Organizational Legitimacy Under Conditions of Complexity: the Case of the Multinational Enterpris

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Organizational Legitimacy under Conditions of Complexity: The Case of the Multinational Enterprise
Author(s): Tatiana Kostova and Srilata Zaheer
Reviewed work(s):
Source: The Academy of Management Review, Vol. 24, No. 1 (Jan., 1999), pp. 64-81 Published by: Academy of Management
Stable URL: http://www.jstor.org/stable/259037 .
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I Acadenmy of Management Review
8
1999, Vol. 24. No. 1, 641- 1.

U
L
ORGANIZATIONAL EGITIMACY NDER
T
CONDITIONSOF COMPLEXITY: HECASE OF
E
THEMULTINATIONALNTERPRISE
TATIANA KOSTOVA
University of South Carolina, Columbia
SRILATA ZAHEER
University of Minnesota
We examine organizational legitimacy in the context of the multinational enterprise (MNE).After discussing three types of complexity (of the legitimating environment, the organization, and the process of legitimation) that MNEs typically face, we explore their effects on MNE legitimacy. In particular, we distinguish between the legitimacy of the MNE as a whole and that of its parts, and we develop propositions that include issues of internal versus external legitimacy and positive and negative legitimacy spillovers.

It has become a growing industry to critique Nike
globally (Phil Knight, NBC Today Show, May 11,
1998).

a whole or at its subunits? What constitutes the
legitimating environment of an MNE operating
in multiple institutional environments? What is
the relationship between the overall legitimacy
of the MNE and the legitimacy of its subunits?
And, finally, why do MNEs find it so difficult to
establish and maintain legitimacy and so often
experience crises of legitimacy?
Research on organizational legitimacy (e.g.,
D'Aunno, Sutton, & Price, 1991; Dowling & Pfeffer, 1975; Meyer & Scott, 1983; Scott, 1987, 1995) provides us with a theoretical foundation on
which to examine these questions. Scholars
have defined organizational legitimacy as the
acceptance of the organization by its environment and have proposed it to be vital for organizational survival and success (Dowling & Pfeffer, 1975; Hannan & Freeman, 1977; Meyer & Rowan, 1977). Institutional theorists have identified some of the determinants of organizational legitimacy and the characteristics of the legitimation process (Meyer & Rowan, 1977; Powell & DiMaggio, 1991; Scott, 1995; Selznick, 1957;

Zucker, 1983), citing three sets of factors that
shape organizational legitimacy: (1) the environment's institutional characteristics, (2) the organization's characteristics, and (3) the legitimation process by which the environment of the organization

builds its perceptions
(Hybels, 1995; Maurer, 1971).
In this article we suggest that examining the
MNE case can potentially extend theories of organizational legitimacy since the MNE chal-

One of the critical issues faced by multinational enterprises (MNEs) involves the establishment and maintenance of legitimacy in their multiple host environments. Instances of legitimacy problems in MNEs abound, ranging from censure of MNEs in the global media, such as

that faced by Nike for its labor practices in Asia
(Maitland, 1997; Marshall, 1997), to direct attacks
on MNE operations, such as the destruction of
Cargill's facilities in India (Dewan, 1994). In an
even more extreme example, Shell was accused
of conspiring with the...
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