Almost all of the leading scholars in the field of organizational legitimacy perpetually emphasize the need for empirical studies that investigate how individuals judge whether or not organizations are legitimate, i.e. whether they are perceived to comply with social norms and values. The current lack of such studies creates an unpleasant situation. Our knowledge about what goes on in our minds when judging the legitimacy of corporate behavior basically rests on theoretical models. To close this gap there is hardly a way around insights from social psychology research. Social psychological reasoning does not only allow comprehending cognitive processes of individuals but also demonstrates how individuals influence institutions.
At the end of the day it was the match between the given research gap and our interest in psychological research that motivated us to work on this project.
In what ways is your research innovative, and how do you think it will impact the field?
The belief-attitude approach applied in our study explains that collective and individual judgments are not necessarily congruent and that two individual beliefs—attributed motives and the perceived credibility of the organization—lead to a change in individuals’ legitimacy judgment.
Being cautiously optimistic we hope that our study will be only one out of many future studies that experimentally investigate individual legitimacy judgements in organizational research. Experimental vignette studies are a promising data collection technique because they combine the advantages of a laboratory experiment—high internal validity—with those of a field experiment—high external validity. Currently such studies are quite rare in business and society research. Hence, our study hopefully promotes the use of experiments in studies dealing with such issues. Thereby, legitimacy is only one out of many fascinating objects of research.
What is the most important/ influential piece of scholarship you’ve read in the last year?
We would like to seize this opportunity and highlight a recently published article by Finch et al. (2015). For our research area we regard this study as important. It deals with individual legitimacy judgements in regard to the oil sands industry in Canada. Even so the study was overlooked by recent reviews—we deem it the most promising approach to further explore how people judge organizational legitimacy.
The key element of their study is the definition of legitimacy as an attitude. This allows for applying an abundance of scholarly work from decades of social psychology research to the investigation of individual legitimacy judgments. These various existing insights on attitude formation and attitude change as well as those on belief building and belief adjustment provide several fruitful avenues for future research.
We examine how directors’ political ideologies, specifically the board-level average of how conservative or liberal directors are, influence boards’ decisions about CEO compensation. Integrating research on corporate governance and political psychology, we theorize that conservative and liberal boards will differ in their prevailing beliefs about the appropriate amounts CEOs should be paid and, relatedly, the extent to which CEOs should be rewarded or penalized for recent firm performance. Using a donation-based index to measure the political ideologies of directors serving on S&P 1500 company boards, we test our ideas on a sample of over 4,000 CEOs from 1998 to 2013. Consistent with our predictions, we show that conservative boards pay CEOs more than liberal boards and that the relationship between recent firm performance and CEO pay is stronger for conservative boards than for liberal boards. We further demonstrate that these relationships are more pronounced when focusing specifically on the directors most heavily involved in designing CEO pay plans—members of compensation committees. By showing that board ideology manifests in CEO pay, we offer an initial demonstration of the potentially wide-ranging implications of political ideology for how corporations are governed.
Kogut’s primary interest is corporate governance and, secondarily, its role in economic development. Earlier work by economists had suggested that the primary route to development was a system of free and open markets, underpinned by an active capital market, strong legal protections of shareholder rights, and effective monitoring of management. Although liberalization and privatization occurred worldwide over the past four decades, Kogut argues that nations responded to these forces in very different ways. The outcomes they experienced, however, at least in terms of their ownership and director networks, were often very similar. In other cases, virtually identical levels of liberalization and privatization led to very different outcomes. Kogut’s goal in the book is to account for this convergence and divergence. To do this, he employs two approaches. The first, which he calls “comparing the comparative statics,” involves examining groups of countries that experienced a similar “structural break,” or what is usually termed an exogenous shock. The second, which he refers to as “Can you grow it?” (a phrase from the field of complex systems), involves the examination of network change through simulations, in particular the “rewiring” of the connections among units.
Kogut lays out these arguments in an extensive, wide-ranging introductory essay that is simultaneously an exegesis on organizational, economic, and sociological theory (with a dose of philosophy of science), punctuated with a didactic essay on social network analysis. This chapter, running 50 pages of densely packed text, is by itself worth the price of the book.
In a recent blog post on The Hill calling for the SEC to adopt a new rule on disclosure of public companies’ political spending, the authors wrote:
If money from our business accounts is used for political spending, we’d better well know about it. It would be a sign of dangerously poor management if we did not. Yet, under current practice corporate funds can be spent in exactly this way, without the owners’ knowledge, at the largest public companies in America. [thehill.com]
This article is concerned with the moral permissibility of corporate political activities under the existing legal framework in the United States. The author unpacks and examines the standard case for and against the involvement of business in lobbying and electoral activities. And the author provides six objections against the standard arguments and proposes that the wrongness of corporate political activities does not have much to do with its potential social consequences but rather with nonconsequentialist considerations. The author’s ultimate aim is to make sense of the intuition that corporate political spending is morally objectionable. The author argues that his case against corporate political spending fares better than the standard case. What is wrong with the current system of regulation of corporate lobbying and campaign finance is that it is inconsistent with the principles of political equality and consent. By taking advantage of this unfair regulatory framework, business firms are making a contribution to undermine the basis of a robust democratic regime at both the societal and the corporate level.
As a corporate governance researcher, one of the topics I am interested in is board composition. As an academician, I thought it would be interesting to investigate whether the presence of academicians as independent board members impacts organizational outcomes.
We expected academician directors to influence board vigilance and accounting performance. Based on our results, that was not the case. However, our results also showed that organizations with academician directors are valued more favorably by the market players. That finding was surprising and worthy of note for the board composition literature.
Due to recent regulatory developments, such as the Sarbanes Oxley Act 2002, and new research findings published in premier outlets of the management field, directors are now considered to be more essential for strategic decision making. To our knowledge, presence of academicians as board members was not assessed by previous researchers. I believe that our manuscript is a good starting point. In the future, researchers may further investigate this area. Practitioners may find our paper useful when they are looking into the effect of different board compositions. They may be particularly interested in nominating academicians as potential independent board members.
Guclu Atinc is an Assistant Professor of Management at Drake University. He received his doctoral degree from Louisiana Tech University in Strategic Management. His current research interests are in the area of upper echelons and boards of directors in young entrepreneurial firms and the impact of environment in strategic decision making. His research appeared in journals like Organizational Research Methods, Journal of Managerial Issues and Journal of Business Strategies.
A 1-standard-deviation increase in the amount of flattery and ingratiating agreement that CEOs receive raises their likelihood of being fired by 64%, say Sun Hyun Park and James D. Westphal of the University of Michigan and Ithai Stern of Northwestern University. Flattery inflates leaders’ opinions of their abilities and prevents them from making changes in the face of poor corporate performance. Over a 12-month period, colleagues and close subordinates admitted making an average of 3.64 statements to CEOs complimenting them in ways that slightly exaggerated the leaders’ insight on strategic issues, the researchers say.
Our theory suggests how high levels of flattery and opinion conformity can increase CEOs’ overconfidence in their strategic judgment and leadership capability, which results in biased strategic decision making. Specifically, we contend that heightened overconfidence from receiving high levels of such ingratiatory behavior reduces the likelihood that CEOs will initiate needed strategic change in response to poor firm performance. We tested and confirmed our hypotheses with a dataset that includes original survey data from a large sample of U.S. CEOs, other top managers, and board members in the period 2001–2007. Further analyses suggest that strategic persistence that results from high levels of flattery and opinion conformity directed at the CEO can result in the persistence of low firm performance and may ultimately increase the likelihood of the CEO’s dismissal. Implications for theory and research on social influence, sources of overconfidence in decision making, and the dynamics of executive careers are discussed.
Many people own shares where the main interest is purely financial reward. Rather than a dated concept, as it is sometimes portrayed, mutuality in its revised form for football club ownership affords the opportunity to replace economics
with “emotionomics” bringing back into focus the social basis for existence…This has implications for other nonprofit organizations prioritizing social arrangements over economics. This research has identified the need for stability, community interest, common purpose, and affinity of owners with the organization as paramount concerns. This resonates with the contemporary extant corporate governance research focusing on stakeholder interest and sustainability….”