Organizational strategies in the context of legitimacy loss: Radical versus gradual responses to disclosed corruption

Abstract

How do organizations respond to the loss of legitimacy in the context of disclosed corruption, and what drives the particular responses adopted? In this article, we study the organizational strategies of three multinational companies before, during, and after legitimacy loss due to disclosed organizational corruption. We explore why some multinational companies exceed regulatory expectations and choose radical strategies that substantially influence their environment by defining a new benchmark of anti-corruption practices, while others follow a more gradual approach. We build on the concept of legitimacy in institutional theory and focus on three strategies that organizations tend to adopt to regain legitimacy: isomorphic adaptation, moral reasoning, and strategic manipulation. Based on our empirical study, we suggest that when a transgression is accompanied by a strong legitimacy shock, transgressors are likely to see no alternative but to react both radically and instantly. We identify two distinct extremes of strategic manipulation: decoupling and substantial influence.