Restoring legitimacy after an
environmental scandal
A multiple case study on Unilever, Nestlé, and Procter & Gamble
concerning the palm oil scandal
Master Thesis Version: Final
Student name: Annet Kruiper Student number: 10871047
Date of submission: 24 June 2016
MSc in Business Administration: International Management University of Amsterdam Business School
Supervisor: Mrs. F. Ciulli Second reader: Drs. E. Dirksen
Statement of originality
This document is written by Student Annet Kruiper who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
First of all, I would like to show my sincere gratitude to my supervisor, Mrs. Ciulli. During the entire research process, Mrs. Ciulli has been essential to the success of this thesis. Due to her support, patience, openness to meet face-to-face, and constructive feedback, I have been able to finish this research project successfully. Also, I would like to thank my family and boyfriend for their support during this hectic, and often stressful period. Their willingness to listen to my complaints and the motivational talks have been of great importance. Lastly, I would like to thank the second reader, Mr. Dirksen, for making the time available to read my master thesis.
Abstract
Despite the recognition that it is becoming a global concern that many multinational corporations are facing sustainability-related legitimacy challenges, and that restoring legitimacy after it has been contested due to an environmental scandal is therefore important, research on how to do this is limited. To complement the existing, the objective of this study was to investigate how multinational corporations, through their discourses, attempt to restore their legitimacy after facing a global environmental scandal in a supranational institutional environment. In order to research this phenomena, a multiple case study was conducted by examining the legitimation strategies adopted by Unilever, Nestlé, and Procter and Gamble, after their legitimacies were challenged by an environmental scandal (the palm oil controversy). The results reveal that multinational corporations facing a global environmental scandal are most likely to adopt the rationalization strategy by referring to specific actions that they are willing to undertake or have undertaken in an attempt to restore their legitimacy. Also, this study goes beyond the current literature on discursive legitimation strategies by arguing for an additional strategy, the deresponsibilization strategy. Thus, this study contributes to the literature on multinational corporations and the supranational environment, legitimacy restoration, multinationals’ responses to environmental scandals, and discourse analysis.
Table of contents
1. INTRODUCTION 6 2. LITERATURE REVIEW 11 2.1. Institutions ... 11 2.2. Legitimacy ... 12 2.3. Legitimacy, sustainability, and environmental scandals ... 16 2.4. Multinationals, legitimacy and the supranational institutional environment ... 21 2.5. Discursive perspective on MNC legitimacy ... 24 2.6. Conclusion and proposition development ... 30 3. METHOD 37 3.1. Research design ... 37 3.2. Case selection ... 38 3.3. Data collection ... 42 3.4. Data analysis ... 45 4. RESULTS 49 4.1. Unilever ... 49 4.1.1. Introduction ... 49 4.1.2. Normalization strategy ... 51 4.1.3. Authorization strategy ... 52 4.1.4. Rationalization strategy ... 53 4.1.5. Moralization strategy ... 54 4.1.6. Narrativization strategy ... 55 4.1.7. Deresponsibilization strategy ... 56 4.1.8. Conclusion ... 57 4.2. Nestlé ... 58 4.2.1. Introduction ... 58 4.2.2. Normalization strategy ... 60 4.2.3. Authorization strategy ... 60 4.2.4. Rationalization strategy ... 62 4.2.5. Moralization strategy ... 63 4.2.6. Narrativization strategy ... 64 4.2.7. Deresponsibilization strategy ... 65 4.2.8. Conclusion ... 66 4.3. Procter & Gamble ... 67 4.3.1. Introduction ... 67 4.3.2. Normalization strategy ... 69 4.3.3. Authorization strategy ... 69 4.3.4. Rationalization strategy ... 70 4.3.5. Moralization strategy ... 71 4.3.6. Narrativization strategy ... 72 4.3.7. Deresponsibilization strategy ... 72 4.3.8. Conclusion ... 73 4.4. Cross-case analysis ... 735. Discussion 81 5.1. Strategies used by MNCs after an global environmental scandal ... 81 5.2. Theoretical and managerial contributions ... 88 5.3. Limitations of this study and suggestions for future research ... 90 6. Conclusion 93 References 96
1. INTRODUCTION
Corporations are increasingly under pressure from governments, activists, stakeholders and the media regarding the sustainability of their practices (Brønn and Vidaver-Cohen, 2009; Lamin and Zaheer, 2012; Porter and Kramer, 2006; Scherer and Palazzo, 2011). Although many firms have already adopted sustainable activities, there is still much to be done. For example, the giant automobile multinational Volkswagen recently received attention in the news due to an emissions scandal revealing Volkswagen’s unsustainable practices, which challenged its reputation (i.e., legitimacy) (Farrell, 2015). The effects of such a scandal show that corporations must improve their social and environmental performance.
Indeed, sustainability-related problems challenge corporations’ legitimacy (Scherer, Palazzo, and Seidl, 2013). Legitimacy is defined as “a generalized perception or assumption that the actions of an entity are desirable, proper or appropriate within some socially constructed system of norms, values, beliefs, and definitions” (Suchman, 1995, p.574). The negative impact on a firm’s legitimacy of a scandal may affect their accessibility to resources (Ahlstrom, Bruton, and Yeh, 2008) and, importantly, their possibility to survive (Ahlstrom et al., 2008; Human and Provan, 2000; Palazzo and Scherer, 2006; Suchman, 1995; Zimmerman and Zeitz, 2002).
Avoiding sustainability-related scandals and thus maintaining legitimacy is particularly difficult for firms operating in multiple countries (Kostova and Zaheer, 1999; Palazzo and Scherer, 2006). It is unclear how multinational corporations (MNCs) can establish, maintain and/or restore their legitimacy in a globalized world, in which no common rules on ethical behavior exist (Baumann-Pauly, Scherer, and Palazzo, 2015; Pinkse and Kolk, 2012; Scherer and Palazzo, 2011).
When dealing with sustainability-related issues, the supranational environment is particularly important for MNCs. Dealing with such an environment is becoming increasingly complex, as an overarching governance system does not exist (Ansari, Wijen, and Gray, 2013). Further, many sustainability-related issues are increasingly becoming a global concern for MNCs (Teegen, Doh, and Vachani, 2004) due to globalization (Norris, 2000; Teegen et al., 2004), the emergence of global sustainability issues (Pinkse and Kolk, 2012), the increasing presence of non-governmental organizations (NGOs) at a global level (Teegen et al., 2004), and the growing use of global agreements among firms (Cetindamar, 2007; Runhaar and Lafferty, 2009; Voegtlin and Pless, 2014). To the best of the author’s knowledge, little research has been conducted into how MNCs, attempt to restore their legitimacy after facing a sustainability-related problem (i.e., an environmental scandal) in the supranational institutional environment. While many scholars have focused on the differences across countries (e.g., Baumann-Pauly et al., 2015; Kostova and Zaheer, 1999; Scherer et al., 2013), less attention has been given to the supranational institutional environment and how MNCs approach the challenges they face to their legitimacy in this context. Currently, limited literature exists in management journals concerning environmental scandals, and certainly not in the international context. Further research on environmental scandals is required because they are key issues for firms in general (Marcus and Fremeth, 2009) and for MNCs in particular (Ivanaj, Ivanaj, McIntyre, Da Costa, and Lozano, 2015; Pinkse and Kolk, 2012). Also, an environmental problem is an “important international business issue strongly related to the organizational behaviors of [MNCs]” (Ivanaj et al, 2015, p.1). Both, the activities of MNCs (Ivanaj et al., 2015) and environmental issues (Pinkse and Kolk, 2012) have a global impact. Therefore, this study focuses on how MNCs can deal with these issues (i.e., environmental scandals).
A set of studies (Joutsenvirta and Vaara, 2009; Persson, Lundberg, and Elbe, 2014; Tienari, Vaara, and Bjorkman, 2003; Vaara and Tienari, 2008) show that a discursive approach, consisting in the “systematic study of texts” (Grant and Hardy, 2004, p. 6), is particularly valuable to explore how firms address legitimacy. This approach allows the study and understanding of social and organizational actions (Fairclough, 2003) and (inter)organizational issues (Phillips and Hardy, 2002). As legitimacy plays an important role in these actions (Vaara, Tienari, and Laurila, 2006), researching legitimacy from a discursive perspective is appropriate. A discursive analysis enables a researcher to analyze legitimation strategies (Vaara et al., 2006; Van Leeuwen and Wodak, 1999) in relation to controversial social issues (Vaara and Tienari, 2008). Controversial issues, such as a production shutdown (Vaara and Tienari, 2008) or a merger and acquisition (Persson et al., 2014; Tienari et al., 2003; Vaara et al., 2006), have been investigated. However, examining legitimation strategies from a discursive perspective in relation to environmental issues have been not been researched before. Therefore, Vaara and Tienari (2008) call for further research on discursive legitimation strategies in relation to environmental problems. A discursive approach is adopted in this study to investigate the legitimation strategies adopted by MNCs in order to restore their legitimacy after an environmental scandal.
The aforementioned aspects will be addressed by answering the following research question:
“How do multinational corporations, through their discourses, attempt to restore their legitimacy after facing a global environmental scandal in a supranational institutional environment?”
This study aims to answer this research question through a multiple research design. Whereas this study is based on the five discursive legitimation strategies (Vaara and Tienari, 2008; Vaara et al., 2006), it has an open approach to the emergence of new categories of strategies. The five strategies are authorization, rationalization, moralization, narrativization, and normalization (Vaara and Tienari, 2008; Vaara et al., 2006), which can be used in the context of MNCs (Vaara and Tienari, 2008). This research utilizes a qualitative and exploratory approach to investigate how MNCs have adopted these strategies. Specifically, this research analyzes how the multinationals Unilever, Procter & Gamble (P&G), and Nestlé, through their discourses, have attempted to restore their legitimacy after being involved in a scandal related to their respective palm oil supplies. Palm oil supply is a controversial issue, because the cultivation of palm oil causes deforestation, impacting the environment. The controversy is a suitable case for this research question because it has a global impact and the affected MNCs face a supranational institutional environment.
The current research contributes to the literature on MNCs and the supranational institutional environment, legitimacy restoration, MNCs’ responses to environmental scandals, and discourse analysis. Insights are provided into strategies used by MNCs, facing the dynamics of the supranational institutional environment, to restore legitimacy after facing sustainability-related problems (i.e., an environmental scandal). Thus, it adds knowledge to the literature on the legitimacy restoration of MNCs (Joutsenvirta and Vaara, 2015; Vaara and Tienari, 2008; Vaara and Tienari, 2011). Furthermore, there is currently limited literature available on environmental scandals; therefore, this study hopes to open up a new stream of literature on environmental scandals. Finally, this study advances international business research from a discursive perspective, by showing how a discourse analysis can be used to investigate MNCs’ reactions to
sustainability-related legitimacy challenges, which has previously been limited (Vaara and Tienari, 2008).
Not only will this study contribute to the literature, but it will also provide managerial implications. It provides information on how international managers, through their discourse, can restore their legitimacy after facing a global environmental scandal. Due to the discursive approach, managers can increase their understanding of how legitimacy can be repaired at a discursive level. Secondly, managers can use the findings of this study in order to understand that various legitimation strategies can be adopted in different ways to repair the corporation’s legitimacy, after it has been challenged due to a global environmental problem.
The thesis is structured as follows. The current literature regarding institutions, legitimacy, sustainability, MNC supranational environment, and the discursive approach to the study of legitimacy is discussed in the first section. Based on this review of extant literature, the research question will be developed and propositions will be elaborated. Secondly, the research methodology that is adopted will be described in order to answer the research question. In the third part, the results of the discourse analysis are outlined. This thesis will conclude with a discussion of the findings, and conclusions will then be drawn. The limitations of this research will be discussed and possible future research suggestions will be made.
2. LITERATURE REVIEW
This literature review will address the key concepts pertinent to this study. Thus, institutions, legitimacy, sustainability, environmental scandals, MNC supranational institutional environment, and the discursive perspective on the legitimacy of MNCs will be discussed. As institutions are a key theme in international business (IB) research (Cantwell, Dunning, and Lundan, 2010; Peng, Wang, and Jiang, 2008), and legitimacy is a particularly relevant aspect of institutions (Deephouse and Suchman, 2008; Vaara et al., 2006), institutions will first be discussed. Second, an overview of extant literature on legitimacy is given. Third, an explanation of legitimacy related to sustainability and environmental scandals is outlined. Fourth, literature is provided about legitimacy in relation to MNCs and the supranational institutional environment. The fifth section reviews the literature on the legitimacy of MNCs from a discursive perspective. Sixth and finally, the conclusion section presents a summary of the literature and the development of propositions.
2.1. Institutions
A dominant question within the IB literature relates to the determinants of a successful strategy (Peng, 2004). This question has largely been answered using the industry-based view (Porter, 1980) and the resource-based view (Barney 1991). The industry-based view focuses on the notion of competitiveness, which is at the industry-level. The resource-based view is at the firm level, and concerns the tangible and intangible resources internal to the firm. However, it is increasingly recognized that the institution-based view is as important as the other two views (North, 1991; Peng, 2002; Peng et al., 2008; Peng, Sun, Pinkham, and Chen, 2009; Scott, 1995) to the determinants of a business strategy. Kostova, Roth, and Dacin (2008) argue that many
scholars are unaware of the importance of institutions. However, institutions certainly do matter to international business (Cantwell et al., 2010). As this research adopts an institutional theory perspective to international business, the institution-based view will be discussed in more detail.
North (1991, p. 97) defines institutions as “humanly devised constraints that structure political, economic and social interaction.” They consist of both formal rules (laws, regulations and property rights) and informal constraints (sanctions, customs, traditions and codes of conduct). Similarly, Scott (2008) explains that “institutions compromise regulative, normative and cultural-cognitive elements that, together with associated activities and resources, provide stability and meaning to social life” (p. 56). These components are the “central ingredients of institutions” (Scott, 2008, p. 49). The first pillar, the regulative pillar, deals with formal rules and the enforcement of these rules. Secondly, the normative pillar stresses the “appropriate” behavior in social life (e.g., work norms and habits) (Scott, 2008). Lastly, the cultural-cognitive pillar relates to how social actors are imposed upon to make use of beliefs and values that are taken for granted. The next section (section 2.2 ‘Legitimacy’), explains how the three pillars are “related, but distinguishable bases of legitimacy” (Scott, 2008, p. 61).
In institutional theory, legitimacy is a key theme (Deephouse and Suchman, 2008; Vaara et al., 2006). As companies are part of their institutional environments, they must adhere to the expectations of the institutions to obtain legitimacy (Powell and DiMaggio, 2012).
2.2. Legitimacy
As mentioned in the introduction, a widely-adopted definition by scholars of institutional legitimacy is “a generalized perception or assumption that the actions of an entity are desirable, proper or appropriate within some socially constructed system of norms, values, beliefs, and definitions” (Suchman, 1995, p.574). When the activities of firms are deemed socially
inappropriate by their institutional environment, it can be said that their legitimacy has been challenged (Palazzo and Scherer, 2006; Scherer et al., 2013; Suchman, 1995).
It is vital for firms to obtain legitimacy, as this is key to their survival (Ahlstrom et al., 2008; Human and Provan, 2000; Palazzo and Scherer, 2006; Suchman, 1995; Zimmerman and Zeitz, 2002). Indeed, legitimacy is of importance for companies because it:
Helps to ensure the continued in ̄flow of capital, labor and customers necessary for viability (Pfeffer & Salancik, 1978; Singh et al., 1986). It also forestalls regulatory activities by the state that might occur in the absence of legitimacy (Watts & Zimmerman, 1978, 1986) and pre-empts product boycotts or other disruptive actions by external parties (Elsbach, 1994). By mitigating these potential problems, organizational legitimacy provides managers with a degree of autonomy to decide how and where business will be conducted (Neu, Warsame, and Pedwell, 1998, p. 265).
Therefore, firms must make decisions carefully about the strategies to create, maintain or repair legitimacy. According to Human and Provan (2000, p. 328), “institutional theorists argue that legitimacy building is the driving force behind decisions on organizational strategies and structures […], and that societal acceptance of the organization, and its subsequent survival, depends on its attaining the support of relevant entities in its environment […]”. The strategic component of legitimacy holds that legitimacy can be used as an operational resource, in which managers maintain a high degree of control (Suchman, 1995).
From an institutional viewpoint, legitimacy is seen as a condition that is in accordance with formal rules and their enforcement, norms and/or cultural-cognitive behavior (Scott, 2008), which are the three pillars discussed in section 2.1. First, relating to the regulative pillar, firms that have established legitimacy have done so through complying with formal rules (Scott, 2008).
Second, the normative pillar indicates that legitimacy can be achieved by conforming to norms with a “deeper, moral base” (Scott, 2008, p.61). Finally, the cultural-cognitive pillar views legitimacy as being in concordance with situations and structures that are taken for granted (Scott, 2008).
The institutional pillars (Scott, 2008) are partly consistent with the three types of legitimacy that are prevalent in the literature (Suchman, 1995). First, pragmatic legitimacy hinges on the self-interest of the organization’s immediate audiences. Whereas this first type of legitimacy deals with the audiences’ judgments regarding whether they benefit from the actions of the organization, the second legitimacy type is concerned with whether the organizational activity performed is the “right thing to do” (Suchman, 1995, p. 579), which is called moral
legitimacy. As the normative pillar has a moral base (Scott, 2008), it can be associated with moral
legitimacy (Suchman, 1995). The final type of legitimacy is cognitive legitimacy. This type is based on taken-for-grantedness, meaning that the environment accepts an organization “based on cognition rather than on interest or evaluation (Aldrich and Fiol, 1994)” (Suchman, 1995, p. 582), which can be linked to the cultural-cognitive pillar (Scott, 2008). Both the cultural-cognitive pillar (Scott, 2008) and cognitive legitimacy (Suchman, 1995) involve taken-for-grantedness.
Suchman (1995) argues that firms can be exposed to three types of legitimacy challenges: to gain, maintain, and repair legitimacy. Firms aim to gain legitimacy when organizations set up new operations. This requires effort by the firms because of the liability of newness they may face. ‘Liability of newness’ means that firms new to an industry are at a disadvantage compared to established firms (Singh, Tucker, and House, 1986). To maintain a firm’s legitimacy is an easier task than to establish or repair legitimacy, because once a firm has established legitimacy, it is taken for granted by its environment (Suchman, 1995). Finally, Suchman (1995) argues that
repairing legitimacy is largely a reactive answer to an unexpected event, for instance an
accusation made by a NGO that a company does not act in accordance with environmental standards, which, as a result, has threatened the firm’s legitimacy (Palazzo and Scherer, 2006). A real-life example of this is Greenpeace’s attack against the disposal of Shell’s Brent Spar (an oil storage platform) in the North Sea, which had a negative impact on the environment (Shell, 2008). This had threatened Shell’s reputation (Shell, 2008), and thus the company needed to repair its legitimacy.
Within the literature on legitimacy, some scholars have investigated the ways in which organizations can establish their legitimacy. This encompasses, for example, building legitimacy in the supply network (Crespin-Mazet and Dontenwill, 2012), in relation to multilateral networks (Human and Provan, 2000), as a resource that influences the growth of new ventures (Zimmerman and Zeitz, 2002), or within an industry or firm itself in an emerging economy (Ahlstrom et al., 2008).
To the author’s knowledge, literature purely focusing on institutional reparation is difficult to identify, because scholars use a number of terms to define the objective of firms’ legitimation strategies. Among these studies, some have used the term ‘institutional maintenance’ to illustrate situations which are more consistent with ‘institutional reparation’. For example, Patriotta, Gond and Schultz (2011) use the terms ‘institutional maintenance’ and ‘institutional reparation’ interchangeably. These authors propose a model of institutional repair and investigated how a European energy company has maintained its legitimacy after a nuclear accident. Another example is that of the research by Scherer et al. (2013), which shows how companies have used three different legitimation strategies, based on Suchman (1995), after their license to operate had been questioned. Although Scherer et al. (2013) discuss legitimacy
maintenance, it can be assumed that it concerns restoration as it has been challenged. This shows that the authors do not make a distinction between the challenges (i.e., maintain legitimacy and repair legitimacy), as identified by Suchman (1995). Since the problems associated with establishing, maintaining and restoring legitimacy are quite distinctive (Suchman, 1995), it is believed that it is important to identify these challenges either separate from each other or to “study the full range” (Suchman, 1995, p. 602).
Among the studies investigating how organizations respond to legitimacy-related problems by using the legitimation strategies identified by Suchman (1995), only few take an international perspective. For instance, Baumann-Pauly et al. (2015) focus on legitimacy-related actions of MNCs operating in complex institutional environments. Another study establishes a theoretical framework consisting of the legitimation strategies and approaches used to adopt strategies simultaneously for firms operating in global environments (Scherer et al., 2013). However, these studies research the legitimacy concept from a different perspective than used by the current study, namely Baumann-Pauly et al. (2015) and Scherer et al. (2013) investigate the phenomena based conflicting institutional demands (i.e., differences across countries).
The final set of studies relevant to this research, which will be discussed in section 2.5, instead adopts a discursiveapproach to the study of firms’ actions towards legitimacy.
2.3. Legitimacy, sustainability, and environmental scandals
In recent years, many different definitions have been given to sustainability. The World Commission on Economic Development (WCED) developed a definition that is most frequently used (Bansal, 2005), and which was adopted for the current study. Sustainable Development (SD) is here defined as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (WCED, 1987).
Societal and environmental issues were originally the sole responsibility of the government. In recent decades, however, the responsibility for dealing with these issues has been shifting towards corporations. Firms cannot continue to solely concentrate on maximizing shareholder value; they must currently also consider the impacts on the environment and society (Baumann-Pauly et al., 2015; Scherer and Palazzo, 2011; Scherer et al., 2013). Indeed, corporations must engage in sustainability practices not only for reasons of profit, but also for moral and normative reasons (Marcus and Fremeth, 2009), which makes it a key aspect of legitimacy (Scherer et al., 2013).
It is therefore important to understand SD at an organizational level. This can be accomplished through a discussion of corporate sustainability. Corporate sustainability is “meeting the needs of a firm’s direct and indirect stakeholders (such as shareholders, employees, clients, pressure groups, and communities), without compromising its ability to meet the needs of future stakeholders as well” (Dyllick and Hockerts, 2002, p. 131). Some scholars argue that corporate sustainability is only achieved when corporations meet the following three principles (Bansal, 2005; Marcus and Fremeth, 2009). The first principle is environmental integrity, meaning that firms engage in environmental management to reduce the impact of their business activities on the environment (Bansal, 2005). Secondly, firms have to meet the economic, legal, ethical and discretionary expectations of all stakeholders, not only those of financial shareholders (Bansal, 2005, p. 199). This has been called social equity. The final condition is economic
prosperity, which means that firms produce and sell goods and services as efficiently and
effectively as possible in order to increase the created value (Bansal, 2005). This created value is felt not only by customers in the form of products or services, but also by employees (through salaries) and shareholders (through dividends) (Bansal, 2005). Firms are often more concerned
with economic prosperity than with environmental integrity or social equity (Marcus and Fremeth, 2009).
Many corporations have faced legitimacy-related challenges by NGOs (Palazzo and Scherer, 2006), which have questioned the role of a firm’s operations on society and the environment (Palazzo and Scherer, 2006). This burden is especially felt by MNCs (Scherer and Palazzo, 2011), because these often face a dynamic global environment and must respond to multiple, conflicting sustainability demands (Baumann-Pauly et al., 2015; Kostova and Zaheer, 1999; Scherer et al., 2013). Thus, firms use sustainable practices to maintain their legitimacy (Baumann-Pauly et al., 2015; Brønn and Vidaver-Cohen, 2009; Marano and Kostova, 2016; Patriotta et al., 2011; Scherer et al., 2013). Although firms are increasingly adopting sustainability-oriented practices, these are currently insufficient. For example, in 2010, the oil and gas multinational British Petroleum (BP) was blamed for spilling oil in the Gulf of Mexico, which was the result of BP’s unsustainable practices (Griffin, Black, and Devine, 2015). Despite the fact that BP was considered as a sustainable company before the oil spill (Vetri, 2010), it still faced an NGO-initiated environmental scandal (Macalister and Webb, 2010). This scandal, in turn, had a negative impact on the corporation’s legitimacy (Macalister and Webb, 2010; Vetri, 2010)
Limited literature is currently available regarding environmental scandals in the top-tier management journals and no clear definition has been provided, to the author’s knowledge. The only definition that could be found by the author is the one that has been given in a science paper by Djerf-Pierre (2013), which conceptualizes environmental scandals as “the public disclosure of actions or activities that are morally and/or legally questionable” (p. 506). However, for this study, this definition seems incomplete because it does neither integrate the aspects of the sudden
occurrence of the event, nor is this definition used in international management research. Therefore, the current study describes environmental scandals by using literature on environmental jolts (henceforth jolt), which this study considers as a wider category in which environmental scandals are inscribed. A jolt is defined as an event that happens suddenly and unpredictably (Meyer, 1982), which, in turn, can have a negative effect on organizations. In this research, an environmental scandal is considered to be sudden and unpredictable, as well as having an effect on companies. In this way, a scandal is believed to have an impact on the corporation’s legitimacy. Therefore, the definition of an environmental jolt is more precise to describe environmental scandals, compared to the definition provided by Djerf-Pierre (2013).
An environmental jolt can take different forms, for example “milestones (e.g., Earth Day, the Rio Summit); catastrophes (e.g., oil spills, nuclear accidents, toxic fires); and legal/administrative happenings (e.g., parliamentary hearings, trials, release of environmental white papers)” (Hoffman, 1999, p. 353). Jolts do not only create uncertainty for companies, but they may also lead to an industry-wide change (Hoffman, 1999). In keeping with this, a scandal can lead to a “field-wide crisis” (Sine and David, 2003, p. 186), meaning that stakeholders’ expectations are in contrast to the outcomes of a scandal (Sine and David, 2003). This can, in turn, have an impact on a firm’s legitimacy (Zhao, park, and Zhou, 2014), which is in line with the theory on legitimacy (Palazzo and Scherer, 2006; Scherer et al., 2013; Suchman, 1995). A further consequence of a scandal is its effect on a firm’s financial performance (Zhao et al., 2014).
Although the word ‘environmental’ in environmental jolt can refer to events impacting more than the natural environment (Meyer, 1982), for the scope of this research, ‘environmental’ refers only to the natural environment. Thus, this thesis focuses on those scandals that are
engendered by firm’s behaviors that contradict environmental integrity. As environmental integrity means that firms adopt sustainability practices in order to reduce the impact of their activities on the environment (Bansal, 2005), which can be related to environmental scandals. After such scandals, companies must adapt their practices to lessen the environmental impact.
The term scandal is used in this research instead of jolt to indicate a specific type of jolt, which involves, beside the general characteristics of all the jolts also the fact that it causes a public outrage. This has been based on the following definition. A scandal is an “action or event regarded as morally or legally wrong and causing general public outrage” (Oxford English dictionary online, n.d.). Thus, in this research, an environmental scandal is an event, that happens suddenly and unpredictably (Meyer, 1982) and causing a public outrage, which, in turn, can have a negative effect on organizations and their legitimacy.
Some research has been performed on corporate scandals, however, the majority of this research focuses on scandals arising due to corporate fraud (e.g., Soltani, 2014; Wang, 2010). Zona, Minoja and Coda (2013) investigate the antecedents of corporate scandals with a focus on whether CEO characteristics have an effect on corporate strategy and stakeholder cohesion. Another study examines how unethical leadership leads to a bond trading scandal (Sims and Brinkman, 2002). However, neither of these studies focuses on how corporations behave after an environmental scandal occurs, to restore reputational damage.
The study of legitimacy restoration after an environmental scandal is important due to the following reasons. First, there is currently a paucity of literature on environmental scandals, despite the high number of corporate scandals that impact the natural environment (Brønn and Vidaver-Cohen, 2009; Kuhn and Ashcraft, 2003). Second, environmental problems are a key issue for corporations (Marcus and Fremeth, 2009), and firms are increasingly recognizing the
need to address environmental issues (Scherer et al., 2013). Therefore, firms require guidelines regarding strategies to repair their legitimacy after facing an environmental scandal. This is particularly relevant for MNCs, because responding internationally to global environmental issues (Pinkse and Kolk, 2012) and moving towards sustainability is now urgent (Ivanaj et al., 2015). Furthermore, an environmental issue is an “important international business issue strongly related to the organizational behaviors of [MNCs]” (Ivanaj et al., 2015, p.1) and both the worldwide activities of MNCs (Ivanaj et al., 2015) and environmental issues (Pinkse and Kolk, 2012) have a global impact. Thus, it is important for MNCs to understand how to deal with these issues.
2.4. Multinationals, legitimacy and the supranational institutional environment
MNCs are companies that operate in multiple countries, and whose headquarters are linked to different national subunits (Ghoshal and Bartlett, 1990; Kostova and Zaheer, 1999; Rosenzweig and Singh, 1991). Legitimacy is particularly important for MNCs (Kostova and Zaheer, 1999). Scholars argue that MNCs can enhance their legitimacy by being involved in practices and activities that have not been made mandatory by the local institutions, but which are seen as acceptable by the relevant society (Kostova et al., 2008).
Besides MNCs are exposed to multiple institutional demands (Baumann-Pauly et al., 2015; Kostova and Zaheer, 1999; Scherer et al., 2013), they have to deal with the home, host and supranational institutional environment as well (Pinkse and Kolk, 2012). Many scholars have placed emphasis on the differences between countries (e.g., Baumann-Pauly et al., 2015; Kostova and Zaheer, 1999; Scherer et al., 2013); however, less emphasis has been given to the supranational environment and how MNCs deal with sustainability-related legitimacy challenges in it. Indeed, Pinkse and Kolk (2012) argue that the supranational environment is particularly
important for MNCs when dealing with issues such as climate change. As sustainability is a part of climate change (Pinkse and Kolk, 2012), the supranational environment is important to examine in this study. Sustainability-related concerns cannot be resolved on a “country-by-country basis” (Pinkse and Kolk, 2012, p. 338), thus making it a global issue.
Among the scholars that focus on the differences between countries, some focus on the fact that MNCs are confronted with institutional and international complexity (Baumann-Pauly et al., 2015; Kostova and Zaheer, 1999; Scherer et al., 2013). MNCs face multiple, often conflicting institutional demands (Baumann-Pauly et al., 2015; Kostova and Zaheer, 1999; Scherer et al., 2013). Also, MNCs have to deal with a wide variety of institutions, as each country has a distinct institutional environment (Kostova and Zaheer, 1999; Marano and Kostova, 2016; Rosenzweig and Singh, 1991). Both, the multiple demands and diverse institutional environments which MNCs face lead to institutional and international complexity, which makes it difficult for MNCs to develop legitimacy. This becomes increasingly challenging when the issues deal with sustainability (Scherer et al. 2013).
Regarding the supranational institutional environment, MNCs facing the dynamics of this environment have an advantage over domestic firms; they are able to transfer the best practices developed in one country to another (Christmann, 2004). Thus, a company operating in multiple countries can use practices developed in one country to repair its legitimacy after facing a scandal in another country. Additionally, due to their accessibility to supranational stakeholders (including United Nations bodies and NGOs), MNCs can create and transmit “global behavioral norms” (Pinkse and Kolk, 2012, p.338). This is particularly advantageous when these norms correspond with stakeholders’ expectations, and thus leading to legitimacy. In contrast, when a
stakeholder perceives an MNC’s operations as unsustainable or illegitimate, such a bad reputation can also be easily transferred to another country (Pinkse and Kolk, 2012).
Due to globalization (Norris, 2000; Teegen et al., 2004), the increasing presence of NGOs at a global level (Teegen et al., 2004), and the growing use of global agreements (Cetindamar, 2007; Runhaar and Lafferty, 2009; Voegtlin and Pless, 2014), many of the challenges faced by MNCs are becoming global concerns. First, due to the rise in the importance and presence of NGOs in the global environment (Teegen et al., 2004), the supranational institutional environment is becoming increasingly important for MNCs. NGOs are collectively taking action against MNCs regarding their unsustainable practices. Indeed, this is more and more happening across national borders “through transnational networks (Keck and Sikkink, 1998; Khagram et al., 2002)” (Teegen et al., 2004, p465). As these collective actions are becoming both increasingly organized and influential, and are having a global impact, it is vital for firms to address the issues raised by NGOs. In other words, many problems that would previously have been a concern at a local level are now becoming a worldwide problem (Teegen et al., 2004). Thus, the sustainability-related problem addressed in this study, the palm oil controversy, is becoming a global concern for MNCs.
Furthermore, addressing global, sustainability-related issues is becoming increasingly complex in transnational environments, as “an overarching governing authority [which] exists to prescribe the rules of the game for relevant stakeholders, such as sovereign nation-states, nongovernmental organizations (NGOs), and MNCs (Holder and Flessas 2008, Ostrom et al. 1999)” (Ansari et al., 2013, p.1015) does not exist. Therefore, global agreements have been made between companies, such as the United Nations Global Compact (UNGC). The UNGC is the “largest voluntary global governance initiative that addresses the social and ecological
responsibilities of multinational corporations” (Voegtlin and Pless, 2014, p. 181). The UNCG has been established to take collective action against issues such as environmental problems (Ansari et al., 2013).
MNCs are increasingly making use of global agreements, as they recognize that sustainability-related issues may have a global impact (Voegtil and Pless, 2014). Thus, subscribing to global voluntary agreements can help companies to respond to global sustainability-related issues. However, such agreements can also be disadvantageous for firms. For instance, companies can use the UNGC to ‘bluewash’ (i.e., a company uses UNGC membership to improve its image, without acting more sustainably) their unsustainable practices (Voegtlin and Pless, 2014), which in turn may have a negative impact on their legitimacy once the society acknowledges the ‘bluewashing’ practices (Runhaar and Lafferty, 2009; Voegtlin and Pless, 2004). Additionally, companies can take advantage of the benefits of being a member of the UNCG without putting efforts into it (i.e., free riding) (Ansari et al., 2013). Again, once the public discovers such free riding actions, it may have a negative impact on the firm’s legitimacy. Thus, these agreements can have a positive and negative effect on MNCs at a global level. Despite the negative aspects of global norms, many scholars argue the positive effects of better economic and sustainability performance when subscribing to these agreements (Cetindamar, 2007; Runhaar and Lafferty, 2009).
2.5. Discursive perspective on MNC legitimacy
A discursive approach was used to study the legitimation strategies used by MNCs. Discourses are “structured collections of meaningful texts” (Phillips, Lawrence, and Hardy, 2004, p. 636). Thus, a discourse analysis can be defined as the analysis of collections of texts (Philips et al.,
2004). Using this method, texts do not have a meaning when analyzed individually, but only when analyzed in relation to other texts (Phillips and Hardy, 2002; Phillips et al., 2004).
A discursive perspective was chosen for several reasons. First, this method can “[uncover] crucial and often ignored sociopolitical processes involved in the legitimation of contested MNC undertakings” (Joutsenvirta & Vaara, 2009, p. 86). Second, discourses are a valuable method to study social and organizational actions (Fairclough, 2003) in which legitimacy plays an important role (Vaara et al., 2006). Third, a discourse analysis is appropriate for understanding social (inter)organizational issues (Phillips and Hardy, 2002). This is required in this research in order to investigate the social issue of restoring legitimacy after an environmental scandal. Fourth and finally, a discursive approach is an adequate method to study controversial social matters (Vaara and Tienari, 2008), and it enables a researcher to analyze legitimation strategies (Vaara et al., 2006; Van Leeuwen and Wodak, 1999).
Fairclough (1995) contend that there are three levels at which a discourse analysis can be performed. First, the micro-level focuses on the text itself used by actors that (de)legitimizes a certain action. In other words, it involves the meaning of the text (i.e., textual analysis). Second, the meso-level is concerned with the production, interpretation and consumption of the texts. This layer also focuses on how power relations are created. The final level, the macro-level, deals with the situational and institutional context of “any discursive event, and [is] necessary for its interpretation” (Fairclough, 2013, p. 136). This enables a researcher to comprehend the broader context that may influence the texts under investigation. Although research has been conducted into the discursive legitimation strategies at a micro-level (Vaara et al., 2006), Joutsenvirta and Vaara (2015) recently urged for further research at this level. Therefore, this study focuses on the micro-level, which helps to “understand the complexities, ambiguities and contradictions of
legitimation processes that easily pass unnoticed with more traditional approaches” (Vaara et al., 2006, p. 806).
This approach has recently opened up a new perspective in IB research (Balogun, Jarzabkowski, and Vaara, 2011), as it is an useful approach to understand “how people socially construct reality in international settings” (Balogun et al., 2011, p. 768). A set of studies used a discursive approach to examine how MNCs address legitimacy (Joutsenvirta and Vaara, 2009; Persson et al., 2014; Tienari et al., 2003; Vaara and Tienari, 2008). These studies show the advantages and importance of using such an approach. Further, scholars argue that a discursive approach is suitable for investigating diverse MNCs actions and it is particularly appropriate when dealing with issues that may have a social impact (Vaara and Tienari, 2008).
For example, Vaara and Tienari (2008) show that MNCs can use different discursive strategies to repair their legitimacy after a controversial issue, namely a production shutdown. The production unit was moved from Finland to Italy, meaning that it had only a local effect on those two countries. Therefore, Vaara and Tienari’s (2008) results cannot be replicated to global, sustainability-related issues. Also, the authors do not focus on an environmental issue, which is an important but disregarded topic (Vaara and Tienari, 2008). As discussed in the previous section, many sustainability-related issues have a global impact, which is also the case of the concern discussed in this study (i.e., the palm oil controversy). Additionally, further research into environmental problems is needed because firms are increasingly recognizing the need to address environmental issues (Scherer et al., 2013). These issues are a key concern for companies in general (Marcus and Fremeth, 2009) and for MNCs in particular (Pinkse and Kolk, 2012).
Vaara and Tienari (2008) and Vaara et al. (2006) identify five legitimation strategies based on work by Van Leeuwen and Wodak (1999). This thesis is based on these five
legitimation strategies, as these can be used in the context of MNCs (Vaara and Tienari, 2008). The first strategy, authorization, is a strategy through which MNCs use authority to legitimize their actions, which can be performed in four different ways. First, MNC may use this strategy by referring to a person “in whom institutionalized authority is vested” (Van Leeuwen and Wodak, 1999, p. 104). Second, the authority can be impersonal (Van Leeuwen and Wodak, 1999, p. 104), meaning that multinationals legitimize their actions based on the law, regulation or the Bible (Van Leeuwen and Wodak 1999). Third, the authority can also be external to a firm. For instance, companies may legitimize the contested actions by referring to industry experts or analysts (Vaara et al., 2006). And finally, legitimating a certain action can be based on conformity, i.e., providing the argument that “everybody does it in such a manner” (Van Leeuwen and Wodak, 1999). The authorization strategy, which is used abundantly (Vaara and Tienari, 2008), can be recognized by text that is similar to: “The manager says that…” or “According to….” MNCs using this type of strategy usually refer to authorities such as CEOs (Vaara and Tienari, 2008), analysts (Vaara et al., 2006) and industry experts (Vaara et al., 2006), and to impersonal organizations such as markets (Vaara and Tienari 2008; Vaara et al., 2006).
Rationalization is “legitimation by reference to the utility or function of specific actions
or practices” (Vaara et al., 2006, p. 800). MNCs can use this to legitimize certain actions by referring either to common sense or to specialists who have certain knowledge about the issue in question (Van Leeuwen and Wodak, 1999). Also, companies are likely to refer to the “benefits, purposes, functions or outcomes” that the contested issue might involve and/or create when using this strategy (Vaara et al., 2006, p. 800). For instance, Vaara and Tienari (2008) argue that a MNC used the rationalization strategy when it stated that the production shutdown would lead to a possible increase in profitability (i.e. financial consequences).
Cases in which MNCs refer to specific value systems to legitimize their actions have been referred to as the moralization strategy (Van Leeuwen and Wodak, 1999). For instance, a company may refer to its practices as fulfilling the interests and needs of the society or community values (Vaara et al, 2006). This strategy is the least explicit because it is a “straightforward description of what is going on rather than an explicitly formulated legitimatory argument” (Van Leeuwen and Wodak 1999, p. 108). An example provided in Vaara and Tienari’s (2008) work is the legitimating argument of having no better alternatives than pursuing the controversial issue (the production shutdown).
Narrativization, which has been called “mythopoesis” in the work by Van Leeuwen and
Wodak (1999), involves the use of narratives (i.e., stories). More specifically, MNCs use stories to show what may happen when the opposite occurs, i.e., against the MNC’s wishes. Negative stories have been more often identified than positive stories in existing discourse analysis (Vaara et al., 2006; Van Leeuwen and Wodak 1999). Additionally, MNC can use this strategy by telling a story with a dramatic tone, portraying itself as a ‘hero’, or portraying those questioning the activities of the firm as a ‘loser’ (Vaara et al., 2006).
Vaara and Tienari (2008) and Vaara et al. (2006) added the fifth strategy, that of
normalization. This strategy deals with explaining that certain actions are “normal” or “natural”
in order to legitimize them (Vaara and Tienari, 2008, p. 988). This strategy can also be used by “[rendering] something legitimate by exemplarity” (Vaara et al., 2006, p. 798). For instance, a firm attempting to legitimize its actions explains that it does the same thing as other firms do or that it can serve as an example to other firms. Both the narrativization strategy and the normalization strategy are usually used in combination with other strategies (Vaara et al., 2006).
Literature relevant to these strategies is limited when compared to that available for the other strategies (i.e., the authorization, rationalization and moralization strategies).
Vaara and Tienari (2008) and Scherer et al. (2013) argue that it is most effective for firms to simultaneously use multiple legitimation strategies. Although the contexts of these two studies differ in terms of the type of legitimacy challenge and legitimation strategies used, they are important to consider. Scherer et al. (2013) conclude that in the case of complex, heterogeneous and changing environments, an optimal way to handle one specific situation does not exist. Adopting several response strategies simultaneously allows companies to switch between different strategies depending on the situation (Scherer et al., 2013).
Several scholars investigate controversial issues using a discursive legitimation approach. For example, discursive strategies were used after a cross-border merger and acquisition (Persson et al., 2014; Tienari et al., 2003; Vaara et al., 2006), a production shutdown (Vaara and Tienari, 2008), an organizational change/merger (Vaara and Tienari 2011) and a greenfield investment project (Joutsenvirta and Vaara, 2009); however, no discursive analysis has yet been performed in relation to environmental issues faced by MNCs (Vaara and Tienari, 2008). Several studies have shown the benefits of studying organizational issues that challenge a corporation’s legitimacy from a discursive perspective (Joutsenvirta & Vaara, 2009; Persson et al., 2014; Tienari et al., 2003; Vaara and Tienari, 2008), as this approach allows a better understanding of the “legitimation of contemporary organizational phenomena” (Vaara and Tienari, 2006, p, 806). Additionally, MNCs facing the supranational institutional environment increasingly recognize the importance of addressing sustainability-related challenges (Pinkse and Kolk, 2012; Teegen et al., 2004), in particular due to the global impact these challenges may have (Teegen et al., 2004).
Therefore, studying environmental issues is fruitful for both increasing the body of literature on sustainability and for the relevant practitioners.
2.6. Conclusion and proposition development
A recent case study by Baumann-Pauly et al. (2015) indicates that, despite the increasingly recognized need for MNCs to preserve their legitimacy, the research on how to do this is currently limited. Based on the literature review, further research is needed in order to explore the discursive strategies used by MNCs to restore their legitimacy after it has been challenged by an environmental scandal in the supranational institutional environment.
To the author’s knowledge, the legitimation strategies, identified by Van Leeuwen and Wodak (1999) from a discursive perspective, are rarely adopted in IB research, with the exception of a study by Vaara and Tienari (2008). Vaara and Tianari focus on discursive legitimacy strategies proposed by Van Leeuwen and Wodak (1999); however, the study did not investigate these strategies from a multinational perspective, as they focused on the local impact of the controversial issue (i.e., the production shutdown). Further, Vaara and Tienari (2008) research a controversial issue that was not in relation to an environmental issue. Thus, scholars do no adopt the legitimation strategies (Vaara and Tienari, 2008; Vaara et al., 2006; Van Leeuwen and Wodak, 1999) to investigate situations in which an MNC, facing the supranational institutional environment, attempts to improve its legitimacy after it has been challenged due to an environmental scandal. Such research is needed for IB research and practitioners, as legitimacy is particularly important for MNCs (Kostova and Zaheer, 1999).
While many scholars have investigated the challenges MNCs face due to differences between countries (for example Baumann-Pauly et al., 2015; Kostova and Zaheer, 1999; Scherer et al., 2013), less attention has been paid to the supranational environment and to how MNCs deal
with it. The supranational institutional environment faced by MNCs is becoming particularly important when dealing with sustainability-related issues (Pinkse and Kolk, 2012), due to the complexity of such environments and the lack of an overarching governance system (Ansari et al., 2013). Furthermore, many sustainability-related challenges become a global concern for MNCs (Teegen et al., 2004) because of globalization (Norris, 2000; Teegen et al., 2004), the increasing presence of NGOs at a global level (Teegen et al., 2004), and the growing use of global compacts (Cetindamar, 2007; Runhaar and Lafferty, 2009; Voegtlin and Pless, 2014).
Additionally, research into environmental scandals is needed because (environmental) scandals are a key issue for firms (Marcus and Fremeth, 2009) and are becoming increasingly important (Scherer et al., 2013). In particular, MNCs require guidance on how to restore sustainability-related legitimacy due to an environment scandal, because an environmental issue is an “important international business issue strongly related to the organizational behaviors of [MNCs]” (Ivanaj et al., 2015, p.1). Also, this instruction is needed because both MNCs’ worldwide activities (Ivanaj et al., 2015) and environmental issues (Pinkse and Kolk, 2012) have a global impact.
A discursive approach is required to study legitimacy-related problems. Vaara and Tienari (2008) state that researching legitimation strategies with a discourse analysis in relation to environmental problems requires increased attention. Further, Joutsenvirta and Vaara (2015) highlight the necessity of further research at a discursive micro-level (i.e., specific texts are analyzed). This is performed in the current study. Such a discursive approach has been shown to be beneficial and suitable to research organizational problems (Joutsenvirta & Vaara, 2009; Persson et al., 2014; Tienari et al., 2003; Vaara and Tienari, 2008), as it enables the researcher to understand social (inter)organizational issues (Phillips and Hardy, 2002).
In order to fill these gaps in the literature, this thesis sheds further light on how MNCs can restore their legitimacy after it has declined due to an environment scandal. As a discursive approach is suitable for this type of qualitative research, the focus is on discourses used by MNCs facing the dynamics of a supranational environment.
In view of the findings from the literature review, the following research question was formulated:
“How do multinational corporations, through their discourses, attempt to restore their legitimacy after facing a global environmental scandal in a supranational institutional environment?”
Based on the literature review provided in this chapter, five propositions were developed. Regarding the first propositions, it is expected that firms are more likely to adopt the rationalization or moralization strategies rather than the other legitimation strategies, because of the following reasons. First, firms operating in a supranational institutional environment particularly face legitimacy-related challenges (Scherer and Palazzo, 2011). This is also due to the importance of NGOs in the transnational environment (Teegen et al., 2004) and the urge of MNCs to respond internationally sustainability-related issues (Pinkse and Kolk, 2012). As companies often use sustainable practices to maintain, and thus also likely to restore, their legitimacy (Baumann-Pauly et al., 2015; Brønn and Vidaver-Cohen, 2009; Marano and Kostova, 2016; Patriotta et al., 2011; Scherer et al., 2013), the concept of corporate sustainability is used to construct the first proposition. Several scholars argue that corporate sustainability is achieved when three principles (i.e., environment integrity, social equity and economic prosperity) are met (Bansal, 2005; Marcus and Fremeth, 2009). As firms are often more concerned with economic
prosperity than with the remaining two principles, it is more likely that firms use strategies for legitimation purposes by referring to actions that deal with their economic prosperity. Therefore, it can be assumed that companies often use the rationalization strategy (i.e., referencing the utility or function of specific actions or practices (Vaara et al., 2006, p.800) to repair their sustainability-related legitimacy issues. Additionally, scholars argue that legitimacy is especially important for MNCs (Kostova and Zaheer, 1999) and that they can strengthen their legitimacy by becoming involved in social practices and activities, which have not been designated as mandatory by the institutional environment (Kostova et al., 2008). Such activities can be associated with the rationalization strategy, in which MNCs legitimize their activities by referring to certain actions (Vaara et al., 2006).
Second, the moralization strategy is likely to be adopted because firms should focus on the impact of their business activities on the environment and society, instead of concentrating solely on the impact on their financial performance (Baumann-Pauly et al., 2015; Scherer and Palazzo, 2011; Scherer et al., 2013). As stated by Marcus and Fremeth (2009), companies should engage in sustainability practices for moral and normative reasons, making it a crucial part of legitimacy. Therefore, it can be proposed that companies aiming to restore their legitimacy should focus on moral and normative approaches, which can be associated with the moralization strategy. The moralization strategy involves “legitimation by reference to specific values” (Vaara et al., 2006, p. 801). These specific values can be identified with the moral and normative reasons. Based on the aforementioned paragraphs, the following proposition can be formulated:
Proposition 1) MNCs are more likely to adopt the rationalization or moralization strategy rather than the normalization, authorization, and narrativization strategy in order to repair their legitimacy after facing a global environmental scandal in a supranational institutional environment.
When MNCs do adopt the authorization strategy, it is expected that they refer to specific analysts or industry experts. Vaara et al. (2006, p. 800) argue that, in particular, “specific analysts or industry experts” are used as legitimating arguments, as authority is vested in these actors. Although the research context differs, the same is expected for this study. In this research, NGOs are seen as experts in the field of sustainability. NGOs are becoming increasingly relevant for MNCs, as their presence is increasing in the global field. And therefore, it is expected that MNCs, facing the dynamics of supranational institutional environment, are likely to refer to NGOs when attempting to repair their legitimacy. Additionally, an NGO is seen as an expert in the sustainability field because they have most often contested the role of MNCs on society and the environment (Palazzo and Scherer, 2006; Scherer and palazzo, 2011). Based on this discussion, the second proposition is:
Proposition 2) When MNCs adopt the authorization strategy to repair their legitimacy after facing a global environmental scandal in a supranational institutional environment, they use this strategy by referring to NGOs as ‘industry experts’.
Little information is available regarding the narrativization strategy. Therefore, it is difficult to associate this strategy with information about either sustainability-related problems or the supranational institutional environment. In order to formulate a proposition, the following two
insights were considered. First, Vaara et al. (2006) argue that this strategy is usually used in combination with another legitimation strategy. Second, Vaara et al. (2006) contend that MNCs use this strategy by ‘telling a negative story’. However, since the research context is different from the one in this study, namely Vaara et al., (2006) research legitimation strategies in relation to a production shutdown, other expectations are made for this research. Indeed, the research context for this study is an environmental scandal. An environmental scandal has a negative impact on a MNC’s legitimacy (Zhao et al., 2014); therefore, it is more likely that MNCs refer to positive stories. Also, as a scandal may cause a public outrage, MNCs may use positive stories in order to turn the negative opinion the public may have about the company into a positive one.
Proposition 3) When MNCs adopt the narrativization strategy to repair their legitimacy after facing a global environmental scandal in a supranational institutional environment, they use this strategy a) in combination with another legitimation strategy and/or b) by referring to ‘positive stories’.
Due to their accessibility to supranational stakeholders, MNCs have the advantage over domestic firms of transmitting “global behavioral norms” (Pinkse and Kolk, 2012, p.338). As Pinkse and Kolk (2012) argue, this in particularly beneficial when they meet stakeholders’ expectations. Therefore, it is likely that MNCs will use this advantage to restore their legitimacy. MNCs thereby legitimize their actions by referring to the fact that they can be an example to other firms, which can be associated with the normalization strategy (Vaara et al., 2006). The normalization strategy entails “[rendering] something legitimate by exemplarity” (Vaara et al., 2006, p. 798), meaning that a MNC attempts to restore its legitimacy by referring to other companies to show that its behavior is appropriate. The same is expected when facing
sustainability-related challenges. As it is a global issue (Teegen et al., 2004) for which no overarching governance system exists (Ansari et al., 2013), MNCs take collective action to respond to environmental issues (Ansari et al., 2013). Therefore, it is likely that MNCs, attempting to restore their sustainability-related legitimacy, refer to other companies facing the same challenges.
Similar to the narrativization strategy, several scholars contend that this strategy is used largely in combination with other legitimation strategies (Vaara et al., 2006). This leads to the following proposition:
Proposition 4) When MNCs adopt the normalization strategy in order to repair their legitimacy after facing a global environmental scandal in a supranational institutional environment, they use this strategy a) in combination with another legitimation strategy and/or b) by referring to ‘exemplarity’.
Vaara and Tienari (2008) and Scherer et al. (2013) argue that it is most effective for firms to simultaneously use multiple legitimation strategies. The same may apply to MNCs facing a supranational institutional environment when dealing with sustainability-related issues, as dealing with these issues is becoming increasingly complex in supranational environments (Ansari et al., 2013). In addition, many MNC challenges are becoming global concerns (Teegen et al., 2004). Therefore, it is believed that it is more complicated to respond to sustainability-related challenges.
Proposition 5) MNCs are more likely to simultaneously use multiple legitimation strategies.
3. METHOD
3.1. Research design
A qualitative method was used in order to answer the following research question: “How do
multinational corporations, through their discourses, attempt to restore their legitimacy after facing a global environmental scandal in a supranational institutional environment?”. As the
purpose of this study was to provide new insights into legitimacy, environmental scandals and sustainability literature, it had an exploratory purpose. The aim of an exploratory type of research is to gain insights and understanding of an issue (Saunders and Lewis, 2012). In an exploratory study, conclusions should be drawn carefully because answers to the research question(s) are only tentative (Saunders and Lewis, 2012).
This study adopted a case study research design. Case studies provide a means to gain new insights into a specific topic (Eisenhardt, 1989). According to Yin (2009), a case study is an appropriate method to use when the following three conditions are met. First, a case study allows the possibility of focusing on a current topic. The legitimacy of many multinationals is currently being challenged (Palazzo and Scherer, 2006) and environmental scandals are a hot topic; therefore, a case study is an appropriate strategy for this study (Yin, 2009). Second, this method is suitable to answer a “how” research question (Saunders and Lewis, 2012; Yin 2009). As the research has no control over behavioral events, the final condition is also met (Yin, 2009).
One limitation of a case study is that researchers may themselves be biased (Eisenhardt, 1989; Flyvbjerg, 2006). However, due to the rigor of a case study, both Eisenhardt (1989) and Flyvbjerg (2006) argue that the opposite is true (p. 546). More specifically, a case study has the ability to study real-life phenomena (Flyvbjerg, 2006).
