Generating Corporate Legitimacy

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Table of Contents

Introduction
Brief Review of Chapter Content
Main areas where contribution is observed
Evaluation
Recent Developments
Conclusion
References

Introduction

It has been observed in recent years that there has been an upsurge in public interest the role of corporations within society. This signifies change in the perception of corporate entities in society today (Bendell 2000).

This changing role when coupled with the reduced power of the state with regard to regulation has seen several high profile companies change the definition of their role and provide protection of this role to the public. It has been suggested that corporations are struggling with a crisis that requires them to legitimize their operations and behavior (Bendell 2000).

Legitimacy can be defined as a general perception that the actions of a specific entity are desirable, proper or appropriate based on some predefined social norms (Bendell 2000). In the past the task of creating corporate legitimacy rested upon the shoulders of the state. However, current times have reported that there has been some erosion of state power and suggests that more work needs to be done in legitimizing operations.

The primary result of the vacuum that arose due to a lack adequate legitimization was the phenomenon sometimes referred to as extended stakeholder management (Bandell 2000). It is important to make efforts to build legitimacy owing to the fact that a lack of this often results in challenges to organizational reputation and public accusations based on malpractice allegations.

It is reported that NGO’s have come to play a major role in the quest for legitimacy in the corporate world. This is due to the fact that NGO’s are able to place increased pressure on organizations through campaigns to challenge any company within any industry (Bendell 2000).

For this reason the relationship between NGO’s and corporate entities appears to be in transition from one of conflict to one of consultation and in some cases association (Bendell 2000). This trend has seen many corporations seeking to establish positive relationships with NGO’s to build legitimacy. This trend though positive has the potential of leading to NGO capture.

This is similar to the capture of regulatory bodies that happened in the past due to the ability of powerful corporations to use financial influence to dominate relationships (Bendell 2000). The discussion presented in this report examines the changing role of corporations and the transfer of power from state machineries to the corporate world.

Brief Review of Chapter Content

There is an increasing acceptance of the fact that the role of large corporations within society is rapidly changing (Bendell 2000). As a result of this it has been observed that this role is slowly changing to include not only business but also a responsibility to society involving activities that do not involve the generation of profits.

Examples of public expectations with regard to corporate social responsibility include undertaking of environmental and social projects (Bendell 2000). The chapter reports that one of the main drivers of social reporting is the integration of social and financial performance such that an evaluation of a corporate entity includes economic as well as social performance (Crane et al. 2008).

These efforts are aimed at satisfying social demands as well as financial demands of the organization and society. To achieve this it is important that the mechanisms for regulation are restructured to consider sustainability and long term performance.

It has been reported that to achieve these ends there has been a gradual shift of regulatory power from political circles to the hands of the corporation or NGO’s charged with the role of regulation (Bendell 2000). The transfer of regulatory power has given rise to three new approaches that drive the need to transfer regulatory power.

The first trend has seen increased deregulation of business by the state and increased emphasis new regulation mechanisms that are heavily supported by voluntarism. The second trend that has caused this is the increase in world trade which has given rise to a need for regulatory activities within the corporation.

The third trend is the increased influence of global corporations with some entities reporting revenues that may be above the GNP of some countries (Bendell 2000).

The result of the above three trends is that the regulatory role of the state in business is fast being replaced. This is due to the fact that the public is losing faith in the ability of the state to regulate the business affairs of large corporations (Bendell 2000). In response to the demand for greater and more effective regulation extended stakeholder management has become a recognized phenomenon in strategic regulation.

The NGO’s are becoming a primary source of regulatory information and are playing a role of consultants and facilitators within some industries. Though many of them are not strong or financially influential enough to influence the large corporations, they are very adept at mobilizing other stake holder groups.

As a result they are able to influence consumer boycotts, media pressure and moral outrage to bring about response based on specific corporate activities (Bendell 2000). It is slowly emerging that the activities of NGO’s can be useful in assisting corporate entities meeting their social responsibilities.

Main areas where contribution is observed

In line with the need for increased accountability within the corporate environment there has been an increase in activities in areas seen as useful to building legitimacy. One area where there has been increased emphasis in recent years is that of cause promotions (Kotler and Lee 2005).

In this approach the corporate body provides funds, in kind contributions or other corporate resources to increase awareness about a specific social cause. An example of this is seen in corporate bodies funding walks and other similar activities to raise awareness on disease (Kotler and Lee 2005).

Another area that has seen increased contribution in the recent past is that of cause related marketing. In the approach a corporate body makes a donation or contributes a percentage of profits to deal with a specific social cause (Kotler and Lee 2005).

This approach is often considered as a win-win-win as it allows the corporation identify with the cause, provides consumers free opportunity to contribute to a cause and generates awareness on the cause. In addition to this another area with increased activity is that of corporate social marketing. This involves development of a behavior change campaign funded by the corporation (Kotler and Lee 2005).

In other attempts to build legitimacy corporate entities have resorted to corporate philanthropy. This approach involves a corporation making direct contributions to a cause often in the form of cash grants, donations and in kind contributions (Kotler and Lee 2005).

This is perhaps the most traditional of corporate social initiatives. The main reason for this as well the above mentioned approaches stems from the increased pressure both internally and externally to move to a more strategic business model.

Another activity that has in recent years seen increased emphasis and practice is that of community volunteering. In this approach the corporate body encourages employees, retail partners and/or franchise members to contribute time and effort in support of a cause (Kotler and Lee 2005). These initiatives may involve incentives such as increased time off to encourage staff to participate in community activities.

The last area that has seen increased emphasis and practice in the corporate world is that of socially responsible business practices. This involves a corporate entity undertaking discretionary business practices and investments (Crane et al 2008).

The goal here is to enhance the overall well being of the community and provide environmental protection. It has been observed that the overall objective of all the above activities is to enhance a commitment to the improvement of community well being through discretionary business practices and contributions of corporate resources.

Evaluation

As a result of the recent trends in relation to creation of legitimacy in the corporate sector it is emerging that there is a strong bond between the role of NGO campaigns and government reactions to social issues (Salzmann 2006). This likely due to the positive role of NGO’s in relation to social issues and the importance of legitimacy in the corporate sector.

It is therefore emerging that based on the ability of NGO’s to influence consumer awareness and behavior a relationship based on moderation is gradually being established between the corporate sector and the NGO’s. It has been observed that the degree of sensitivity of an organization towards legitimacy can be observed in the degree to which it pays attention to the demands of NGO’s and consumers (Salzmann 2006).

Furthermore the NGO’s are beginning to play an increasingly important role with regard to sustainability through their ability to influence activities such as consumer boycotts. As a result of this, a proactive relationship is beginning to take root in organizations with familiarity on the concept of sustainable development.

The NGO’s are playing a major role in assisting the corporate sector integrate activities that address social and environmental criteria into business strategies. In response to the public disposition in relation to social agendas the NGO sector has emerged as a major catalyst for change in several industries.

In addition to assisting in bringing about change within various business sectors it has been observed that NGO’s are also playing a major role in increasing the awareness of customers (Salzmann 2006). This observation has been noted based on NGO boycott campaigns such as “Stop Esso” and “Stop Brent” in UK and Germany which both had noticeable effect on the companies (Salzmann 2006).

Based on the role currently played by NGO’s and the demands placed on business by globalization, civil regulation by NGO’s appears to be the primary driver for corporate social and environmental responsibility (Lodge and Wilson 2006).

This has been achieved through a mix of both pressure and engagement that has seen NGO’s creating a new agenda for business. This is due to the fact old ideas are beginning to erode and new players such as NGO’s are making moves to define and give institutional vitality to new regulations.

Recent Developments

As a result of the emerging relationship between NGO’s and corporate regulation it has been observed that NGO’s are encouraging, assisting and pressuring corporations to increase globalization benefits (Lodge and Wilson 2006).

In line with the increased globalization benefits it has been noted that there is an increase in pressure from NGO’s that requires corporations to play a more significant role in reduction of global poverty. The result is that faced with these external pressures and the current social changes many multinational corporations are realizing the need to place emphasis on building legitimacy.

In addition to attacking corporations and forcing change the NGO’s are also increasingly beginning to play a role of watchdogs, monitors and/or collaborators (Lodge and Wilson 2006). The NGO sector has rapidly become the watchdog with regards to a broad range of issues such as environment, labor, human rights and animal rights (Boscheck 2008).

The requirement for increased legitimacy in business has become significantly pronounced following the collapse of large corporations such as Enron and WorldCom among others (Boscheck 2008). Following these scandals there was public outcry on the role of government as far as regulation of business was concerned.

The end result was the public lost faith in government regulation and began to ask questions suggesting a need for increased regulation and accountability in business. Following this trend numerous developed nations introduced legislation that was aimed at regulation of corporate governance.

It was believed that such safe guards will prevent a repeat of similar incidents in future and urge corporations to participate in business in a more accountable fashion.

Conclusion

It was observed that in recent years trends within large corporations have led to an increased interest by the public. This trend was influenced by the failure of several major corporations and the losses incurred by the shareholders.

Following this trend there has also been an increase in the reduction of state regulation of corporations and establishment of stricter regulation mechanisms. In light of this current situation many large corporations are struggling with efforts to legitimize their operations and behavior.

In light of the demand for legitimization it has been observed that NGO’s are beginning to play a major role in achieving this end. This is due to the fact that NGO’s are capable of effectively mobilizing the public and awareness creation in relation to social issues. Based on this crucial role of NGO’s several corporations have sought to build relationships with NGO’s.

Though the relationship between NGO’s and corporations is often strained it is emerging that it could provide the much needed non state regulation that the public demands. It is hoped that as the relationship grows both NGO’s and corporations can collaborate to achieve social, environmental, human rights and animal rights agendas.

References

Bendell, J 2000, Terms of endearment: business, NGOs and sustainable development, Greenleaf Publishing Limited, Sheffield.

Boscheck, R 2008, Strategies, markets and governance: exploring commercial and regulatory agendas, Cambridge University Press, Cambridge.

Crane, A, McWilliams, A, Matten, D, Moon, J, and Siegel, DS 2008, The oxford handbook of corporate social responsibility, Oxford University Press, Oxford.

Kotler, P & Lee, N 2005, Corporate Social Responsibility: doing the most good for your company and your cause, John Wiley & Sons Inc., New Jersey.

Lodge, GC and Wilson, C 2006, A corporate solution to global poverty: how multinationals can help the poor and invigorate their own legitimacy, Princeton University Press, New Jersey.

Salzmann, O 2006, Corporate sustainability management in the energy sector: an empirical contingency approach, Springer Science+Business Media, Berlin.

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