurs at the disbursement 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 refer between legitimacy and resources. Lindblom (1994), a key paper cited by many Social and environmental bill researchers, also seems relevant specifically to this phase only. An example of work in this area is Deegan et al.s (2000) study of quintuple major incidents (including the Exxon Valdez oil spill and the Bhopal Disaster) which provided a context to examine the yearly hides of related (in industrial terms) Australian firms to see if there had been a large 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 intentness related social 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 effect 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 tralatitious 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 depicted 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 very start to lose legitimacy. Figure 2 Re finement of the Organisational Level of Legitimacy TheoryEstablishment LossDefence Disestablishment ExtensionMaintenanceIn this model the defence phase is usually entered by an organisation later on 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, declarative mood of a systemic issue, e.g. the nuclear power industry, or a individual(a) event with permanent consequences which cannot be effectively managed, e.g. realisation that the organisations product is not safe such as the tobacco industry, an organisation is promising to have its legitimacy eroded over a distributor point 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 liable(predicate) 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 send back 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 developments 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 secondment 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(prenominal) 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. Tobin (2002) An Examination of the somatic Social and Environmental Disclosures of BHP from 1983-1997 A Test 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(ip) Social Incidents Australian Evidence, Accounting Forum, Vol. 24, No. 1, pp. 101 130. Hearit, K. M. (1995)Mistakes Were make Organizations, Apologia, and Crises of Social Legitimacy, chat 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 perplexityJournal, Special Issue Best 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 Performance and Disclosure, Critical Perspectives on Accounting assemblage, brisk 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 Reports, Accounting, Organizations and Society, Vol. 23, No. 3, pp. 265 282. ODonovan, G. (2002) Environmental Disclosures in the Annual Report Extending the Applicability and prophetical 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 Approac hes, 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.