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Dialogue and Business Legitimacy

  • Kirsten MogensenEmail author
Living reference work entry
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Abstract

This chapter presents two mental models for justification of business legitimacy. One is the public arena, and the other is the corporate public diamond. As presented in this chapter, the imagination of a public arena with an agenda for societal debates is linked to developments in the modern era, including the idea of individual freedom, the acknowledgment of reason as important for building knowledge, steam-powered printing presses, and national autonomous mass media. The model makes most sense in societies, where fundamental norms and values are shared and business practices can be tested in relation to them. Mass media reports on fraud, unsanitary, and inhumane working conditions in the meat-packing industry in the twentieth century are mentioned as an example of how the public arena best works. The corporate legitimacy diamond reflects contemporary thinking. Using the public arena as a point of departure, it adds a corporate public diplomacy level. The model takes into consideration the post-millennium quest for human dignity and localized trust. When transnational corporations invest in many parts of the world, they are faced with many different perspectives on what constitute legitimate business behavior. They need to balance local norms and values around the globe, because social media allow a transnational audience to discuss their legitimacy. Using diplomatic practices, corporations can build long-term relationships, share information, and make compromises with local civic society representatives. Human resource management and plans for constructions are mentioned as examples of topics to be negotiated between corporations and civic society.

Keywords

Corporate legitmacy diamond Corporate public diplomacy Disputes Public arena Transnational corporations 

Introduction

People generally consider transnational corporations legitimate if they act the way they are expected to. If they behave differently from what people expect, then their legitimacy is disputed (Baumann-Pauly et al. 2016: 33, referring to Deephouse and Suchman 2008; DiMaggio and Powell 1983). The concept of business legitimacy, therefore, can be studied from three main angles: (1) people’s expectations regarding corporate practices, (2) corporate reactions to charges of behaving illegitimate, and (3) institutions for dispute. This chapter will concentrate on the disputes, i.e., how corporate legitimacy is traditionally being tested in democracies and what is expected in the 2020s. For corporations working internationally, the chapter suggests building diplomatic relations with community representatives, partly to improve chances of being perceived as legitimate.

While it should be straightforward for corporations to act in ways that “correspond with the social expectations of their environment” (Baumann-Pauly et al. 2016: 33), practice shows that it is far from easy, partly because norms and values are constantly being debated and regulations are questioned. The foundation for evaluation of legitimacy is fluid and constantly changing in the international society where corporations work and interact with citizens. For transnational corporations dealing with different cultures and traditions, recognizing the norms and values shared by a global public becomes a hypercomplex process. “Satisfying one demand may require violating others, thus potentially jeopardizing organizational legitimacy” (Baumann-Pauly et al. 2016: 33, referring to Pache and Santos 2010).

Scherer and Palazzo (2011: 906) write: “the question remains of how the legitimacy of corporate activities can be normatively accessed when no universal criteria of ethical behavior are available in a post-modern and post-national world.” They also write that the conditions for corporate legitimacy are changing from “cognitive and pragmatic legitimacy to moral legitimacy” and that it is no longer enough for transnational corporations to “follow the nationally defined rules of the game”:

In the changing institutional context of global governance, this stable framework of law and moral custom is eroding, and corporations have to find new ways of keeping their licenses to operate. (Scherer and Palazzo 2011: 907, reference to Palazzo and Scherer 2006; Suchman 1995)

Cognitive legitimacy is based on comprehensibility, pragmatic legitimacy is based on self-interest, and moral legitimacy is based on normative approval (Suchman 1995: 571).

Scholars have analyzed how corporations are involved in relations with many different stakeholders, how socializing among these stakeholders involves ongoing sense-making, and how this sense-making serves as background for development of corporate standards that aim at correspondence with citizens’ expectations. Business scholars have studied corporate efforts to handle legitimacy issues, and – in search for tools – several researchers suggest that corporations can play a political role (e.g., Ordeix-Rigo and Duarte 2009). While large international corporations have had political influence for centuries (Pigman 2015), their economic power in negotiations with nation-states has increased since the 1990s (for discussions about this issue, see, e.g., Dicken 2015), partly due to increase in foreign direct investment (World Bank 2016; Kragelund 2019).

Corporate diplomacy is a concept being used to describe the phenomenon where “multinational companies engage in societal and political issues that are directed at the key stakeholders in the company’s host country aiming at gaining legitimacy” (Marschlich and Ingenhoff 2019: 172; see also Ingenhoff and Marschlich 2019). Corporate diplomacy is an umbrella concept that draws on thinking from scholars in many fields, e.g., international relations and diplomacy, CSR, peace through commerce, business management, business ethics, and corporate communication (Westermann-behaylo et al. 2015; Mogensen 2019a; Ingenhoff and Marschlich 2019).

Transnational corporations are often involved in diplomatic relations with many different stakeholder groups. Their diplomatic relation with civic society representatives in their host communities is referred to as corporate public diplomacy (Mogensen 2017, 2019b). One approach to tackle the complexity is to engage in dialogues with the local publics in host communities. Such dialogues also create an opportunity for corporations to explain and discuss their moral norms and values, to develop trust at a local level, and to show respect for the human dignity of local citizens.

This chapter presents two different mental models for how business legitimacy is publicly tested. The first is called the public arena and the second the corporate legitimacy diamond. The imagination of a public arena with an agenda (McCombs and Shaw 1993) for societal debates is linked to developments in the modern era, including the idea of individual freedom, the acknowledgment of reason as important for building knowledge, steam-powered printing presses, and national autonomous mass media. The model makes most sense in societies, where fundamental norms and values are shared and business practices can be tested in relation to them. The second model, the corporate legitimacy diamond, reflects contemporary thinking. Using the public arena as a point of departure, it adds a corporate public diplomacy level. The model takes into consideration the post-millennium quest for human dignity and localized trust. Transnational corporations are faced with many different perspectives on what constitute legitimate business behavior. They need to balance local norms and values around the globe, because social media allow a transnational audience to discuss their legitimacy. Using diplomatic practices, corporations can build long-term relationships, share information, and make compromises with local civic society representatives.

It is obvious from media reports that many corporations try to create images of being legitimate where they work, but behind the surface, some corporations behave in ways that are considered inappropriate. When double standards are uncovered, corporations lose public trust and their businesses are damaged. Norms, values, legitimacy, and trust are therefore interrelated concepts, and they are all essential for discussions about business legitimacy in the 2020s.

Norms, Values, Legitimacy, and Trust

Norms are foundations for trust, because norms guide us in determining what to expect from other people (Mogensen 2014), and – together with values – norms form the basis for perceived legitimacy. Professional trust builds partly on the perception of legitimacy, so norms, values, legitimacy, and trust are linked in a hierarchical order, with norms at the bottom and trust as the more comprehensive concept at the top. A brief introduction to these four concepts follows, starting from the bottom (Fig. 1).
Fig. 1

Perceived legitimacy in the context of norms, values, and trust

According to Parsons (1937/1991), action is structured by the social and cultural systems as well as by the personality of a given actor. The cultural systems have norms for how people ought to behave in various situations depending on their positions in the social system. These norms are important, because they allow other citizens to have expectations to people in different roles, for example, what to expect from CEOs of transnational corporations in various situations. Norms are binding in the sense that it has social consequences to break them and they are internalized so that a person will feel a prompting to follow them even if it is not in his or her personal interest (Ross 1968: 85). Norms are said to exist if members of the society can say that people in a given situation ought to behave in this way and people generally do follow the norms (Ross 1968: 99). However, norms for different situations may conflict, and some are more important than others from the perspective of the actor, Parsons (1991: 184):

In any at all well integrated institutional system the major decisions of precedence will be made for the individual actor through the institutionalization of norms and hence lie beyond his control […] But this major settlement of the order of precedence of normative patterns, which is essential to social stability, does not go all the way. There are still areas of genuine doubt open to the decision of the individual actor, within which his own need-disposition structure may swing the balance between alternatives.

In the model, norms are placed at the bottom, because they are internalized in the process of being socialized and, in daily life, they are mostly tacit. They are followed by values which are often explicit and discussed among society members. Discussions about values are, however, usually framed by a community’s belief system or ideology because this forms the basis for the value system. Parsons writes that the community’s ideology is the primary basis for “the cognitive legitimation of patterns of value orientation.” Legitimate ideologies aim at “the welfare of the collectivity” (Parsons 1991: 236–237). Parsons (1991: 239, emphasis in original) states:

[I]deology is an empirical belief system held in common by the members of any collectivity. The focal type of case of course is the ideology which serves to legitimize the value-orientation patterns central to a stable society. These are, in the most fully institutionalized sense, the established beliefs of the social system. In any complex social system there will of course, be differentiation on the ideological level between various sub-collectives of the larger society. There is room for a considerable amount of this differentiation without any sub-ideologies being treated as explicitly deviant.

Boltanski and Thévenot (2006: 332) have in selected “manuals intended for business use” found examples of how scholars and business practitioners argue for legitimacy within different orders of worth. In their book On Justification, they discuss what constitute legitimate argumentation within each of the following orders of worth: inspired, domestic, fame, civic, market, and industrial. These “orders of worth” represent perspectives known to most people in the business world, and often managers will instinctively combine perspectives from different orders of worth when dealing with other people. For example, a CEO will strive to make her corporation effective (industrial), but she will also strive to build good relations with her employees (domestic) and seek public influence (fame).

Diplomatic practices can be used to create a fundamental understanding between community and firm about what constitutes legitimate corporate behavior. Derian (1987: 6, 45) consider diplomacy “a mediation between estranged individuals, groups or entities”; it is necessitated by destructive forces and connotates hope. Derian (1987: 117): “Power is, above all else, a relationship,” and mutual recognition is fundamental because “people will be estranged from what and whom they fear and cannot control, from what and whom they desire and cannot acquire.”

Ongoing dialogues with the host communities allow corporations to adopt their plans and practices before these create legitimacy problems. Such dialogues with publics are also referred to as corporate public diplomacy. It is defined as “collaboration with the general public in a host country through negotiations directly with civic society” (Mogensen 2017). Diplomacy requires that all parties are motivated to find nonviolent solutions to conflicts and are willing to engage in building diplomatic practices with cultural norms and rituals (Derian 1987: 112, 144). Practiced in good faith, corporate public diplomacy can give a local community increased understanding of what happens inside a corporation and thereby limit rumors and strengthen the basis for trust. It can also provide a corporation with invaluable knowledge about community affairs which will make daily life easier and give the corporation a chance to reach proactively to any hostile developments in the community.

A community may perceive a corporation as legitimate if it acts in accordance with community norms and values or if the community understands and accepts that the corporate norms contribute to “the welfare of the collectivity.” The collectivity can here be understood broader than the specific community, for example, to the welfare of humanity in general. Suchman (1995: 574) defines legitimacy 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.

From a corporate perspective, legitimacy can be perceived as an asset, so corporations generally find it important to create and protect a good image, but they need to balance their responsiveness to norms and values in local communities with international norms and values to appear authentic.

Community members will usually not think of corporate legitimacy in terms of assets, but they will evaluate the corporation’s conduct. Bitektine and Haack (2015) suggest that the evaluation of an organization’s legitimacy is “rendered by individuals at the micro level and by collective actors at the macro level.” In their model, the first level (propriety) consists of individuals’ approval or disapproval of a given organization’s actions and/or practices, while the second level (validity) is a collective consensus regarding the legitimacy of the corporations.

Because it is a perception, the evaluation of legitimacy is based on a projected image that may or may not reflect reality, for example, a corporation may project an image of social responsibility to the general public while – unnoticed – engage in corruption and other activities that are not accepted according to social norms.

Legitimacy is one of several factors that people evaluate when trusting others, and for corporations, public trust in them is considered an asset, because trust allows many transactions to happen smoothly. It is always, however, risky to trust others, because there is no guarantee that the trusted person will behave as expected (Luhmann 1979). In daily life, we need to trust people in many different situations, and we draw on different forms of trust (for examples of trust forms in conflicts, see Mogensen 2016). Mayer, Davis, and Schoorman (1995: 715) propose that in contexts where people interact professionally – such as transnational corporations interacting with community representatives – trust is based on the person’s perception of the other person’s abilities, benevolence, and integrity. Corporations cannot control community members’ perception, but they can consciously demonstrate their abilities, benevolence, and integrity in ongoing diplomatic relations. Openness and transparency are some of the signs of integrity and benevolence (Mayer et al. 1995: 722). Whether the community representatives in specific situations chose to trust the corporation depends not only on corporate behavior but also on their own propensity to trust and the risk involved in trusting (Mayer et al. 1995).

Kjærbeck (2013) perceives corporate legitimacy as a socially constructed phenomenon that is constantly being negotiated and therefore changing. Corporate claim on legitimacy is challenged in the public arena, and transnational corporations can create a better foundation for such public tests if they engage in ongoing corporate public diplomacy with civic societies in their host communities. This perspective is integrated in the second model called the corporate legitimacy diamond, and it will be discussed further below.

The Public Arena

In the public arena, business legitimacy is negotiated and tested. The concept of public arena is used to describe different forums where the publics discuss, e.g., traditional journalistic media, social media, town hall meetings, and public places (e.g., Hutchins 1947; Whelan et al. 2013; Ingenhoff and Marschlich 2019). This space may also be called the court of public opinion (Stoker and Rawlins 2005; Vos 2011) or the public sphere (e.g., Habermas 1991; Toepfl and Piwoni 2015). Different concepts may be used to emphasize special perspectives on the activities taking place in the public space, and the multitude of perspectives contribute to the construction of corporate legitimacy, including the abovementioned concepts.

Back in history, print and broadcast media were important for corporate images of legitimacy, and professional journalists were proud to serve the public. Early liberal press theory was based on the idea that educated people were rational beings, and with free exchange of information and ideas in the public arena, then truth would win over falsehood (for references see Siebert et al. 1956). However, in the light of how people had been manipulated by Nazi and communist propaganda in the first part of the twentieth century, the Commission on Freedom of the Press (Hutchins 1947: 118–119) questioned this assumption about people responding rationally. The committee also wrote that while freedom of expression is a necessary condition for democracy, “the co-presence of a variety of opinions is not equivalent to debate.”

Today’s social media forums provide platforms where it is possible to nearly unhindered share opinions – also about corporations. These opinions may not be based on facts and they contribute to the public images of corporations – truth or false – but they will usually not satisfy critics because they do not constitute the public scrutiny that earlier liberal thinkers imagined. As an example of such early thinking, in the late nineteenth and early twentieth centuries, “a mix of businessmen, social reformers, and educators sought to (…) make business and politics more accountable to the people by using publicity to expose abuses” (Stoker and Rawlins 2005). Journalists would uncover “abuse of people,” and corporations under attacks would feel a need to “defend themselves in the court of public opinion as well as the court of law” (Vos 2011: 122, quoting Cutlip 1994).

The above brief sketch contains some of the basic ideas behind the public testing of corporate legitimacy in the public arena. Stereotypically, journalists, NGOs, politicians, and scientists are playing the roles of self-appointed prosecutors on behalf of the society, while public relations staff explain and defend the special interests of the corporations (e.g., Patriotta et al. 2011). The “testing” is coved by traditional media, researched, written, and edited by professional journalists with ethical standards (e.g., SPJ 2014).

In this old-style court of public opinion, the agenda usually focus on important issues such as criminal activities and serious misconduct, treats against public health and security, misleading statements and conduct, serious incompetence in public administration, slave-like working conditions, helplessness of people in care, and religious coercion (e.g., Protess et al. 1991; Kroeger 2012). On such issues, the public generally have an overall belief that determine what is considered legitimate in their society, but globally there are differences in perception of what is legitimate. In democracies with rule of law, people tend to be outraged, when they learn about serious misconduct. They seek solutions and may require increased regulations. If they ever had any trust in the corporations involved, they will probably lose that trust (Mogensen 2014).

Large corporations will often try to avoid the “reality of tests of worth that threaten their power” (Gond et al. 2016), and critical journalists find them little willing to create the transparency needed for a legitimacy test (Mogensen and Nordfors 2010; Vercic and Colic 2016). Public relations staff do not trust that critical journalists will help them in their effort to create perceptions of legitimacy (Schönhagen and Meißner 2016) and may, e.g., use their own media outlets to frame issues so that the corporations appear legitimate while keeping critical journalists away. On the other hand, corporations can gain legitimacy if they are scrutinized in the public arena and found to be without major fault.

An example of how the public arena in practice has been used to test legitimacy is the scandals surrounding the meat-packing industry in Chicago and its practices in the beginning of the 1900s. Writer Upton Sinclair worked undercover in the one of the factories and described his observations in articles as well as in a best-selling novel The Jungle (1906). The public was outraged, and his work resulted in stricter regulations of the meat-packing industry. Unfortunately, fraud in the food industry is still a problem, and more recently journalists have, e.g., written about scandals such as melamine added to milk powder, horsemeat sold as beef, and old green rice made to look fresh. The Institute for Global Food Security at Queen’s University Belfast writes on its website that “Deliberate food fraud is a growing crime,” and its Professor Christopher Elliott says to the Danish newspaper Weekendavisen that there is more money in food fraud than in drugs. It is an organized, international crime (Lottrup 2019). The legitimate food industry, obviously, has an interest in distinguishing itself from these criminals. They will want to show that their operation is legitimate and, in the public arena, the only way to do that is to join forces with trusted journalists, NGOs, politicians, and university researchers.

In the democratic part of the world, in the nineteenth and twentieth centuries, professional journalists sometimes considered themselves independent “watchdogs” for democracy, and they were proud of their struggles with public relations practitioners. Also, today some journalists are engaged in investigative reporting (e.g., ICIJ 2019), but their resources are limited compared to the resources of corporations. In the 2020s, many more people are working to protect the image of corporations than there are professional journalists to uncover, document, and question corporate practices.

The fact that corporations spend large sums on public relations is an indication that they find value in being perceived as legitimate. Boltanski and Thévenot (2006: 320–321) provide examples on the tools that they use to communicate the impression that civil society approve of them even if they have not obtained such approval. Boltanski and Thévenot (2006: 320, emphasis in original) writes: “In the world of fame, appearance and reality are conflated”(Fig. 2).
Fig. 2

The court of public opinion, where legitimacy of corporate/industry behavior is discussed and evaluated. The main actors are indicated in the angles, while some of their activities are mentioned on the sites of the triangles. In the public arena, the publics’ main role is to evaluate the legitimacy of a given corporation/industry based on input from, on one hand, critical journalists, university researchers, politicians, and NGOs and, on the other hand, public relations staff serving the special interests of the corporation/industry

The public arena model is outdated as a trustworthy tool to test legitimacy for several reasons, including the following:

Firstly, it is a short-term solution to critique and therefore not able to sustain trust. Boltanski and Thévenot (2006: 155) writes that “the goal of public relations is to build a measure of worth based on fame” and that:

[T]he world of public opinion places little value on memory. Unlike the market world, it does not even recognize the form of memory of past tests that is constituted by the durability of money beyond the moment of the test during which it was transferred. (2006: 178)

This short-term perspective distinguishes the public arena model from the long-term trust building perspective of corporate public diplomacy and the corporate diamond model discussed below.

Secondly, independent journalists and scholars can only serve this legitimacy testing system if they have the autonomy and resources needed to do a professional job, and generally speaking they have neither in the 2020s. Previously independent media have lost much of their integrity, partly because they have been bought by business conglomerates with special interests or are controlled by authoritarian governments (for types of ownership, see e.g. Mogensen 2002). Furthermore, the job as investigative reporter is dangerous. Around the world, independent journalists are being killed for trying to uncover the truth (CPJ 2019), which is an indication that powerful people – usually with business engagement – do not find their interests served by such transparency. The comparatively few independent, professional media usually suffer from lack of resources, partly due to lack of enough paying subscribers and loss of advertisement income. Similarly, much university research now depends on co-funding from big businesses/industries, and these do not support research which undermine their legitimacy. In other words, with relative few exceptions, neither journalists nor scholars have the means and autonomy to test the legitimacy of corporate behavior in a trustworthy way.

Corporations might at first have felt a relief when the watchdogs became lapdogs (for explanation of the concepts, see Franklin et al. 2005: 130). However, many top leaders have now realized that the lack of accountability has its backsides. Surveys have measured lack of trust in media, politicians, and businesses (Edelman 2019). According to Edelman, while the general public in 2019 had less “faith in traditional authority figures and institutions” than a decade earlier, people instead shifted “their trust to the relationships within their control, most notably their employers.” Edelman talks about a “shift to localized trust” (Edelman 2019).

What the surveys imply is that the legitimacy checking system which served democratic nations during the previous two centuries cannot alone manage the job in the twenty-first century. A new way of thinking is needed if corporations want citizens to trust that they behave legitimate. And such a new system must preferably be linked to peoples’ local environment.

Corporate Legitimacy Diamond

Such a localized foundation is provided by the corporate legitimacy diamond. It adds a diplomatic process to the testing of legitimacy in the public arena, so that the conduct to be tested in the public arena is grounded in values already discussed by the transnational corporation and its home community. Corporate public diplomacy creates a social room where information is shared, different interests mediated, values justified, and policies negotiated. Community and corporate representatives get to know each other as humans in a long-term relation and trust building process. Corporate public diplomacy can negotiate legitimacy problems of a different kind than the court of public opinion, e.g., norms and values to be considered, when transnational corporations plan to invest and expect to spend years in the community.

One way that corporations can build legitimacy in local communities is through its human resource strategy. When transnational corporations invest, they often bring the employees from their home countries rather than educate and hire local workers, and this practice create both hostility and suspicion.

For example, in Aceh, Indonesia, a transnational corporation was working with Indonesian state-owned companies to extract and refine natural gas in the Andaman Sea outside the town Lhokseumawe in the decades around the millennium (the case is also analyzed in Mogensen 2016, 2019a). The corporation brought in trained workers because they considered the local population uneducated and unable to do the work, while the locals – despite their lack of western-style education – felt that they ought to manage production facilities in their home area (Schulze 2007: 190). The lack of appreciation that the corporation showed the local people created anger.

The core of this conflict is not unique for Aceh – in fact it has its parallel in conflicts between communities and transnational corporations many places in the world (e.g., Gruber 2014; Kragelund 2019), so corporate leaders have shared interests in possible solutions to it.

A different strategy is to engage the local community in finding a solution. Such a solution can, for example, be that for each position and at all levels, the corporation employs two people, one local citizen and one foreigner, to work together. It might be counterintuitive from the perspective of industrial leaders that value efficiency (Boltanski and Thévenot 2006), but it might be cheaper to pay double salary than to pay for security and other expenses linked to a challenging production environment and lack of legitimacy. If done respectfully, such a different strategy can also contribute to mutual cultural understanding, transparency, local development, support for the corporations, and lesser support for rebels.

To negotiate solutions that embrace different peoples’ values requires empathy, a pragmatic approach, common interests in finding a working solution (Derian 1987), and diplomatic skills. In Europe, compromises between values from the industrial world and the civic world are not unusual, e.g., there are ongoing consultations between representatives for businesses and labor organizations. Boltanski and Thévenot (2006: 325 ff) write that such cooperation may lead to increased productivity, partly as a result of implied respect for the dignity of people. When corporations negotiate with local community representatives, there are, however, legitimacy issues to consider (Mogensen 2019b).

Another example is from Kachin State in the Northern Myanmar, where a transnational corporation wanted to build a hydropower dam. The local community was outraged partly because the dam was to be built at a place considered holy, many people was forced to leave their homes and fields, they did not trust the corporation, and they were not included in the decision process. Community actors published an invitation to negotiate the plans. A solution could, e.g., be to build more smaller dams at other places. However, their invitation was not answered, and hostility grew. An informer told Kirchherr et al. (2017: 115) that the corporation had misunderstood who was the main stakeholders. The corporation thought that it was the national governments: “they did not understand that those folks in Naypyidaw have no legitimacy whatsoever in Kachin State.” The project has been suspended since 2011 – partly due to public protests. This is a complicated case which is analyzed in more details in other publications (e.g., Mogensen 2017, 2019a, b), but the point of this brief description is the potential in dialogues. It might have been more efficient for the corporation to build diplomatic relations with the local community and negotiate the location of the dams.

A third practice to consider is how to deal in a legitimate way with community hostility to the corporate activities. Such hostility can be dangerous. In Aceh, local frustration with corporate behavior contributed to three decades of civil war in the province (Schulze 2007: 184). The corporation chose a traditional approach in its effort to tame protesters: it hired military to provide security. Both soldiers and rebels have since been accused of an outrages large number of serious human rights abuses. The victims included both corporate workers and local villagers (Mogensen 2016, 2019a). The insecure production environment was expensive for the corporation, and its choice of hard power in confrontations with the local rebels did not contribute to business legitimacy in the eyes of community members. The strategy that the corporation used in Aceh and the local reactions resembles many other cases in world. It is tempting to think that a different strategy – one that respects the “human dignity” (Fukuyama 2018: 40) of people living in the local communities where transnational corporations invest – will be both economically sound and increate business legitimacy.

Essentially, transnational corporations have three different options when it comes to dealing with the local communities where they work: (1) they can draw on hard power such as national police and company security to protect unpopular production facilities, (2) they can bribe the community leaders by investing in infrastructure and other social goods, and (3) they can solve problems in dialogue and collaboration with the community representatives. The last of these options is expected to be the preferred if corporations are seeking solutions that are perceived as legitimate by the local publics, but the impression is that corporations tend to rely on a combination of the first two (Fig. 3).
Fig. 3

The corporate public diamond. According to this model, corporations will still be confronted with critics in the public arena, but they will have a much more solid base for the scrutinizing when they collaborate with local community representatives and have their support

Conclusion

The public arena is a mental model of how business legitimacy is traditionally questioned by critics and justified by corporate staff in public. It is also called the court of public opinion, because in the imagination it seems like a judicial court with prosecutors and defenders. The public discussions about legitimacy also function as dialogue about values among citizens. People from many different social spheres present documentation, opinions, and ideas in meetings, public spaces, and public media. In countries with freedom of speech, everyone can join these exchanges of insights and views, but there is no guarantee for an audience. Some voices, such as those of famous people, have more listeners and followers than others, and in the social media age, there is hardly a shared public agenda.

Corporations use large sums on public relations activities to create images of legitimacy, but it is a hypercomplex process to learn what the publics around the globe expect and what business conduct will be accepted across borders. Print and broadcast news media have historically contributed to the development of shared norms and values in nation-states (Carey 2002: 78); however, transnational corporations work in societies with different cultures and are evaluated by people using both national and transnational media (Athique 2016). In the 2020s the public arena is not efficient as a model to structure the debate about business legitimacy across cultures, unless it is supplemented with approaches that encourage corporations to interact directly with stakeholders, including local community representatives.

As a supplement to the public arena, it is suggested in this chapter to create a localized foundation for compromises. The extended model is called the corporate legitimacy diamond. If practiced with good intentions, it may not only contribute to corporate legitimacy but also to long-term trust, and it signals that corporate employees and people living in host communities are equally humans with a right to dignity.

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© Springer Nature Switzerland AG 2020

Authors and Affiliations

  1. 1.Department of Social Sciences and BusinessRoskilde UniversityRoskildeDenmark

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