Lecture 9: External & internal influences on stakeholder views

Question 1

Institutional theory perspective on decision-making

Answer 1

• Runs counter to the view that managers as essentially seizing market opportunities and outwitting competitive threats (Johnson & Greenwood, 2003)
• Managers do not ‘choose’ whether to conform – they simply ‘do’ because alternatives are not recognised
  
  • notion of always looking outwards
  • managers don’t choose to conform but do it as they think there is no other option available to them
• ‘Taken-for-grantedness’ is a characteristic of institutionalized environments
  
  • not autonomous individuals
• Regulatory processes ‘code’ prescriptions of behaviour & decision-making
  
  • reference point of what you can and cannot do
• Isomorphic tendencies’ and ‘mimetic practices’
  
  • becomes the accepted norm of what other people are doing

Question 2

Institutional theory

Answer 2

• Organisations adopt practices and policies that are socially ‘expected’ of them
• These meet with social expectations (in turn, confers legitimacy upon the organisation) and increases the likelihood external constituents will assist them
• = ‘the institutional environment’
• management not just making the decision as they think it is right but what is socially expected of them
  
  • this is institutional environment
• Adoption of new practices is the product of social beliefs and expectations
• Institutions can be enduring (unless ‘deinstitutionalization’ unfolds)

Question 3

Institutional pillars (Scott, 2013)

Answer 3

Regulative

-operating in accordance with relevant legal requirements
- emphasises conformity to rules

Normative

-stresses a deeper moral basis for assessing legitimacy
-internalised controls for conformity
- professional ‘norms’

Cultural-cognative

• legitimacy that comes for a common frame of reference or mindset
  -legitimacy comes from cognitive consistency
  deepest level mode as it rests on preconscious, taken-for-granted understanding

Question 4

Defining [organisational] legitimacy

Answer 4

• A generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed systems of norms, values, beliefs, and definitions (Suchman, 1995: p574)
• Organizations require more than material resources and technical information if they are to survive and thrive in their social environment…they also need social acceptability and credibility” (Scott et al, 2000: p10)
• Where legitimacy is not granted to an organization, its ability to pursue its goals and accumulate resources can be substantially reduced and consequently create constraints for the ways in which it can operate (Dowling & Pfeffer, 1975)
  
  • they argue when you’re not regarded as legitimate your ability to achieve goals and get resources are significantly reduces
• people conform to achieve legitimacy

Question 5

Why is legitimacy difficult to attain?

Answer 5

• “…..legitimacy may be a problem when an established organisation begins new of different activities…..especially if the new activity is really something quite different and not an imitation of something already being done.” (Pfeffer & Salancik, 2003: p203)
• they argue for new companies it is important as your are not only coming with something that already exist but need credibility of you own expertise
• ‘Justification problems’ (Fiss & Zajac, 2006: p1174)
  
  • provide rational to people for position you are taking
    
    • offering evidence ot date to persuade them on credibility
• Without it, the organization risks access to resources and place its existence in jeopardy (Dowling & Pfeffer, 1975)

Question 6

Legitimacy-building in foreign markets

Answer 6

• recommended to build legitimacy as
• Organizational legitimacy is critical to firms entering new foreign markets since their right to exist and conduct business may be significantly questioned, unlike in their home markets (Ahlstrom & Bruton (2001)
• Lacking legitimacy may act as a barrier to entry into new global markets for established multinational enterprises (Kostova & Zaheer, 1999)
• Firms must meet a legitimacy “threshold” of the host government, trade and professional institutions (Zimmerman & Zeitz, 2002)
  
  • minimum requirements of what is socially aceptable
  • show tha tyou have resources
• threshold higher and lower in certain countries

Question 7

‘Managing the global landscape’

Answer 7

• CEO’s of multinationals must understand the ways in which governments in developing countries are redefining their interests and drawing up new policies to further them
• To factor globalization’s new risks into strategy, executives must ask two questions:
  1. Is our industry strategically important to the government of the country we wish to enter?
  2. Is our industry strategically important to our home government? (Bremner, 2014)

why is this important

• many government want to encourage and financially support companies to go into other markers

Question 8

Governments

Answer 8

What do they do?

• Encourage companies to raise their performance
• Stimulate early demand for advanced products
  
  • anything new in tech want your county to be recognised for that
• Focus on specialist knowledge creation

Drivers for internationalisation

• Trade policies (e.g. reduction of trade barriers in the EU; WTO policies).
  
  • dilemma on how stict to make them so that they are abided by
• The liberalization and adoption of free markets
  
• Technical standardisation (e.g. in electronics) (Johnson et al (2017)

Question 9

Governments (regulators): proactive or passive?

Answer 9

Proactive

• Active interventions by the nation state (e.g. Pfizer in India)
  
  • produced their own product for cheaper
• The government role in the overseas expansion of the Korean and Japanese enterprise
• Allows the capacity to exchange threats: withdrawal from markets
  
  • example, tariffs by US and retaliation

Passive

• The temptation is for governments to loosen these controls in order to remain competitive in world markets
  
  • however this trust companies to act responsibly
• Developing countries may be desperately poor, and in need of hard currency, they will tolerate practices the developed countries would not (Gibson, 2007)

Question 10

Corporate Political Activity (external influence)

Answer 10

Essential Reading:

Lawton, T et al (2013) Corporate political activity: a literature review and research agenda. International

Journal of Management Reviews, Vol.15, pp86-105.

• Undertaken in “the pursuit or defence of competitive advantage”
• Firms influencing governments through campaign contributions, direct lobbying, government membership on company boards….and even bribery (p86)
• Note: CPA can be a two-way process
  1. Are there ‘rights’ and ‘wrongs’ with CPA?

Question 11

Legitimacy attainment: via external governance structures

Answer 11

• Corporate governanceis concerned withthe structures and systems of controlby which managers are held accountable by those who have a legitimate stake in an organization

(Johnson et al, 2017: p134).

• Its purpose is to focus attention on how organizations and their managers behave in the execution of their responsibilities (Freeman et al, 2010: p110).

Question 12

External influences:Pharma funding patient groups

Answer 12

• NICE (National Institute for Clinical Excellence) Guidelines
• Its role is to evaluate value for money
• Treatment selection and recommendation process
• Patient lobby groups funded by pharma firms

Source: The Observer 23 July 2023 ‘ Drug firms funding UK

patient groups that lobby for NHS approval of medicines

Question 13

list of stakeholder of a firm

Answer 13

Owners

Financial Community

Activist Groups

Customers

Customer Advocate Group

Unions

Employees

Trade Associations

Competitors

Suppliers

Government

Political Groups