In this radio interview on 2SER, I discuss the chapter published in the “Research Handbook on the Sociology of Organizations” on “Organizational Legitimacy and Legitimizing Myths.” It suggests that companies, as an influential and dominant group, want to maintain how they are held to account for their social and environmental impacts, which is through market forces. The research contends that the social license to operate and other concepts such as corporate purpose are hierarchy-enhancing legitimizing myths that uphold this status quo in favour of companies, at the detriment of society.
Over the last two decades many of the world’s largest companies have been involved in scandals, misconduct and dubious ethics. Rather than relying on interventions by public authorities, the dominant governing rationality is informed by the belief that the market is able to balance social, environmental, and financial interests. However, the vast majority of companies that have been involved in ethical transgressions have survived – and have even thrived. Potential damage to the reputation of companies, or threats to their ‘social license to operate’, seems to have had a limited effect. There is therefore reason to believe that market forces are not adequate by themselves to correct corporate misbehaviour.
This chapter from the upcoming ‘Research Handbook on the Sociology of Organizations’ explores the reliance on market forces to correct corporate actions that are not aligned with the common good. It examines to what extent legitimacy theory adequately explains the dynamics around organizational legitimacy, and it proposes an expansion of legitimacy theory to increase its explanatory power: the use of social dominance theory and legitimizing myths expands (organizational) legitimacy as a theoretical construct. In explaining why antagonistic stakeholders continue to rely on market-based approaches, this research suggests that they have either bought into the hierarchy-enhancing myths, or they have not yet developed compelling hierarchy-attenuating myths to challenge the status quo. The chapter concludes with the suggestion that the ‘social license to operate’ and ‘corporate purpose’ are legitimizing myths that uphold the idea that the market can balance social, environmental, and financial interests.Boersma - Organizational legitimacy and legitimizing myths
David Murray, former chair of troubled investment firm AMP, has been called out as being unfit to meet shareholder expectations of modern boards, due to what many believe are outdated views on risk and governance frameworks.
One of the points of criticism is that Murray had criticised the notion of “the social license to operate” in a campaign against including this term in the ASX Corporate Governance Guidelines.
Does David Murray have a point? Do we even know what a social license to operate entails?
While businesses are arguably being held to a higher social standard than before, it is questionable whether the social license to operate, as a concept, is fit for purpose.
In a forthcoming book chapter, I examine concepts such as the “social license to operate” as well as similar notions such as “corporate purpose” and “stakeholder capitalism”.
The research concludes that the use of these concepts is unlikely to result in structural changes to ways of doing business – and their use is more likely to uphold the status quo.
When it comes to doing what is morally right, there are some things that are best not left to the market, writes Martijn Boersma, lecturer in the UTS Management Discipline Group.
Last week, CNBC reported that a Goldman Sachs analyst wrote in a note to clients: “Is curing patients a sustainable business model?” The argument he allegedly put forward was that healing people with a one-shot cure does not bring in the same revenue stream that chronic therapies do and is therefore bad for business in the long run.