Legitimacy Theory Essay

genuineness is a generalized perception or assumption that the actions of an entity argon desirable, proper, or appropriate in spite of appearance some neighborlyly constructed system of norms, economic value, beliefs, and definitions (Suchman, 1995, p. 574, emphasis in original) au consequentlyticity system has become iodin of the about cited theories at bottom the sociable and environmental accounting area. Yet there remains deep scepticism amongst many look intoers that it offers any real acumen into the voluntary revelations of jackpots. This brief paper outlines responses to two specific concerns identified in the literature. It will eveningtually regulate part of a much bigger project shell outing a range of releases associated with genuineness theory.First, the paper brings some of the more than recent developments in the management and ethical literature on authenticity and corporations to the accounting table. Second, there are contri exactlyions to the th eory that brace already been make by accounting inquiryers that are yet to be fully recognised. The compose believes that legitimacy theory does offer a powerful mechanism for taking into custody voluntary affectionate and environmental disclosures made by corporations, and that this understanding would add a vehicle for engaging in critical everyday debate.The trouble for legitimacy theory in contributing to our understanding of accounting disclosure specifically, and as a theory in general, is that the term has on antecedent been physical exercised fairly loosely. This is non a problem of the theory itself, and the observance could be equally applied to a range of theories in a range of disciplines (see for example Caudill (1997) on the abuse of Evolutionary system).Failure to adequately specify the theory has been identified by Suchman (1995, p. 572, emphasis in original), who notice that Many researchers employ the term legitimacy, but few define it. Hybels (1 995, p. 241) comments that As the tradesmen sic of amicable science apply groped to build elaborate theoretical structures with which to supply their careers and disciplines, legitimation has been a blind mans hammer. This paper begins to address these issues.Not One system but Two (at least)An instantant issue which ask to be acknowledged is that there are in incident two major classes of legitimacy theory. These are graphically presented in jut 1 below. The macro-theory of legitimation, known as Institutional authenticityTheory, deals with how organisational structures as a whole (capitalism for example, or g everywherenment) have gained acceptance from rescript at large. inside 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, given the time frames involved and questions primarily creation considered, the current business environment, including the capitalist structure, democratic government, etc. are generally taken as a given, a static context inside which the research is situated. This assumption would, however, need to be carefully considered for a longitudinal study of any signifi substructuret length. Figure 1 Layers of legitimacy TheoryINSTITUTIONAL aimGOVERNMENT RELIGION SOCIETY CAPITALISMORGANISATIONAL LEVEL(IN THIS CASE COMPANY LTD BY SHARE) brass Defence Extension aidFrom the Moral to the MeasurableOne layer down from the Institutional aim is what in Figure 1 is called the Organisational Level (sometimes referred to as Strategic authenticity Theory). Underlying organizational legitimacy is a process, legitimation, by which an organization seeks grace (or avoidance of sanction) from groups in society (Kaplan and Ruland, 1991, p. 370).It is from this level that most accounting research tends to draw its understanding of legitimacy . Mathews (1993, p. 350) provides a good definition of legitimacy at this level Organisations seek to establish congruence 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 off the beaten track(predicate) as these two value systems are congruent we chamberpot turn to of organisational legitimacy.When an actual or electromotive force disparity exists between the two value systems there will exist a threat to organisational legitimacy. At its simplest, within the Organisational put one over 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, simply like money, is a resource a business requires in golf club to operate. Certain actions and events increase that legitimacy, and opposites decrease it. Low legitimacy will have particularly dire consequences for an organisation, which could ultimately entice to the forfeiture of their right to operate.Although we can describe a firm as be legitimate, and conceive of amounts of legitimacy, it becomes a very unobjective 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 participant 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 organizati ons to attract resources necessary for survival (e.g., singular materials, patronage, political 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 must obtain from their environments. But rather than viewing legitimacy as something that is exchanged among institutions, legitimacy is better conceived as both part of the context for exchange and a by-product of exchange. Legitimacy itself has no material form. It exists only as a typic commission of the collective evaluation of an institution, as evidenced to both observers and participants perhaps most convincingly by the draw 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 samples in legitimacy theory must examine the re levant stakeholders, and how Each influences the flow of resources crucial to the organizations establishment, growth, and survival, either by direct control or by the communication of good will. He identifies (p. 244) quadruple critical organisational stakeholders, apiece of which control a number of resources.These are summarised in Table 1 below. Table 1 tiny Organisational Stakeholder STAKEHOLDER RESOURCES CONTROLLED Contracts, grants, legislation, regulation, tax (Note that the (1) The state last ternary 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 well influence the decisions of stakeholders (2) & (3) (if not (1)) Patronage (as customer), support (as community interest), push InvestmentThe last 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 s tates that while increased media attention can certainly lead to the latent for increased pressures from any of the three sources dissatisfaction of public new-fashioned or proposed political action increased regulatory oversight, increases in pressure can  in any case arise, particularly with respect to regulatory oversight. contain 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 efficacy 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 (Neu et al., 1998, p. 265).Researchers need to move amodal value from trying to directly assess legitimacy, and instead focus o n measuring it in terms of the resources relevant stakeholders provide. quite an than engage in the further development of entirely 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 Wait Theres MoreAs shown in Figure 1 Organisational Legitimacy Theory suggests that a firm may be in one of four patterns with regard to its legitimacy. These phases are outlined below, some examples of industries/firms that might be considered to be operating in severally 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 well-nigh issues of competence, particularly financial, but the organisation must be aware of socially constructed standards of quality an d 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 convey 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). even so the maintenance of legitimacy is not aseasy as it may at first appear. Legitimacy is a dynamic construct. familiarity 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, turn a outrage 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 changes the trend it relates to its current market.This can give rise to a need to extend legitimacy 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 disaffirmation. Legitimation activities tend to be intense and reactive as management attempts to counter the threat (Ashford and Gibbs, 1990, p. 183). tied(p) barring a major incident it is likely in the Hesperian Capitalist system that almost every corporation will on a regular basis need to defend its legitimacy, by the mere fact that corporations must adjoin both a competence and community requirement to realize legitimacy Satisfaction of shareowner interests of ten occurs at the expense of community concerns (e.g., the desp covering 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 key paper cited by many Social and environmental Accounting researchers, also seems relevant specifically to this phase only. An example of study 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 agreeable with legitimac y theory and show that companies do appear to change their disclosure policiesaround the time of major ships company and industriousness related social events. These results highlight the strategic nature of voluntary social disclosures and are unchanging 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 own research, 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 conjecture that a firm may not successfully (or may be unable to) defend the threat to its legitimacy and actually start to brook legitimacy. Figure 2 Refinement of the Organisational Level of Legitimacy TheoryEstablishment LossDefence Disestablishment ExtensionMaintenanceIn this 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 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 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 perhaps 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 postpone or worst 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 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 teaching 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. Tobin (2002) An Examination of the Corporate Social and Environmental manifestations 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 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 follow and Integrative Theoretical Model, Academy of Management Journal, Special stretch forth Best Papers Proceedings, 1995, pp. 241 245. Kaplan, S. E. and R. G. Ruland (1991) Positive Theory, Rationality and Accounting Re gulation, Critical Perspectives on Accounting, Vol. 2, No. 4, pp. 361 374. Lindblom, C. K. (1994), The Implications of Organizational Legitimacy for Corporate Social mental process and Disclosure, Critical Perspectives on Accounting Conference, New York. Mathews, M. R. (1993) Socially obligated Accounting, UK, Chapman & Hall.Neu, D., H. Warsame and K. Pedwell (1998) Managing Public Impressions Environmental Disclosures in yearbook 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 Predictive force-out 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 Ap proaches, 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.