Chapter 9 - Theory Flashcards
Legitimacy theory
A theory that proposes that organisations need to operate
within the bounds and norms of their respective societies.
Compliance with societal norms and expectations is assigned
the status of ’legitimacy’. If ’legitimacy’ is not apparent, then
managers will embrace the process of legitimation.
Within Legitimacy Theory, the expectations of the community are not considered to be fixed, but change over time, thereby requiring managers to be responsive to the ethical (or moral) environment in which they operate. A
right to resources must be ‘earned’ (Mathews, 1997) and it is ‘legitimate organisations’ that are able to sustain their ongoing access (or ‘rights’) to needed resources.
For an organisation seeking to be perceived as legitimate, it is not the actual conduct of the organisation that is important; it is what society collectively knows or perceives about the organisation’s conduct that shapes legitimacy. Information disclosure – and, therefore,‘accounting’ – is vital to establishing corporate legitimacy.
Societal contract
Concept within Legitimacy Theory. The social contract, or social licence to operate, is a theoretical concept representing the views and
expectations society has about how an organisation should
conduct its operations. Organisations must act in conformity
with the social contract, and ongoing changes thereto,
otherwise they will encounter trouble surviving
Stakeholder theory
Has both an ethical and managerial branch and is
effectively an umbrella term representing a number of alternative theories that address various issues associated with an organisation’s relationship
with its stakeholders.
Stakeholder: Any identifiable group or individual who can affect the achievement of an organisations objectives, or is affected by the achievement of the objectives.
Ethical branch of Stakholder theory
Ethical or also called normative branch of stakeholder theory, i.e. it is prescriptive in nature.
Stakeholders rights
Argues (or ‘prescribes’) that all stakeholders have the right to be treated fairly by an organisation, and that issues of stakeholder power are not directly relevant. That is, the impact of the organisation on the life experiences of a stakeholder should be what determines the organisation’s responsibilities
to that stakeholder, rather than the extent of that stakeholder’s (economic) power over the organisation. Within the ethical branch of Stakeholder Theory, there is a view that stakeholders have intrinsic rights (for example, to safe working conditions and fair pay), and that these rights should not be violated. Intrinsic rights will be linked to the philosophical beliefs of respective researcher.
Hence, accounting information should regard all stakeholders rights. The broader ethical (and normative) perspective that all stakeholders (both primary and secondary) have certain minimum rights that must not be violated can be extended to a notion that all stakeholders also have a right to be provided with information about how the organisation
is affecting them (perhaps through pollution, community sponsorship, provision of employment, safety initiatives and so on), even if they choose not to use the information, and even if they cannot directly have an impact on the survival of the organisation
In considering the normative perspectives of how organisations should behave with respect to their stakeholders (relating to intrinsic rights, including rights to information), it should be noted that these perspectives pertain to how the respective researchers believe organisations should act, which is not necessarily going to be the same as how they actually do act. Hence,
the various perspectives cannot be validated or confirmed by empirical observation, as might be the case if the researchers were providing descriptive or predictive (positive) theories about
organisational behaviour.
Managerial branch of stakeholder theory
The Managerial branch attempts to explain when corporate
management will be likely to attend to the expectations of particular (typically powerful) stakeholders. Positive branch, aims to predict and explain why managers act in different ways. Assumes self-interest and wealth maximisation.
Considers the different stakeholder groups within society and how they should best be managed.
The greater the importance to the organisation of the respective stakeholder’s resources/support, the greater the probability that the particular stakeholder’s expectations
will be incorporated into the organisation’s operations. From this perspective, various activities undertaken by organisations, including public reporting, will be directly related to the expectationsof particular stakeholder groups. Furthermore, organisations will have an incentive to disclose
information about their various programs and initiatives to the respective stakeholder groups to indicate clearly that they are conforming with those stakeholders’ expectations. Organisationsmust necessarily balance the expectations of the various stakeholder groups.
1) Positive in orientation.
2) Concerned with stakeholders who can affect the organisation
3) Manage the organisation for the benefit of the owners and powerful stakeholders.
4) Stakeholder power is relevant and stakeholders will be identified on the
basis of the extent to which their needs must be managed in order to further the interests of the organisation.
5) Corporate reporting is used as a strategy to manage the interests and influence of powerful stakeholders so as to further the interests of the organisation.
Managerial branch vs. Ethical branch
1) Positive in orientation (MB) **vs. **Normative in orientation (EB)
2) Concerned with stakeholders who can affect the organisation (MB) vs. Concerned with stakeholders who can affect the organisation as well as those who are affected by the organisation.
3) Manage the organisation for the benefit of the owners and powerful stakeholders (MB) **vs. **Manage the organisation for the benefit of all stakeholders (EB)
4) Stakeholder power is relevant and stakeholders will be identified on the
basis of the extent to which their needs must be managed in order to further the interests of the organisation (MB) vs. Stakeholder power is not relevant - all stakeholders deserve consideration in their own right (EB).
5) Corporate reporting is used as a strategy to manage the interests and influence of powerful stakeholders so as to further the interests of the organisation vs. Corporate reporting is responsibility driven and linked to considerations such as “right-to-know”. Corporate reports will inform stakeholders about the exten to which the actions for which the organisation is deemed to be responsible have been fulfilled.
Institutional theory
A theory that explains how various practices, processes
and organisational forms become similar or ‘institutionalised’ within
society. Explains that organisations within particular ‘institutional environments’ will become similar because of various coercive, normative and mimetic pressures. This process of becoming similar is referred to as isomorphism. The theory also predicts that there will be a decoupling of formal (seen) structures or forms and actual structures or forms. These pressures derives from the regulative pillar (brings pragmatic legitimacy), the normative pillar (brings moral legitimacy) and the cultural-cognitive pillar (brings cognitive legitimacy). Cultural cognitive pillar consist of taken-for-granted systems and meanings.
Institutions: We see institutions as cultural rules giving collective meaning and value to particular entities and activities, integrating them into larger schemes.
Decoupling: Refers to the situation in which the formal organisational structure or practice is separate and distinct from actual organisational practice.
When actions, processes or organisational forms become ‘institutionalised’, they become accepted as ‘the way to do things’. When things become highly institutionalised, they effectively are ‘beyond the discretion of individuals and organisations’ (Meyer and Rowan (1977, p. 344). They are taken for granted as legitimate and, because of the ‘taken for granted’ status, the
processes or organisational forms tend to perpetuate. As such, the ‘institutions’ are often not evaluated by their impacts or technical outcome.
