The relationship between legitimacy, reputation, sustainability and branding for companies and their supply chains PT2

2. Legitimacy and corporate performance perceptions

The term legitimacy was defined by Parsons, 1956 and Parsons, 1960 and then Weber (1978) as a state of congruence towards laws, rules and social values. Scholars of social theory, organization, and the Resource-based View Theory introduced the notion of legitimacy in their theories (Johnson et al., 2006Ruef and Scott, 1998Salancik and Pfeffer, 1978 and Suchman, 1995). In the late ’70s, pioneers of the Neo-Institutional approach, such as Meyer and Rowan (1977) and Zucker (1977), while analyzing the ability of an organization to achieve survival, stressed the importance of expressing behavioral patterns conforming to standards, rules and beliefs of the reference context, in addition to more established factors such as organizational efficiency. From the seminal work of Meyer and Rowan onwards, all scholars belonging to the neo-institutional school argue that organizations that shape their behavior to moral rules and regulations of their reference context can be defined as legitimate. According to Fan (2005) (in Kaufmann, Vrontis and Czinkota, 2012 and Camilleri, 2008), effectively communicating legitimacy related values might give the company a differential and competitive advantage. In this context, Hawn, Chatterji, and Mitchell (2011)differentiated between market (related to market actors) and social legitimacy (related to non-market actors) in generating economic value and, innovatively, investigated their interactions. They elicited that increasing their social legitimacy is less beneficial for companies being already on a high level of market legitimacy; on the other hand, the high level of market legitimacy may substitute for a decreasing social legitimacy.

This constant search for contextual conformity and, hence, survival may shield the company from any behavioral change that could induce sanctioning reactions (i.e. strikes) from context members (Brown, 1998). The meaning of legitimacy employed in this study is succinctly expressed by Scott (1995, p. 45), who argues that “legitimacy is not a commodity to be possessed or exchanged but a condition reflecting cultural alignment, normative support, or consonance with relevant rules or laws”. The social dimension of branding in this context is expanded by Meads and Sharma (2008, p.9) who state that: “The business becomes a social purposeful system with the brand aspiring towards ‘social value’” (Meads & Sharma, 2008, p.9).

2.1. Central hypothesis

These definitions mark the central hypothesis of our research: legitimacy should be regarded the conditio sine qua non both to the social acceptance of the company and to a coherent implementation of reputation strategies.

 These considerations, however, highlight the existence of a gap in the line of studies regarding corporate/brand reputation. According to research by Van Riel and Fombrun the corporate image that stakeholders develop as a result of corporate communication activities, refers to four domains (product, social, financial and employment) and is aimed to distinctly recognize the company from among its many competitors (Brown et al., 2006Davies et al., 2001Fombrun, 1996Fombrun and van Riel, 2003Gioia et al., 2000Illia and Lurati, 2006Pruzan, 2001Scott and Lane, 2000Van Riel and Fombrun, 2007 and Whetten and Mackey, 2002). However, this assumption considers conformity of the company to rules, norms and cultural values of the reference context, as a behavior merely aimed at standing out in the competitive scenario characterized by a condition of rivalry. This view overlooks that behavior consistent with context requirements also allows the company to reach a perceptive, solely institutionally and even context targeted, positioning in constituencies’ minds (cognitive legitimacy) and does not necessarily result in distinctive evaluations compared with competitors, or an effect on financial results (Suchman, 1995). Hence, corporate legitimate behavior should not be regarded as having competitive and/or financial motives in the first place.

For example, many place marketing studies conclude that the extent of compliance of an organization with social expectations can reinforce or reduce a territory’s attractiveness (for example, companies that do not meet environmental standards may make the area in which they operate to be perceived as highly polluted and, therefore, economically, socially and/or touristically unattractive) (Chiu, 2011 and Zimmermann, 2001).

Following this line of thought, corporate behavior and, in its wake, the entire supply chain behavior, may trigger a dual (economic and institutional) approach towards its reference context.

This work shows that in the first case, when corporate behavior is merely geared towards the bottom line, reputation is exclusively seen as the capacity to cause results related to competitiveness.

The institutional approach, on the other hand, caters to the social, cultural, ethical role that the company plays within its reference context, and, therefore, is also about how the company itself is socially perceived by the community with which it interacts either directly or indirectly (Rindova, Williamson, Petkova, & Sever, 2005).

2.2. Differences between legitimacy and reputation

Some researchers describe the firm as either a social ( Kogut & Zander, 1996) or a discursive ( Tsoukas, 1996) community, or as a community of practice ( Constant, 1987 and Kreiner and Lee, 1999). Shifting the perspective, scholars like Kjellberg and Helgesson (2006)Andersson, Aspenberg, and Kjellberg (2008), orAraujo, Kjellberg, and Spencer (2008), and Storbacka and Nenonen (2008) refer to the notion of co-created markets as actors increasingly engaged in market and/or social practices. Recurring social practices, undertaken by individuals and social organizations within a social system, enable the establishment of relations between social players. Such relations in turn will evolve to mutual adaptation of social actors’ respective activities ( Giddens, 1984). This phenomenon marks a process of reflexive self-regulation, typical of social integration phenomena and of cybernetic systems as well as the expression of relational reciprocity among actors who are co-present ( Staber and Sydow, 2002Wiener, 1948Bateson, 1977Beer, 1959,Beer, 1966Beer, 1985 and Yolles, 1999). Berger and Luckmann (1966), furthermore, argued that organizations eventually mirror their environment as they reflect socially assembled realities.

A constant search by the company for such a state of consonance in the creation and/or maintenance of its relationships and mutual adjustment/change of practices and behavior employed by the social players, therefore express the existence of a continuous adaptation process (Golinelli, 2010 and Maturana and Varela, 1980).

In such a dynamic business scenario, the corporate system constantly looks for players with which to create and maintain lasting relations, through the development of, first, a state of consonance, and, then, of resonance. Consonance, as previously mentioned, is a condition that is achieved when the relevant players (corporate and supply chain system and context members) identify a common language and shared emotions/passions, while resonance marks a relational evolution in which the players create opportunities to reach common goals (Barile, 2006 and Golinelli, 2010).

Regarding the status, the individual stakeholder could fulfill an alternative or complementary double role. For example, an individual could be a citizen and/or a consumer. In the first case the corporate aim should be to satisfy the environmental and social norms (legitimate behavior), and in the second case to evoke some idiosyncratic features arousing a distinct positioning compared to other competitors (reputation related behavior).

The plan is to have the stakeholder express relational consensus following an assessment of corporate conduct. That conduct in turn is shaped by corporate skills and abilities, which are expressions of two dimensions. First, it reflects conformity to social norms, values, rules and meanings operating within the reference social systems (legitimate behavioral corporate skills). Second, it demonstrates firm-specific features, aimed at making the individual/target discern from other companies, due to the perception of either tangible or intangible specific assets (reputation related corporate skills) (Hawley, 1968Hirsch and Andrews, 1984Parsons, 1960Thornton, 2002 and Tolbert and Zucker, 1996).

The company that meets the expected standards, rules and values can either present itself as a value setting within its context (industry, place, etc.) together with the other players (constituence/audience), or as a system whose survival goals are the result of differentiation towards its competitors (Deephouse and Carter, 2005 and Golinelli, 2010).

Attention is drawn to the innovative organizational behaviors implemented by the firms in Silicon Valley. These behaviors have been, and are still, useful for both to qualify the place, contributing to regional and national economic growth and to increase the reputation and the competitiveness of the local firms.

On the other hand, the organizational behaviors applied by some Chinese firms and supply chains, characterized by disrespect of the environmental or legal (i.e. counterfeiting) norms, detrimentally influence the firms’ and country’s reputation.

Hence, a social actor evaluates, different from a consumer, the condition of a social organization and may rate this organization “adequate”, because of congruence with the contextual legal and cultural values and norms (Albert and Whetten, 1985Hannan et al., 2007Rao, 1994 and Zuckerman, 1999).

This acceptance condition reflects a rational-cognitive firm that is congruent with laws, norms and social practices, and mimics the reference context, becoming, in turn, an expression of contextual values. This mimetic approach represents a phenomenon defined by the institutionalist and neo-institutionalist theories as isomorphism ( Di Maggio and Powell, 1983 and Di Maggio and Powell, 1991).

2.3. Legitimacy and isomorphism

Neo-institutionalist scholars regard isomorphism as the key to understanding why companies that operate within the same institutional/social context take decisions and follow behavioral patterns that are usually very similar (Barley and Tolbert, 1997Di Maggio and Powell, 1991Jepperson, 1991Leblebici et al., 1991,Meyer and Rowan, 1977 and Zucker, 1977). According to Meyer and Rowan (1977), the notion of isomorphism implies that organizations should meet the rational criteria set by the institutional context in order to be considered efficient, to maximize legitimacy and resources, and their ability to survive. Isomorphism processes are determined not only by the tendency to conform to the external environment, but also by the action of the environment itself that leads to the creation of new organizations consistent with rational myths (institutionalized rules, norms, procedural ceremonials). With every new myth that consolidates, new organizations correspond to meet the needs that the myth itself has produced (an example is that of companies pursuing the me-too strategy). The best way to manage the conflict between internal rationality criteria and environmental pressure is to develop two parallel structures, one formal, consistent with myths and ceremonials, the other informal, aimed at gaining competitive advantage (Meyer & Rowan, 1977). Taking the generally accepted importance of authenticity, for example, for branding and transformational leadership in terms of leaders and brands being able to “walk the talk” into account (i.e.Kaufmann, Vrontis and Czinkota, 2012 and Lopez, 2011, July 29), Meyer’s and Rowan’s view seems to be very debatable. The relevance of this statement is further supported by the case of the European horse meat scandal. Another example could be the Nike case, where Nike was accused of utilizing children that lived in underdeveloped countries, to produce goods. To show that the behavior was legitimate, the company implemented a control process to evaluate the job agreement and the occupational safety conditions. Nike, by means of these activities, improved its social legitimacy and reputation. Furthermore, Nike adopted the politics named re-use, through which the consumers were encouraged to deliver the used rubber of the shoes to the Nike store, to build and donate some running tracks.

The following Fig. 1 suggests that that rational behavior that is aligned to normative and cultural expectations of social context members, especially individuals, gives the company social legitimacy, which could in turn support the creation and/or maintenance of a favorable reputation for the company itself and its members (employees, managers, consultants, owners, etc.) (see Fig. 1).

Full-size image (26 K)
Fig. 1.

Isomorphism and differentiation.

Figure options

More detailed, isomorphism tends to have different connotations depending on whether it evolves according to cognitive (social beliefs), normative (existence of scarce resources whose acquisition is essential to survival) and/or coercive conditions (existence of rules essential to social and economic activity) (Di Maggio and Powell, 1983 and Leydesdorff, 2000).

Cognitive or mimetic isomorphism is characterized by a spontaneous process of imitation and/or interpretation in which the interaction between actors and relevant messages is processed and turned into cultural meaning (Bridwell and Mezias, 2012 and Rao, 1994).

In sum, the prevailing existence of rules and resources leads to the identification of forms of isomorphism based on:

1.

Awareness of the importance of acquiring new know-how and practices in order to survive: Normative Isomorphism

2.

Pressure factors such as laws, regulations etc., that lead to compliance: Coercive Isomorphism (Golinelli, 2010).

 Normative Isomorphism is found in company–context interactions in which a greater ability, knowledge and/or possession of intangible assets is present (facility = ability / capacity), so as to define a condition of pre-eminence of one towards the other.

Coercive Isomorphism is found in interactions between actors, every time it becomes necessary to identify rules and/or standards useful to determine how a social actor should behave in order to gain legitimation (i.e. Basel III).

The relationship between players and context can therefore be seen as a continuous and mutual adaptation that depends on environmental determinism and the ability of the company to influence its reference context. While the former affects and constrains corporate activities, the latter is intended to influence context entities and to establish the autonomy of the corporate system towards the surrounding reality (Golinelli, 2010).

Legitimacy and isomorphism, as described, display something very useful to the development of this study: legitimacy is based on the notion of contextual homogenizing aimed at establishing conformity and congruence, and therefore non-rivalry, against the entire reference context and/or members of it (Deephouse & Carter, 2005). At this stage, it is useful to reiterate that legitimation and reputation play a mutual role aimed at company survival. Based on the conditions of the banking industry, Deephouse and Carter (2005)investigated various interrelationships between isomorphism, performance, and legitimacy reputation as well as the antecedents and dimensions of the latter. They concluded that isomorphism has a positive effect on legitimacy and reputation of companies with a lower level of reputation, however, a negative influence on the reputation of companies with a higher level of reputation. Furthermore, the authors found that a better financial performance increases reputation but not legitimacy. They suggest a study researching the corporate effectiveness implications when losing legitimacy and/or reputation for further research. In addition, they call for an informative case study deviating from the best practice standards to an extent of actually losing legitimacy and for knowledge on managing legitimacy and reputation.

2.4. The curative marketing

By discussing the European horse meat scandal and its managerial cross-functional implications, this paper intends to give a contribution in this context.

Cognitive, normative and coercive isomorphism implies a new role definition of marketing, reflecting a paradigm change. In this context, Czinkota (2012) invites participation in an interesting discourse. He recognizes a major shift in the discipline of Marketing related to an increasing societal discontent with marketing and marketing actors due to the detrimental effects of globalization and a resulting global crisis of trust.

Czinkota dubs this paradigm shift as curative marketing. He defines this term as a required contribution of marketing/international marketing to restoring and developing international economic health as a precondition for overall welfare. This new direction implies a new spiritual and behavioral orientation for marketers towards bettering the respective societies characterized by salient motives to deliver joy, pleasure, fulfillment, safety, and personal growth, and achieving advancement towards a better society across borders. According to Czinkota the time is ripe for an intensive reflection of marketers in terms of analyzing and accepting the responsibility for the various global shortcomings caused by companies and their supply chains. Mistakes inflicted by the discipline in the past should lead to future action improvements, driven by a ‘damage restitution spirit’. The multidisciplinary theory provided by this paper underpins the development of curative marketing strategies and the corresponding operational marketing behavior. Values, know how or competences reflecting a curative marketing approach should reflect factual truthfulness and honesty, simplicity, guided by transparency and system understanding. These are aspects important in the context of supply chains’ authenticity, consisting of expanded international expansion and inclusion, communication and empathy with critics, and the acceptance of personal responsibility.

2.5. Previous eclectic literature in the field

The following Table 1 confirms the relevance of eclectic concepts applied in this work but, so far, does not provide them in the coherent and holistic manner as suggested in this research. The papers reflect that CSR, in order to achieve corporate missions and objectives such as social and environmental responsibility (Fearne et al., 2012 and Mäkelä and Näsi, 2010), social welfare, market share (Manning, 2013) as well as competitive advantage (Fearne et al., 2012), is commonly perceived as the key corporate strategy driven by legitimacy as the most important corporate concern (Dodds et al., 2013 and Johansen and Nielsen, 2012). This corporate performance is based on a focus on public reputation (Abratt and Kleyn, 2012b and Zulhamri and Yuhanis, 2013), preferable consumer perception (Blombäck & Scandelius, 2013), sustainable organizational development, employee loyalty (Kryger Aggerholm et al., 2011), product/service differentiation, or effective resource management (Fearne et al., 2012). Increasingly, the authors presented in Table 1 take a wider stakeholder orientation. As means to these ends, isomorphic processes (Johansen & Nielsen, 2012), corporate self-storying (Johansen & Nielsen, 2012) or employer branding and, relating to aspects of behavioral branding, long-term employer–employee relationships (Kryger Aggerholm et al., 2011) are discussed. In addition, a number of papers strongly link the factors of global supply management, especially in the food industry, with the concepts of reputation, legitimacy and sustainability (CSR). These driving factors include:

– a system control based on belief and interactive systems (Nijhof et al., 2008)

– chain members’ bargaining power (Cruz & Boehe, 2008) and balance of power (Spence & Bourlakis, 2009)

– differentiation strategies (Cruz and Boehe, 2008 and Manning, 2013)

– consumer engagement and loyalty in relation to Consumer Social Responsibility (Manning, 2013)

– collaborative awareness building (Cruz & Boehe, 2008)

– reputation risk management at all stages of the global value chain (Lemke & Petersen, 2013)

– positioning sustainability activities (authenticity, due diligence, product safety, credible environment management) in communication messages as an intrinsic aspect of quality (Camilleri, 2008)

– holistic approaches (Spence & Bourlakis, 2009)

– (re)allocation of resources (Fearne et al., 2012)

– linking SME idiosyncrasies with stakeholder interaction and product and process innovation (Theyel & Hofmann, 2012)

– decision on the supply chain length (Lehtinen, 2012)

– requirements for exporting, protection of agricultural land (Dodds et al., 2013).

Table 1.

Previous eclectic literature.
Mäkelä and Näsi (2010) Legitimacy and stakeholders and social contract
Farache and Perks (2010) CSR and advertising and legitimacy
Johansen and Ellerup Nielsen (2012) CSR and legitimacy and isomorphism
Zulhamri and Yuhanis (2013) CSR and reputation and legitimacy
Kryger Aggerholm, Esmann Andersen, and Thomsen (2011) Employer branding and organization sustainability & long term employer-employee relationships
Fearne et al. (2012) Value chain analysis, sustainability and competitive advantage
Manning (2013) Corporate and consumer social responsibility and food supply chain
Nijhof, Forterre, and Jeurissen (2008) Legitimacy and supply chain; belief and interactive systems
Cruz and Boehe (2008) Sustainability and global value chain
Lemke and Petersen (2013) Reputation risk management and supply chain
Camilleri (2008) Sustainability and supply chain and corporate reputation
Spence and Bourlakis (2009) CSR and supply chain responsibility (food chain)
Dodds, Graci, Ko, and Walker (2013) Sustainability and CSR and wine
Theyel and Hofmann (2012) Sustainability and value chain and SME and CSR
Lehtinen (2012) Sustainability, supply chain (food chain)

This article is a part of a series. Read part 1 here.

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