How Do Individuals Judge Organizational Legitimacy?

[We’re pleased to welcome author Melanie Eichhorn of the ESCP Europe Business School. Eichhorn recently published an article in Business and Society entitled “How Do Individuals Judge Organizational Legitimacy? Effects of Attributed Motives and Credibility on Organizational Legitimacy,” which is currently free to read for a limited time. Below, Eichhorn reflects on the inspiration for conducting this research:

 

BAS_v50_72ppiRGB_powerpointWhat motivated you to pursue this research?

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.

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Elephant or Donkey? How Board Political Ideology Impacts CEO Pay

6261650491_0cd6c701bb_zHow much does directors’ political ideologies impact CEO compensation? Perhaps more than you might think–according to a recent paper published in Administrative Science Quarterlyentitled “The Elephant (or Donkey) in the Boardroom: How Board Political Ideology Affects CEO Pay” from authors Abhinav Gupta and Adam J. Wowak, conservative and liberal boards differ in not only how much they pay CEOs, but how they adjust CEO compensation based upon company performance. The abstract for the paper:

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 Current Issue Coverdirectors 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.

You can read “The Elephant (or Donkey) in the Boardroom: How Board Political Ideology Affects CEO Pay” from Administrative Science Quarterly free for the next two weeks by clicking here. Want to stay up to date on all of the latest research published by Administrative Science QuarterlyClick here to sign up for e-alerts!

*Image attributed to DonkeyHotey (CC)

Happy Election Day from Management INK! Did you vote yet?

Book Review: Bruce Kogut (ed.): The Small Worlds of Corporate Governance

indexBruce Kogut (ed.): The Small Worlds of Corporate Governance. Cambridge, MA: MIT Press, 2012. 388 pp. $42.00, hardcover.

You can read the review by Mark S. Mizruchi of the University of Michigan, available now in the OnlineFirst section of Administrative Science Quarterly.

From the review:

Kogut’s primary interest is corporate governance and, secondarily, its role in economic development. Earlier work by economists had ASQ_v60n2_Jun2014_cover.inddsuggested 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.

You can read the rest of the review from Administrative Science Quarterly by clicking here. Want to know about all the latest research and reviews from Administrative Science Quarterly? Click here to sign up for e-alerts!

The Ethics of Corporate Political Spending

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]

Business & Society has published a new Special Issue: The Governance Challenges of Corporate Political Activity. In the article titled “Corporate Dystopia: The Ethics of Corporate Political Spending,” Miguel Alzola of Fordham University wrote:

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 BAS_v50_72ppiRGB_150pixWpotential 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.

Continue reading the article online in Business & Society, and browse the rest of the Special Issue here.

Do Academics Make Good Directors?

Editor’s note: We are pleased to welcome Guclu Atinc of Drake University. His paper “An Investigation of the Impact of Academicians as Directors,” co-authored by Mark Kroll of The University of Texas at Brownsville and Bruce Walters of Louisiana Tech University, is forthcoming in the Journal of Leadership & Organizational Studies and now available in the journal’s OnlineFirst section.

UntitledAs 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.

JLOS_72ppiRGB_150pixWDue 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.

Read the article, “An Investigation of the Impact of Academicians as Directors,” online in the Journal of Leadership & Organizational Studies.

guclu-atincGuclu 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.

Flattery: Hazardous to a CEO’s Health?

UntitledCEOs are accustomed to receiving praise and flattery, but it turns out this behavior has some potentially dangerous consequences. Harvard Business Review’s The Daily Stat this week spotlighted an article from Administrative Science Quarterly which reveals the insidious effects of flattery on the corporate elite. From the Stat:

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.

ASQ_v58n1_Mar2013_cover.inddYou can read the complete article in Administrative Science Quarterly, “Set up for a Fall: The Insidious Effects of Flattery and Opinion Conformity toward Corporate Leaders,” by following this link. Authors Sun Hyun Park of the USC Marshall School of Business, James D. Westphal of the University of Michigan, and Ithai Stern of Northwestern University write in the abstract:

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.

Stay on top of findings like these by signing up for e-alerts from ASQ!  This top-tier journal regularly publishes the best theoretical and empirical papers based on dissertations and on the evolving and new work of more established scholars, as well as interdisciplinary work in organizational theory, and informative book reviews.

Football and the ‘Emotionomics’ of Mutuality

A recent study published in Nonprofit and Voluntary Sector Quarterly (NVSQ) looks at the mutuality model of ownership in professional football to discover valuable insights about corporate governance. Sara Ward, Thomas J. Scanlon, and Tony Hines, all of Manchester Metropolitan University, published “Mutuality Ownership Form and Professional Sports: Football” on May 16, 2012 in NVSQ, finding:

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….”

Click here to read on and here to learn more about Nonprofit and Voluntary Sector Quarterly.

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