Chapter 9

Question 1

Systems-oriented theories/open-systems theories - definition and the including theories

Answer 1

• Theories who focus on the role of information and disclosure in the relationships between organisations, the state, individuals and groups
• The entity is perceived as being influenced by, as well as influencing, the society in which it operates
• Legitimacy theory
• Stakeholder theory
• Institutional theory

Question 2

Political Economy Theory

Answer 2

The other 3 theories are derived from this theory. And the argument is that economic issues cannot or should not be investigated in the absence of considering the wider political, social and institutional framework. Two broad streams:
- Classical
- Bourgeois

Question 3

Legitimacy Theory - definition

Answer 3

–> organisations seek to ensure they operate within the bounds and norms of their respective societies. They want their activities to be perceived as “legitimate”.
- Can help explain why an entity might elect o make voluntary disclosures

Question 4

Legitimacy definition

Answer 4

is the status or condition that exists when an entity´s value system is congruent with that of society (a resource for survival)

Question 5

Legitimations definition

Answer 5

is the process which leads to an organisation being viewed as legitimate

Question 6

Legitimacy Theory - Legitimate

Answer 6

Means there is a social contract between the organisation and the society in which it operates. To be considered legitimate is not the acutal actions but what society collectively knows or perceives about the organisation´s.
“Compliance with community expectations –> legitimate organisation”

Question 7

Legitimacy Theory - social contract

Answer 7

The theory is linked to the idea of social contract wherein the social contract represents the multitude of implicit and explicit expectations that society has about how an organisation should conduct its operations.
- Explicit terms - legal requirements
- Implicit terms - non-legislated societal expectations

Question 8

Legitimacy Theory - legitimacy gap

Answer 8

When an organisation does not comply with the terms of the “social contract” –> legitimacy gap

Question 9

Reasons to legitimacy gap

Answer 9

• expectations change
• failure to make disclousers
• Part of the organisations “shadow” is revealed

Question 10

Phases of legitimation

Answer 10

• Gaining legitimacy phase - “liability of newness”, acceptance won through communication (proactive)
• Maintaining legitimacy phase - Maintaining activities and provision of symbolic assurances. Need to anticipate changing expectations. 2 parts; forecasting future changes & protecting past accomplishments
• Repairing lost legitimacy phase - Reactive process to unforeseen crisis

Question 11

Actions to legitimise activities (Dowling and Pfeffer)

Answer 11

a) adapt output, goals & methods to conform to legitimacy
b) attempt, through communication, to alter the definition of social legitimacy so it conforms with the organisations present practices
c) attempt, through communication, to become identified with symbols or values which imply legitimacy

Question 12

Communication activities to maintain legitimacy (Lindblom)

Answer 12

1. seek to educate & inform the community about changes in performance and activities
2. seek to change perceptions but not behaviour
3. seek to manipulate perception by deflecting attention from the issue to other related issues
4. seek to change external expectations

Question 13

Legitimacy Theory - Role of public disclosure

Answer 13

Public disclosure in such places as annual reports, sustainability reports and websites can be used to implement each of the previous legitimation strategies

Question 14

Legitimacy Theory - Disclosures might be …

Answer 14

• substantive - disclosures reflect actual changes in corporate activities
• symbolic - disclosures do not reflect “real” change but are made to appear consistent with social values and expectations

Question 15

Legitimacy Theory - Media agenda setting theory

Answer 15

The media shapes public awareness, memebers of the public need the news media to tell them how important an issue is.
- obtrusive issues - issues that the public meet themself
- unobtrusive issues - issues that cannot be experienced or known by the public without the media

Question 16

Limitations with legitimacy theory

Answer 16

• lack of detail about how legitimacy can be measured
• do not consider actions that are aimed at legitimising the broader social system

Question 17

Stakeholder Theory - definition

Answer 17

This theory suggests that businesses should be accountable not only to their shareholders, but also to other stakeholders such as employees, customers, suppliers, and the community. Two branches: ethical/normative branch & positive/managerial branch.

Question 18

Ethical (moral/normative) branch of Stakeholder Theory

Answer 18

Management SHOULD manage the organisation for the benefit of all stakeholders.

Question 19

Ethical (moral/normative) branch of Stakeholder Theory - Intrinsic rights

Answer 19

who different researchers believe that managers should repsect, will be linked to the philosophical beliefs of the respective researchers about not who the stakeholders are their rights.

Question 20

Primary & secondary stakeholders

Answer 20

The ethical branch does not differentiate between them.
- Primary - ones without whose continuing participation the corporation cannot survive as a going concern
- Secondary - those who influence or affect, or are influenced/affected by, the corporation, but who are not engaged in transactions with the corporation and not essential for survival

Question 21

Right to information - accountability and its 2 responsibilities

Answer 21

Two responsibilities:
- to undertake certain actions
- to provide an account of those actions

Question 22

Testing of the ethical branch of theory

Answer 22

As the ethical branch embraces normative perspectives about how the organisation should act, it cannot be validated by empirical observation

Question 23

Managerial branch of Stakeholder Theory

Answer 23

This branch attempts to explain when corporate management will be likely to attend to the expectations of particular (powerful) stakeholders. It considers different stakeholder groups within society, not society as a whole

Question 24

Managerial branch of Stakeholder Theory - Organstion-centred

Answer 24

• Stakeholders are identified by the organisation
• The extent to which organisation believes relationships needs to be managed in interests of the organisation

Question 25

Managerial branch of Stakeholder Theory - Can it be tested empircal?

Answer 25

Yes since it is not normative, is does not say how organisation should do but explains when management will attend expectations of a particular stakeholder.

Question 26

Stakeholder power

Answer 26

Managers of an organisation will not respond to all stakeholders equally, but to the most powerful.
- Powerful - the stakeholder´s degree of control over resources required by the organisation

Question 27

Managerial branch of Stakeholder Theory - the role of information

Answer 27

Information, including financial accounting and social performance information, is a major element employed to manage stakeholders. Used to gain support or approval.

Question 28

Institutional Theory - defintion

Answer 28

(neo-institutional) Provides an explanation about why organisations tend to take on similar characteristics, form and proccesses.

Question 29

Institutional Theory - will typically embrace either an institutional aspect or strategic aspect to explain why managers take various actions or why organisations take various forms

Answer 29

• Institutional aspect - acknowledges and explains how the institutional environment context within which organisations operate influences the processes and practices used by an organisation
• Strategic aspect - (legitimacy theorists), explores how managers can shape the institutional environment in which they operate through various strategic actions

Question 30

Institutional Theory - the meaning and building blocks of institution

Answer 30

(Scott) Institutions are comprised of REGULATIVE, NORMATIVE and CULTURAL-COGNITIVE elements that, together with associated activities and resources, provide stability and meaning to social life.

Question 31

Institutional Theory - Isomorphism

Answer 31

A constraining process that forces one unit in a population to resemble other units that face the same set of environmental conditions. 3 processes:
- coercive
- mimetic
- normative

Question 32

Institutional Theory - Coercive isomorphism

Answer 32

Arises where organisations change their institutional practices because of pressure from those stakeholders upon which the organisation is dependent (managerial branch). Because powerful stakeholders might have similar expectations of other organisations, there will tend to be conformity in practices across organisations, including their reporting practices

Question 33

Institutional Theory - Mimetic isomorphism

Answer 33

Organisations often copy other organisation´s practices for competitive advantage and to reduce uncertainty. Link without coercive pressure from stakeholders.

Question 34

Institutional Theory - Normative isomorphism

Answer 34

Involves pressures from “group norms” to adopt particulare institutional practices. Particular groups with particular training will tend to adopt similar practices.

Question 35

Institutional Theory - Decoupling

Answer 35

Although managers might see a need to be seen to be adopting particular structures and practices, actual organisational practices can be very different to the formally publicly pronounced processes and practices