Legitimacy

Legitimacy concerns the degree to which a practice, structure, organization, or type of organization conforms to the norms, values, laws, and rules of a social system and thus is acceptable to or appropriate in the social system. In this entry, the term subject refers to the practice, structure, organization, or type of organization whose legitimacy is being considered, and the term standards refers to the norms, values, laws, rules, and so on against which the subject is compared. Legitimation refers to the process by which an organization gains legitimacy, and de-legitimation refers to the process by which an organization loses legitimacy. The etymological origin of legitimacy is the Latin word for lawful: legitimus. For millennia, people have been concerned about the legitimacy of heirs, especially heirs to the throne. In the 19th century, Max Weber brought the idea of legitimacy into the study of organizations, and the concept is germane to law, political science, sociology, and organization studies.

This entry discusses the importance of the social system and its constituent stakeholders, institutional and strategic approaches to legitimacy, the different dimensions of legitimacy, and the similarities and differences between legitimacy and the reputation of corporations.

Social System

The social system varies depending on the subject. Nondiscriminatory employment practices are a concern of employees, human resource professionals, unions, and government agencies concerned with employment practices. Corporations are concerned with the political, geographic, economic, and virtual communities in which they operate. Some governments are concerned about their legitimacy to the governed. A subject can be legitimate to some social systems but not to others. For instance, criminal organizations are legitimate to their members but not to the police force. The persistence of criminal organizations supports the observation of Jeffrey Pfeffer and Gerald Salancik that a subject need only be legitimate to a small social system to survive.

The social system includes individuals, organizations, and groups of organizations, which as a set have been referred to as audiences, constituents, publics, and stakeholders; this entry uses stakeholders as a general term because the word stake implies some form of meaningful relationship between the stakeholder and the subject. Stakeholders are nested hierarchically, as in an employee of an oil company that belongs to the oil industry within “society” or the “global village.” Individuals and organizations usually have memberships in multiple communities; for example, an oil company can be a member of a local chamber of commerce and a national trade association, and an oil company employee can also be a member of a conservation society.

Institutional and Strategic Approaches to Legitimacy

Mark Suchman carefully outlined the differences between legitimacy as a property that an organization has and legitimacy as a property that an organization manages strategically. An organization has legitimacy because stakeholders in the social system confer legitimacy on it. This conferral can be explicit or implicit, depending on the stakeholder. For instance, government regulatory agencies give an organization its charter, articles of incorporation, and business licenses. In most cases, the general public implicitly accepts that the organization is legitimate based on the government imprimatur—relatively few people read the business license in restaurants.

Being legitimate is a good thing because it facilitates the acquisition of resources and the accomplishment of organizational purposes. Thus, it is important for an organization to manage its legitimacy. This consists of the symbolic and substantive actions taken to gain, maintain, defend, and repair legitimacy.

Dimensions of Legitimacy

The example of an organizational charter highlights two dimensions of legitimacy: regulatory and cognitive. Regulatory legitimacy refers to the approval given by officially sanctioned agencies. Cognitive legitimacy refers to when an organization or practice is easily understood, what Suchman called comprehensibility, which often leads to the organization or practice being taken for granted as a natural part of the environment. Another commonly considered dimension of legitimacy is normative legitimacy, sometimes known as moral legitimacy, whereby an organization is consistent with the norms and values of the social system. A fourth general dimension of legitimacy is pragmatic legitimacy; this reflects the ability of an organization to fulfill the self-interests of stakeholders.

Conflict can emerge among stakeholders linked to different dimensions of legitimacy. The example of organized crime mentioned earlier illustrates how pragmatic legitimacy to members of criminal organizations conflicts with the law, law enforcement agencies, and the victims of organized crime. The legitimacy of corruption and bribery varies across the globe. Regulatory restrictions on the use of languages other than French on business signs in the Canadian province of Quebec illustrate how commonly accepted practices in some social systems are contested in others.

Similarities Between Legitimacy and Reputation

Focusing on corporations and corporate actions specifically, there are many similarities between the legitimacy of a corporation and corporate reputation. In Suchman’s terms, both legitimacy and reputation are properties that corporations have. Both are conferred by stakeholders, who evaluate a corporation based, and corporate performance, based on their criteria. The pragmatic dimension of legitimacy, which, as noted earlier, indicates the ability to satisfy the self-interests of stakeholders, has strong overlap with certain dimensions of reputation. For instance, satisfying the self-interests of employees is similar to being known to employees as a quality workplace, and satisfying the self-interests of customers is similar to being known to customers for quality products.

Both legitimacy and reputation have been associated with an increased ability to access resources, thus leading to increased corporate financial performance, including accounting measures such as return on assets and stock market measures such as change in stock price. These positive outcomes lead corporations to take actions to build legitimacy and reputation strategically.

There are a number of common actions corporations can take to enhance their legitimacy and reputation. These include developing strong board-of-director linkages, donating to charitable organizations, strategically managing corporate communications and public relations, increasing corporate social responsibility, and having strong network relationships.

Other factors that influence legitimacy and reputation but are less under the direct, short-term control of the corporation are the age of the corporation, industry membership, and the size of the corporation.

Financial performance can be an antecedent as well as a consequence of legitimacy and reputation. Corporations with higher financial performance can spend money on legitimating and reputation-building activities, like the ones listed earlier. Stakeholders may even perceive a corporation as legitimate and reputable solely based on the money the corporation is making using the rationale that if it’s making so much money, it must be legitimate and reputable.

Differences Between Legitimacy and Reputation

Although there is much overlap, there are some key differences between legitimacy and reputation. David Deephouse and Suchman highlighted the standardizing nature of legitimacy and the individuating nature of reputation. Deephouse and Suzanne Carter summarized the conceptual differences in terms of acceptability versus relative standing on certain criteria. They also argued and showed empirically that conformity (i.e., institutional isomorphism) and financial performance had different effects on legitimacy and reputation.

Conclusion

To conclude, legitimacy indicates the acceptability of a corporation and its actions to stakeholders in a social system. It is closely related to reputation, but the two should not be confused.