393-400 promenade des Anglais e-mail: joanne.finlay@edhec ...€¦ · This theory was later complemented by others, for example the entrenchment theory (Shleifer and Vishny 1986),

Taking Care of Executive Legitimacy: A Neglected Issue of Corporate GovernanceObservation, Definition and Analytical Framework

January 2009

Valérie Petit Professor of Management, EDHECDirector of the EDHEC Leadership & Corporate Governance Research Centre

Isabelle Mari Professor of Strategy, EDHEC

EDHEC BUSINESS SCHOOLLEADErSHIP & COrPOrATE GOVErNANCE rESEArCH CENTrE

393-400 promenade des Anglais06202 Nice Cedex 3Tel.: +33 (0)4 93 18 32 53Fax: +33 (0)4 93 18 78 40e-mail: [email protected]

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Reducing the mandate of top executives—and the broader undermining of top management functions—is no longer a good governance practice but rather an indicator of a crisis: that of the legitimacy of top management teams.

The reforms in corporate governance that were initiated in the 1990s and have accelerated in the current decade have contributed to a greater balance of power between shareholders and top executives, in particular by strengthening measures designed to keep the latter in check. Left to develop unchallenged, however, these reforms could weaken companies by denying their top management teams the chance to build up sufficient legitimacy to govern.

Companies can no longer afford to be without strong and competent top management; this is why it is time to consider the legitimacy of top management teams, this much-neglected—and even mishandled—dimension of corporate governance.

It is not simply a question of deciding whether more or less power should be given to top executives (traditional but limited debate), but rather of exploring how best to allow them to govern.

To do this, we suggest the following working definition of managerial legitimacy: “the recognition offered by internal and external stakeholders in a company of a top manager’s right to govern, a recognition which is based on their belief in the validity of the manager’s powers with respect to shared values and norms that determine the nature of strategic leadership”.

The analytical model that follows allows us to position the debate on the nature,

the determining factors and the effects of legitimacy in corporate governance and performance. 1. It identifies the five dimensions of power that stakeholders evaluate when they bestow legitimacy on a top executive: position, reputation, expertise, ownership and personal leadership;2. It determines the nature of the legitimisation process, i.e., instrumental or value-based;3. It identifies two variables that affect the attribution of legitimacy to a top executive (collective representations of management/manager and organisational legitimacy);4. It highlights the anticipated effects of legitimacy: compliance with decisions, but also trust, commitment and active support from stakeholders.

This model allows us first of all to envisage a measure for managerial legitimacy that would challenge stakeholders and companies about the conditions required to promote legitimate and exemplary top executives. Secondly, it is an invitation to identify positive legitimacy practices and for top management teams to reflect on their willingness and capacity to put these practices into operation.

Summary

The work presented herein is a detailed summary of academic research conducted by EDHEC. The opinions expressed are those of the authors. EDHEC Business School declines all reponsibility for any errors or omissions.

Valérie Petit has been a professor of management at EDHEC since 2005, where she has held the chair for leadership and managerial competencies. Director of the EDHEC Leadership and Corporate Governance Research Centre, she is currently carrying out research in the field of strategic leadership, with particular emphasis on leadership styles among top managers. Valérie is a political science graduate from the IEP (Lille) and also holds an MA in communications (CELSA) and an MSc in social psychology (EHESS). She began her career in management consulting before completing a doctorate in management sciences in 2006; her thesis, written as part of her membership of the Laboratory for Investigation in Prospective Strategy and Organisation at the CNAM in Paris, focused on charismatic French CEOs.

Isabelle Mari has been a professor of strategy at EDHEC since 2001; she is head of the management and strategy department at ESPEME. She is currently carrying out research in the field of strategic management; her work focuses on governance in family companies and on the links between trust and power. Isabelle is a political science graduate from the IAE (Nice) and is currently completing a PhD at the Jönköping International Business School (Sweden) on the relationships between managers and family members and the impact they have on strategy in family companies.

About the Authors

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Table of Contents

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I. Diagnosis: A Crisis of Legitimacy at the Top .............................................................. 5

A. Symptom: Top Executive Functions Undermined .......................................................... 5

B. Diagnosis: Managerial Legitimacy in Crisis..................................................................... 7

II. Analysis: Legitimacy—A Neglected Dimension of Corporate Governance ............ 11

A. Legitimacy of Top Executives: A Neglected Dimension of Governance ................. 11

B. What Do We Mean by “Legitimacy of Top Executives”? ............................................ 11

III. recommendation: Taking Care of Managerial Legitimacy .....................................17

A. Defining Legitimacy ...........................................................................................................17

B. Determining Factors of Managerial Legitimacy ..........................................................18

C. Moderators of Managerial Legitimacy ...........................................................................19

D. Effects of Managerial Legitimacy ...................................................................................20

E. Analytical Model and Perspective on Managerial Legitimacy .................................. 21

IV. Perspectives: Developing Managerial Legitimacy ....................................................23

A. Measuring Managerial Legitimacy .................................................................................23

B. Identifying Positive Practices of Managerial Legitimacy ..........................................23

EDHEC Position Papers and Publications .............................................................................................32

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“The future is in the hands of those who wake up each morning and ask themselves how they are going to reinvent the work they do, not for the next twenty years, but for the next three months. […] No position is secure any more. And top managers can no longer sleep easy.”

(Jean-Marie Messier, J6M.com, 2000: 35)

A. Symptom: Top Executive Functions UnderminedThe above citation by Jean-Marie Messier in 2000 now reads as one of the most accurate prophecies made by the former Vivendi Universal CEO; indeed, it is unlikely that his forced departure in 2002 (which so marked public opinion at the time), after six years at the head of the French group, would today elicit as emotional a response from observers. The duration of management mandates has been considerably shortened over the last ten years: today the average life cycle of a CEO (worldwide) is exactly six years, as against ten in 1995 (Karlsson, Neilson and Webster 2008). Turnover in terms of managerial functions has increased accordingly: in 2005, 15% of CEOs left their post (13% for 2008), and the proportion of forced departures is constantly on the rise, another sign of changing practices.

These figures are just one indicator of the fragile status of the top management function, a fragility that began in the mid-1990s and reached its zenith in 2005, the year of the “directors’ waltz” (Péladeau, Romac and Favennec 2006), in which one global corporation in seven saw the departure of its CEO. This trend varies from region to region. Europe is the most turbulent and precarious region for top managers, with the highest turnover (17.8% in 2008, ahead of the US [15.2%] and Japan [10.6%]), the shortest mandates (five years, as against nine to eleven years

in the US) and the highest proportion of forced departures (37% of total departures, compared to 27% in the US).

Contrary to what one might think from what one reads or hears, this constant rise in turnover among top managers cannot be explained by greater demands for company performance: studies show no link between the departure of a CEO and a company’s poor performance (Karlsson et al. 2008). The causes behind the departures—and the increased turnover—often lie elsewhere, especially in the deterioration of power relations between a top manager and the board of directors. They reflect political motivations rarely made explicit in annual reports. The growing tension between top managers and shareholders, and the abruptness of the resolution of their differences, define a new situation where corporate governance reform has brought a strengthening of the power and control wielded by company shareholders (Murray 2007).

The movement for reform originally aimed at redressing the balance of power between shareholders and their company’s manager, and between the board of directors and the top management team. A reduction in mandates was considered by reformers one of the good practices to be implemented (insert 1). Initially, this was seen as a way of avoiding the counter-productive effects of top executives who were supposed to have become entrenched in companies that they had managed for too long. However, here, as for the benefits for higher turnover of top managers, studies have failed to show a clear link between a reduction in the duration of managerial mandates and company performance.

Nevertheless, for certain observers (Sundaramurthy and Lewis 2003; Alvarez 2007), these reforms may have gone

1. Diagnosis: A Crisis of Legitimacy at the Top1

1 - We are interested here in the corporate leadership of public limited companies.

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one step too far by reinforcing what is announced and actually done to control top management activity. Coupled with the greater instability of the top executive’s position, there would seem to be an undermining, even a delegitimisation, of the functions and members of top

management teams. The effects on company stability should not be ignored. The issue of a company’s governability must therefore be added to (or emerges from?) that of governance; and this has come about by undermining the very people who are expected to be at the helm.

1. Diagnosis: A Crisis of Legitimacy at the Top

Insert 1 - Corporate governance: decades of dialogue and dataIn an article entitled “Corporate governance: Decades of dialogue and data”, Catherine Daily, Dan Dalton and Albert Cannella (2003) examine some of the main theories and empirical results available in relation to corporate governance. Having defined governance as “the determination of the broad uses to which organizational resources will be deployed and the resolution of conflicts among the myriad participants in organizations", the authors highlight the extent to which their definition contrasts with the usual definitions, which for several decades have emphasised the protection of shareholders’ interests from managers seen to be acting solely in their own interests; based on this organisational configuration understood simply in terms of the separation of company owners from company managers, most studies then began to focus on the different forms and effects of measures aimed at keeping managerial discretion in check. Agency theory (Jensen and Meckling 1976) was dominant and influenced the focus of these studies by offering a new perspective on organisations: working on the principle that managers are overcome by the desire to pursue their own goals, this theory highlights a series of agency problems deriving from the separation of ownership and management and which stifle shareholder wealth. The success of the agency theory, we are told, depended on two factors: 1) its simplicity and 2) its common-sense view of the individual as being naturally selfish.

This theory was later complemented by others, for example the entrenchment theory (Shleifer and Vishny 1986), which focused on the measures by which a manager’s interests could be aligned with those of the shareholders so that the former would always treat value for the latter as a top priority (this theory was responsible for the development of stock option provisions). The resource-dependence theory focused on another dimension, that of the role of directors on the board, by showing the contribution to be made by external members (Dalton et al. 1998), who can benefit a company through the links (financial, legal, etc.) they may have with key individuals. It also showed how managers, in order to preserve their reputation, will seek to improve a company’s performance (this approach was later used to reform management remuneration schemes but also to justify calls for the maximum number of “independent” administrators). The theory of power (Daily and Johnson 1997; Shen and Cannella 2002) examines how conflict between managers and the board of directors emerges and is resolved. The stewardship theory (Davis, Schoorman and Donaldson 1997) departed somewhat from agency theory by contrasting its pessimistic vision of relations between a CEO and the board with one of altruism and collaboration, and by showing that managers can serve their own interests as well as those of their shareholders.

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B. Diagnosis: Managerial Legitimacy in CrisisTo make such an observation, and to suggest that top managers appear weakened and that they are suffering, as it were, from the new rules of corporate governance, is neither straightforward nor orthodox. When one questions the limits of ever tighter control over managerial discretion, public opinion will inevitably identify with and support a certain disciplinary ideology (Davis et al. 1997), predisposed as it is to regard top management with suspicion. This suspicion is regularly triggered by the media attention given to scandalous behaviour or by the latest publications in a new genre of literature that focuses on

executive psychopathology. Descriptions of the irrationality (Kets de Vries 2003), narcissism (Haubold 2006), greed and thirst for profit (Bonazza 2007) seen in a few cases have completed a wholly pessimistic depiction of top managers (insert 2). Our observation, nonetheless, is that managerial functions are being weakened and that this has potentially negative consequences for companies. Given the current unfavourable conditions in which both the time and confidence enjoyed by top management teams are being reduced, how can they be expected to gain the legitimacy they require in order to secure the trust and cohesion necessary for the successful management of an organisation?

These theories, together with agency theory, have influenced the practices—and in particular the activism—of shareholders, leading to more independent administrators, the separation of chairmanship and management, limits on age and duration for management mandates, and the development of variable remuneration packages for top managers.

The problem, say the authors, is that the empirical data do not support these theories, which were used as the intellectual basis for governance reforms. In particular, the data intended to show the positive effects of independent members being included on the board of directors, and variable remuneration packages have been inconsistent.

The authors conclude by calling for new theories that would be based on an exploration of three research topics: 1) the role of the board of directors beyond its watchdog function; 2) the new forms (mainly institutional) and effects of shareholder activism; 3) understanding the effects of governance on companies in crisis, in an effort to predict how it can assist those on the brink of bankruptcy.

Insert 2 - Fascination of management hubrisIn a 1986 article entitled “The hubris hypothesis of corporate takeovers”, Richard Roll seeks to understand why some companies overestimate the value of their target and “pay too much” for certain acquisitions. He develops a hypothesis according to which management hubris is one of the determining factors behind this phenomenon. The notion of hubris can be traced to Greek mythology, with its tales and characters depicting intemperance. Hubris is often linked to the notion of nemesis (retribution), which doubles back like a boomerang on the intemperate, and also on destiny (Ananke), which the character has sought to defy or alter under the influence of hubris. In more general terms, hubris relates to unfettered beliefs or practices that signal defiance of or

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The point of departure for this paper is the following hypothesis: the undermining of top executive functions is a symptom of a profound crisis, not a crisis of the image of top management teams, but a more worrying one—that of their legitimacy.

What do we mean when we refer to the legitimacy of a top manager? Legitimacy relates to one of the most political and fundamental dimensions of any company—that of the right to govern, as attributed to top management by company stakeholders. This attribution is above all legal in nature: it is the law that first determines the nature and extent of a top manager’s power and renders it legitimate. But the law alone is not sufficient to legitimise a top manager in the eyes of stakeholders: his personality, experience, behaviour, decisions and results also contribute to legitimacy. It is this dimension of legitimacy, which we call managerial legitimacy, that this paper will explore.

It is important here not to confuse legitimacy with power: power relates to the latitude and capacity to act that a top manager enjoys in order to govern effectively. Legitimacy, on the other hand, is an aspect of this power: it is that which makes it acceptable for some to cede their own power to the manager by delegating the governance of the company to him (shareholders mostly) or by committing

themselves to the implementation of his decisions (employees). A crisis of legitimacy refers therefore not to the quantity but to the quality of a manager’s power; while most current debate about corporate governance focuses on the quantity of power, this paper will focus on its quality. We argue that it is not simply a question of deciding whether more or less power should be given to top management teams, but rather of exploring how best to allow them to govern. Today, the problem lies in this capacity to govern, which is as much an issue for stakeholders (those who legitimise) as it is for management teams (those who are legitimised), and it is on this problem that we propose to position the debate about the crisis of managerial functions.

The origins of this legitimacy crisis can be found both in the behaviour of top managers themselves and in the changing context of strategic leadership, and by extension in the profession of top manager. It is not our intention to under-estimate the role or responsibility of top managers in the process of delegitimisation that has beset both the people and functions in top management. The business world has no shortage of examples of failure or poor performance that can be traced to the incompetence or dishonesty of managers, sometimes strengthened by inherited or deliberately created positions of


contempt for ordinary laws, destiny or the gods, the consequences of which are generally disastrous. Following on from Roll’s hypothesis, more and more studies sought to open the “black box” of executive psychology in order to measure its effects on strategy and company performance. After hubris (Hayward and Hambrick 1997), researchers began to turn their attention to the negative effects of over-confidence (Malmendier and Tate 2005; 2008) or narcissism (Chatterjee and Hambrick 2007) among top managers. Most used indirect measures to evaluate the “pathological behaviour” of top management teams (for example, the size of a manager’s photo in annual reports has been used as an indicator of narcissism), making their utility debatable. Nonetheless, such work reflects considerable interest in studying management psychology through its most extreme manifestations (see Bollaert and Petit 2008 for an overview).

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managerial hegemony that have exempted them from shareholder scrutiny. But individual behaviour is only one of the many factors behind the crisis of managerial legitimacy: another is the growing gap between the nature and demands of the profession of top manager on the one hand, and the changes in company management and corporate governance on the other. Table 1 provides an overview of this gap with increased scrutiny offsetting the need for autonomy, the call for transparency counteracting the need for ambiguity, and suspicion replying to the need for trust. These paradoxical injunctions compound misunderstanding (of the nature of executive positions) and encourage reactions of mistrust as well as

the development of measures by which to keep top management teams in check.

The symptoms—still to be fully enumerated—of a crisis in top management legitimacy open perspectives for further reflection. Convinced that this legitimacy is a condition in fine of corporate governability and company performance, the EDHEC Leadership and Corporate Governance Research Centre proposes in this paper an overview of recent work on managerial legitimacy at the top: it offers a definition, an analytical model and factors by which to assess managerial legitimacy, thereby allowing readers a better understanding of the stakes, key issues and effects of legitimacy among top managers.

Table 1: Paradoxical injunctions of strategic leadership

Demands related to strategic leadership Demands related to corporate governance

The need for managerial autonomyThis need is linked to one of the main tasks of top management: developing strategic vision. Studies have shown that autonomy is one of the conditions necessary for strategic development, a manager’s primary mission (Burns and Stalker 1961). Without autonomy, there is less chance of seeing an original or breakaway strategy emerge.

Strengthening shareholder controlReforms in governance have led to greater powers in monitoring top management, limiting its capacity to make decisions and act, while increasing its degree of managerial responsibility. If these moves have helped reduce the fraudulent behaviour of certain top managers, they have also restricted their autonomy. Apart from the fact that this lessens the chances of seeing a strategy piloted and implemented, it is the flexibility and creativity of top management teams, busy defending their robust strategic action before a board of directors, that are at risk of being undermined; this despite the fact that they constitute two essential factors for strategic development in a complex and changing environment (Kanter 1989).

The need for stakeholders’ trustThis need is linked to another primary task of top management: mobilising stakeholders in the implementation of strategy. It is not the top manager’s role to implement strategy, but rather to secure it by gaining the trust of the board of directors, which validates it, the staff, who explain and implement it, and the external stakeholders such as banks, which finance it, the press, which reports on it, and analysts, who assess it.

Mistrust of managementThe current climate in governance does not appear to assist the development of trust in managerial functions or in the behaviour of top managers. The theories that have influenced reform in governance offer a pessimistic vision of top managers, whose hegemonic behaviour is both feared and denounced. There exists today a kind of principled suspicion of managers, one which is largely shared by stakeholders with varied interests but who are nonetheless united in their mistrust.

The need for ambiguityThis need relates to the political role of a top manager: building company strategy while taking into account interests that are varied and often difficult to reconcile. In order to succeed, managers must act as a politician would, a point widely illustrated by organisational studies (Fligstein 1996). They must know how to cultivate ambiguity and uncertainty, and sometimes even adopt a double-edged strategy. It is important not to see this as a threat to company interests, but on the contrary as part of managerial efforts to obtain the support necessary for the implementation of strategy.

The need for transparencyThe need for transparency and the standardisation of managerial behaviour have reduced the margin of shadow or ambiguity which managers need in order to promote their strategies of influence. Calls for transparency, which often appear dogmatic, ignore or even condemn what is in fact an important dimension of their role at the head of an organisation: the political game. .

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In doing so, it aims to raise awareness among professionals and opinion leaders of the risks of neglecting the legitimacy of top management teams (a currently neglected dimension of corporate governance), while providing professionals and scholars with an intellectual framework that makes it possible to understand top executive power in a positive manner. Unless some major development changes the economic outlook, it will fall to top management teams to implement strategies to lead their companies out of the downturn.

Can this really be envisaged if these teams are contested and their legitimacy no longer rests on solid ground?

The response, we argue, is no. This response implies that the ideology and practices currently applied to governance need to be reconsidered. However, this is not the primary objective of this position paper, which aims instead to invite readers to modify how they look at corporate leadership by approaching it from one of its most productive and positive dimensions—legitimacy.


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2. Analysis: Legitimacy—A Neglected Dimension of Corporate Governance

A. Legitimacy of Top Executives: A Neglected Dimension of Governance

It is surprising to observe that, while the legitimacy of political institutions and their governors has remained a central issue in Western society, the notion of the legitimacy of corporate leaders has been the focus of very few studies (Laufer 1996), and this despite the fact that corporate governance has been on the economic, political and scientific agendas for several decades.

There are reasons for this oversight: one is that the theories invoked for the reform of corporate governance are above all theories relating to shareholder powers and/or scrutiny of managerial powers, which it was felt necessary to (re)construct and legitimise after a managerial era (Berle and Means 1932) that was marred by the concentration of power in the hands of top executives (Gomez and Korine 2005).These theories offer just one central focus, but the power of top managers—and therefore their legitimacy—is a dimension of governance that remains to be explicitly explored: reading the founding theories of governance (agency theory, entrenchment theory, hubris hypothesis, etc.), one discerns implicit theories relating to management and management powers in which managers are described as tending naturally towards the accumulation and conservation of power in their own interests (entrenchment theory, Shleifer and Vishny 1997) or as likely to adopt pathological behaviour that would damage the company (hubris hypothesis, Roll 1986). This is a vision of top managers’ motivation and psychological make-up that serves perfectly to justify the view that managerial habits and actions need to be kept in check.

To think positively about the power of top management teams, i.e., explicitly and by considering the productive aspects of these powers, is now a dual challenge in which our view of legitimacy must come into play. Suggestions have already been made as to how we might approach governance with a vision of altruism, and by considering not only measures of control, but also collaboration and co-production among stakeholders. Such a positive approach in fact draws on work from the fields of law (Blair and Stout 1999), economics (Sen 1998) and management (Ghoshal 2005; Cameron, Dutton and Quinn 2003), and it is this approach that is adopted by the current paper.

And we must turn to the political and social sciences if we are to find the necessary resources for the development of an analytical framework for legitimacy—this neglected dimension of corporate governance.

B. What Do We Mean by “Legitimacy of Top Executives”?

1. Traditional approaches to legitimacy Legitimacy has long been an issue in the intellectual history of Western and contemporary reflection on the nature of government. From Plato and Aristotle to Machiavelli, and on to Weber and Habermas, there has been no shortage of legitimacy theories (see appendix 1). For an overview of these classic theories, Zelditch (2001) suggests the following three questions:

What do legitimacy theories seek to explain? The answer is mainly: “who decides that a given power is morally acceptable?”2 This question is primarily relevant in the philosophical context of a reflection

2 - We rely here on the remarkable work by John Jost and Brenda Major: The psychology of legitimacy (Cambridge University Press, 2001) and in particular the article by Morris Zelditch (“Theories of Legitimacy”, 33-53).

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on government, the stability of which is conditioned by its legitimacy. For Aristotle, the determining factor is less the legitimacy of the government itself than that of the “reward”. He introduced the notion of distributive justice: a legitimate government is one which equitably redistributes wealth within society. For Machiavelli, legitimacy is present when coercive power reaches its limits and when those who govern are obliged to bring about voluntary obedience in order to stay in power. Max Weber (1978), who offers a comprehensive theory of legitimacy, insists on the limits of the type of obedience that is based entirely on gain or rational thought: the recognition of the legitimacy of a social order by its obedient subjects depends on motives of much greater diversity (value-based rationality, affect, tradition, etc.). Legitimacy, therefore, is present when the limits of coercive power become apparent and when it becomes necessary to find the basis for lasting voluntary obedience, the motives for which cannot be purely instrumental. The stability of a government or its governors is thus the primary concern of any reflection on legitimacy.

What is the nature of the phenomena associated with legitimacy?In response to this question, Zelditch suggests a distinction between two types of theory: theories of justice and theories of authority. For theories of justice, individuals evaluate the legitimacy of a given power in respect of the perceived justice with which the authorities redistribute resources (principle of distributive justice). This recognition of legitimacy often implies a process of comparison, whereby attention is paid to that which is being redistributed. For theories of authority, individuals feel a moral obligation to obey;

they are tied to a relationship of authority and influence, whereby attention is paid to the power structure itself. Both theories nonetheless concur that legitimacy is that which is recognised as being valid and which leads to the stability of a system (one of redistribution or one of power and authority).

How are these phenomena of legitimacy explained? Again, two approaches exist: consensus and conflict. The former, which was inspired by the contractualist approach, defines legitimacy as the voluntary acceptance of a social order. Such acceptance is based on the belief in certain norms and values shared by those who are governed and those who govern. In the case of theories of consensus, which were notably represented by Parsons (1958), a social order must necessarily be legitimate in order to last. Theories of conflict, on the other hand, define legitimacy on an instrumental basis: by their very nature, the real interests of those who govern and those who are governed are at odds. The rules of power are determined by those who wield it, but this conflict of interests is concealed through the use of myths, ideology and rites. Theories of conflict, unlike those of consensus, which are largely descriptive, therefore display a normative dimension. Their origins in the analyses of Marx and Engels (1846) mean that they encourage awareness of and denounce the real interests that are hidden by the processes of legitimisation. In his article, Zelditch describes some of the traditions that can be discerned behind modern legitimacy theories. Beyond this, however, the available theories and studies appear to be extremely prolific and varied.

Although very much a theory on authority, Weber’s analysis of legitimate


domination is singular in that it facilitates the integration of the consensual and conflictual approaches, and does so from a multi-layered perspective that combines sociological and psychological approaches. Weber’s analysis is positioned as an investigation into the dynamics of authority. In his sociological study of social activity, which is first defined in terms of social relations, Weber insists on the constituent role of the dynamics of domination, “[for] while violence and money can be used by individuals to make others do what they want, legitimate domination is a much more stable modality” (Swedberg 2005: 64). For Weber, legitimacy is a characteristic of domination, which he describes as follows: “the probability that certain specific commands (or all commands) will be obeyed by a given group of persons. It thus does not include every mode of exercising ‘power’ or ‘influence’ over other persons. Domination (‘authority’) in this sense may be based on the most diverse motives of compliance: all the way from simple habituation to the most purely rational calculation of advantage. Hence every genuine form of domination implies a minimum of voluntary acceptance, that is, an interest (based on ulterior motives or genuine acceptance) in obedience” (Weber 1978: 212). Weber’s originality lies in his study of the way in which types of legitimate domination are oriented. He posits that “Every such system attempts to establish and to cultivate the belief in its legitimacy. But according to the kind of legitimacy which is claimed, the type of obedience, the kind of administrative staff devoted to guarantee it, and the mode of exercising authority, will all differ fundamentally. Equally fundamental is the variation in effect. Hence, it is useful to classify the types of domination according to the kind of claim to legitimacy typically made by each” (1978: 213).

This second citation reveals Weber’s originality through two key thoughts: first, there is a rational need for legitimisation in any individual or order that exercises or is subject to domination. And second, it is possible to distinguish between types of domination according to the way in which they are oriented. “Not every case of domination makes use of economic means; still less does it always have economic objectives. However, normally the rule over a considerable number of persons requires a staff, that is, a special group which can normally be trusted to execute the general policy as well as the specific commands. The members of the administrative staff may be bound to obedience to their superior (or superiors) by custom, by affectual ties, by a purely material complex of interests, or by ideal (wertrationale) motives. The quality of these motives largely determines the type of domination” (1978: 213). Weber reminds us that the dynamics of domination are oriented by and orient economic, political and religious behavioural patterns. He also points out that such patterns are oriented either rationally (where the aim is served by material interests and value by idealised interests), traditionally or affectually. Weber goes on to propose a classification of three types of legitimate domination (presented below in table 2). These describe the types of domination not only in terms of the way in which they are oriented, but also how they are incarnated (tradition and charisma are personal forms incarnated by individuals, whereas rational-legal domination is found in a given order, an institution or impersonal rules).


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What should we retain from these older theories in our analysis of legitimacy among top managers? We should remember first of all that legitimacy questions the conditions of stability and governance within an organisation through an evaluation of its governors (Zelditch and Walker 1984). Such an evaluation can be done by considering the actions of governors in terms of the equitable redistribution of resources or the morality/exemplarity of their behaviour. In both cases, legitimacy is a subjective attribution (it is attributed

by a subject), which can then be presented as the expression of a consensus based on values, or on the contrary, as the result of a conflict of interests.

Zelditch outlines a few of the traditions that can be identified behind the various legitimacy theories (table 3) and which would later influence legitimacy research carried out in the field of management, either from the point of view of organisational (Suchman 1995) or individual (French and Raven 1959) legitimacy.

2. Analysis: Legitimacy—A Neglected Dimension of Corporate Governance Table 2: Weber’s three types of legitimacy

rATIONAL/LEGAL LEGITIMACY TrADITIONAL LEGITIMACY CHArISMATIC LEGITIMACY

Based on belief in the legality of rules and the right to make

directives as held by those who are called upon to exercise domination

by such means

Based on daily belief in the sanctity of eternally valid traditions and the legitimacy of those who are called upon to exercise authority by such

means

Based on the extraordinary obedience of one person, or

dependent on the orders made by this person

Impersonal: one obeys the impersonal and objective order

which has been legally imposed, as well as the superiors identified

thereunder, on the basis of the formal legality of regulations

Personal: one obeys the person who holds the power that is conferred by tradition and has been attributed to this person (in his/her prerogatives)

by virtue of the respect owed to him/her within the extent of the

prevailing customs

Personal: one obeys the leader, who is endowed with charisma by virtue

of personal confidence in his/her declarations, heroism or exemplary

values, within the extent of the validity of people’s belief in this

charisma

HOW IS LEGITIMACY EXPLAINED?

Integrative approach• Legitimacy refers to domination • Three types of legitimate domination (traditional, charismatic and legal-rational) based on the various motives of acceptance (value-rational, instrumentally rational, affectual, and traditional) • Legitimacy links individuals to social orders

Reference: Weber (1978)

Consensus theory• Acceptance of a social order is voluntary; it is based on belief in certain norms and values• Those who govern and those who are governed share the same norms, values and beliefs• Norms and values are made just, i.e., legitimate, by consensus or a group’s need for consensus • The social or political order is stable if and only if it is legitimate• Descriptive approach, centred on empirical behaviour

Reference: Parsons (1958)

Conflict theory• The basis of all action or order is instrumental (governed by personal interests)• The real interests of those who govern and those who are governed are in conflict• Laws are determined by those who hold power, but unchecked power cannot engender belief in their validity• Myths, ideology and rites are needed to legitimate laws by concealing the real interests of those who govern and those who are governed• In the long term, unchecked power is unstable unless legitimate: legitimacy is a pre-requisite for all social order• Normative and descriptive approach

Reference: Marx and Engels (1846)

WHAT IS THE NATUrE OF LEGITIMACY ?

Theories of justice• Question: “The conditions in which redistribution is recognised as ‘just’”• Process of comparison, variations on the principle of proportionality• Focus on that which is redistributed

References: Adams (1963); Homans (1961); Berger et al. (1972); Lerner (1980)

Theories of authority• Question: “The conditions in which individuals feel a moral obligation to obey a given system of power”• Process of influence• Focus on the power structure • The dependent variable is either obedience or resistance

References: Blau (1964); French and Raven (1959); Weber (1978); Dornbusch and Scott (1975)

Table 3: Overview of legitimacy theories

2. recent developments: The psychology of legitimacyManagement studies, as a field, already offers research based on classic theories of legitimacy, but it focuses mostly on organisational legitimacy (Suchman 1995) and not on the legitimacy of individuals within organisations. It is precisely by studying the legitimacy of individuals from the point of view of those who are legitimised (managers) and those who legitimise (internal and external stakeholders) that we can enrich our review of the literature from the field of organisational psychology on the psychology of legitimacy (Jost and Major 2001).

Although less well known, the psychological approach to legitimacy is nothing new: as early as 1959, French and Raven were exploring the psychological dynamics of power and of its recognition by compliant individuals. They identified five forms of managerial power: reward, referent, coercive, expert and legitimate, describing the latter as “the power which stems from internalized values […] which dictate that [an authority] has a legitimate right to influence [a person] and that [the person] has an obligation to accept this influence” (French and Raven 1959: 159). Legitimacy is therefore seen as a type of power whose peculiarity is that it is based on cultural values (this is the traditional consensus-based approach). When recognising a top manager’s legitimacy, stakeholders refer back to their own values and norms or those shared by the group, organisation or culture to which they belong. Such values relate to the acceptable behaviour that is expected of those in power, as well as to the nature of power itself. French and Raven added another dimension, that of hierarchical position and the process of nomination or election that bestows authority on the person who

occupies that position: their definition is thereby enriched by more formal elements, suggesting that the recognition of legitimacy is influenced by formal signs of an earlier recognition of this legitimacy by an authority that is itself recognised or established by other stakeholders. Ultimately, the definition put forward by French and Raven owes much to Weber’s analysis of legitimacy: it offers the same notion of institutional and personal forms of legitimacy, as well as different rationalities at work in the recognition of legitimacy.

The classification used by French and Raven gave rise to the development of several scales of evaluation (appendix 2). Empirical studies using these scales explored the relationship between the different types of power and performance; satisfaction in terms of one’s superior (Bachman 1968); satisfaction in terms of work, commitment and divestiture (Student 1968); conformity (Warren 1968); and the perceived clarity of objectives (Wieland 1969). Results in terms of legitimate power have been inconsistent: it appears to be positively correlated against conformity and negatively against the rate of turnover among employees. This inconsistency can be explained by the relatively high-quality operability of the different categories of power and the limited internal validity of the scales being used.

Only in the 1990s did psychological approaches to legitimacy once again find a foothold: the work of Tyler in particular (Tyler 1990; Tyler 1997; Tyler and Blader 2005) suggested new ways of measuring legitimacy. Using the definitions provided by French and Raven, Tyler identified and measured how individuals attribute legitimacy to political and economic authorities; he did so by focusing on values


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as the primary foundation of legitimacy and on compliance with regulations as an indicator of when legitimacy has been attributed.

Tyler’s research made two significant contributions. The first relates to the nature of legitimisation. Tyler provides a re-reading of the two traditional theories of legitimacy (equity vs. authority). In the first, which is instrumental, legitimacy is considered by individuals as a resource (Hollander 1958; Blau 1964; Homans 1961; Kelley and Thibaut 1978): the authorities/regulations are evaluated in accordance with resources received in the past and anticipated in the future, and the procedural equity with which they are redistributed. Individuals are therefore most interested in their own benefits, and are particularly attentive when their expected benefits are significant. They will also tend to look for signs of competence in the authorities. In the second, which is relational, legitimacy is viewed in terms of the extent to which it allows individuals to identify with the authorities (Hogg and Abrams 1988; Tajfel and Turner 1986; Tyler and Lind 1992). The evaluation of the authorities/regulations is linked to preoccupations of social identity. Neutrality, disinterestedness and statutory recognition from the authorities are of particular interest. Individuals will pay attention to the way in which they are treated by the authorities, who must show signs of integrity. There is an identification process at work in the relationship between individuals and the authorities, who play a key role. By using these two approaches to legitimacy (resource-based vs. identity-based), Tyler shows the improved efficiency of legitimacy founded on a process of (sometimes moral) identification with the authorities, thereby legitimising the

traditional definition of legitimacy in terms of consensus and values.

Tyler’s second contribution relates to the evaluation of legitimacy. He proposes a psychological evaluation of legitimacy based on three dimensions: 1) voluntary compliance with decisions made by the authorities; 2) compliance with regulations; and 3) a positive evaluation of the authorities. This means of evaluation is limited in three ways, however. First, it relates to the authorities and regulations, and not to the individuals who exercise the authority and define the regulations. Second, it focuses on the effects of the legitimacy under evaluation solely in terms of compliance with regulations. It therefore fails to explore other indicators of legitimacy (such as trust or the level of commitment by stakeholders). Third, it concentrates more on the nature of legitimisation than on the actual factors that determine legitimacy; this means that the question of what drives an individual to recognise a manager’s legitimacy has yet to be explored. This is what we now propose to do, by providing a definition of managerial legitimacy and an analytical framework for the legitimacy of management teams.


It is time for corporate governance to take the legitimacy of top management teams into consideration. This must involve academics, who can provide new hypotheses, as much as economic actors, who can suggest positive legitimacy practices to be developed by management.

This first instalment of the research programme initiated by the EDHEC Leadership and Corporate Governance Research Centre aims to respond first of all to recent suggestions in the academic field of strategic leadership (Finkelstein, Hambrick and Cannella 2008), i.e., those studies that have looked at the characteristics of top management teams and the impact they have on company performance.3

A. Defining LegitimacyLegitimacy is first of all the result of a process of recognition: whether of the board of directors or executive committee, or an operations manager, each company stakeholder will use his personal perception of a manager’s power to confer (or not) legitimacy. This recognition is therefore subjective and relates to a subject-object issue—power perceived through the person who wields and exercises it (manager). Such recognition of legitimacy can be expressed formally (an administrator’s vote in favour of the strategy proposed by the CEO) or informally (personal support offered by an administrator during negotiations or decision-making). It can be explicit and give rise, for example, to posturing of recognition and legitimisation. It can also be implicit, however: tacit agreement given to certain strategic decisions is likewise a mark of the recognition of a top manager’s right to govern.

The recognition of legitimacy depends on the belief of each stakeholder in the validity of a manager’s power. This validity is built both on expertise and the fairness with which resources are redistributed (resource-based approach), as well as on morality and the example managers set in their behaviour (identity-based approach). Legitimacy might be attributed to a top manager because it is felt that his decisions show that he is capable of managing the company’s resources, fairly rewarding those who make a contribution and, correspondingly, sanctioning those who do not. But a stakeholder may also confer legitimacy because a top manager demonstrates, through his behaviour, that he respects and shares the same personal and professional values. In both cases, it is a question of judgment related to the shared norms and values governing the nature and socially acceptable forms of authority and power in an organisation—or a market, culture or country. The reference framework is essential here: when considering individual evaluations, we must not forget that they are always also socially and culturally grounded.

Drawing on the classic studies of Weber, and later those of French and Raven and Tyler, we propose the following definition of the legitimacy of top management teams:

“The legitimacy of a top manager is the (formal/informal; explicit/implicit) recognition by internal and external stakeholders of his/her right to govern the company: this recognition is based on the belief of the said stakeholders in the validity of the top manager’s power in respect of shared values and norms relative to executive power”.

3. recommendation: Taking Care of Managerial Legitimacy

173 - The upper echelons theory (Hambrick and Mason 1984) postulates that strategic choices and a company’s performance depend in part on the characteristics of its managers. This assertion is based on a simple hypothesis: that managers model their strategic decisions on their representations of their own perception of the world. The upper echelons theory therefore wagers that management teams have an effective influence on company performance, although the authors recognise that the contribution made by a manager remains very much relative (less than 5%, suggests Hambrick 2007).

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Using this definition, we now provide an analytical framework by which to identify the determining factors, moderators and effects of managerial legitimacy.

B. Determining Factors of Managerial LegitimacyWe argue that the recognition by each stakeholder of the legitimacy of a manager depends on the evaluation of various manifestations or dimensions of that manager’s power. But power is a very general term; what precisely do stakeholders evaluate when they consider a top manager’s power? The answer is they evaluate the different dimensions of that power. Dimensions detailed by, for example, Finkelstein (1992).

Structural power is that which top managers hold by virtue of their function, i.e., their hierarchical position within the company. If a CEO is also chairman of the board of directors—the two highest positions in a company—his/her power will potentially be greater than if he/shehad to report to a watchdog body within the organisation. Legitimacy can therefore be attributed in two ways. First, a stakeholder, an employee for example, could recognise the legitimacy of the top manager on the basis that he/she holds the power, which indicates that his/her legitimacy has been recognised by the governing bodies (the board, which nominated him or her and validated this power structure). In such a case, legitimacy breeds legitimacy: “if he/she was given the power, then he/she must be legitimate”. Of course, legitimacy only breedslegitimacy if the legitimising bodies are themselves recognised. Secondly, the fact that a manager enjoys considerable structural power might be interpreted as a sign of latitude with which to act—the ability to achieve things. Inasmuch

as corporate leadership is considered the source of action, the fact that a manager has the means by which to act is legitimising in itself: he/she is in his/her role, a role in which he/she will exercise his/her power to take strategic action. This structural dimension reminds us of the rational-legal legitimacy described by Max Weber (1978) and highlights the potential for legitimisation according to structure, regulations and organisational roles. Here, the function makes the manager in the most literal of ways.

The power of ownership is the power held by top executives who own an organisation in part or in full; this allows them a certain latitude, in particular where shareholder scrutiny is concerned (Finkelstein1992: 509). Here the basis on which legitimacy is attributed is twofold. First, it depends on a top manager’s level of commitment within the organisation. A founding manager or owner will be recognised as legitimate if he or she can be seen to have taken personal risks to create or develop the company. Secondly, it depends on a manager’s holding a favourable position in terms of agency: this means he or she is to some extent handcuffed to the organisation. Such personal commitment, together with a capacity for action, is another dimension of power and legitimacy, comparable to the traditional legitimacy described by Weber (1978) and also, of course, the legitimacy of a founding manager or owner.

The power of prestige is the power that managers draw from their reputation in an institutional environment and is often expressed in terms of influence. Their educational background and any clubs or professional networks that may belong to, as well as links that may


have with economic, financial or political stakeholders, are all elements contributing to their power of prestige. Here legitimacy will be attributed, as always, partly on the strength of legitimisation by other stakeholders (provided they are themselves recognised) and partly in accordance with the capacity for action that a manager is deemed to have on the basis of his reputation.

The power of expertise is the power top managers enjoy because of the competence they display in their post and in leadership missions, and more specifically because of their capacity to contribute to a company’s performance. Legitimacy is attributed in this case by the observation of behaviour and decisions made, and by the evaluation of their suitability and economic efficiency.

Leadership: We propose to add to this list a fifth type of power—leadership, the most personal dimension of power. Leadership is the capacity for influence that top managers draw from their personality and behaviour, regardless of their hierarchical position, status or technical expertise (Bass 1990). The attribution of leadership-based legitimacy depends on personality and managerial skills, in other words the talents managers demonstrate in managing the influence they have over each stakeholder. There are a great many different leadership styles, the most archetypal being without a doubt that of charismatic leadership (Conger and Kanungo 1998), whereby vision, empathy, communication, risk-taking or even non-conformism constitute the basis on which leadership is recognised by individuals. This is very close to Weberian charismatic legitimacy, which is also the most personal form of legitimacy. There are, however, several different styles of leadership that have been widely documented in the

literature to emerge from the field of leadership studies (Deffayet, Petit and Livian 2007).

It is on the basis of these judgments relating to a top manager’s power and leadership that the recognition of legitimacy is constructed (figure 1). At this stage, let us consider the hypothesis that some people will favour certain dimensions above others. In any case, however, these evaluations are linked both to the perception of effective power at a manager’s disposal and to the legitimisation of this power by other stakeholders. The two are intrinsically linked, meaning that the attribution of legitimacy by stakeholders is extremely sensitive to perceived variations within the group (mimicry/contagion effect).

The legitimacy of top managers can be measured using a qualitative evaluation of the five dimensions of power and leadership.

C. Moderators of Managerial LegitimacyThe process by which legitimacy is attributed is moderated by variables linked mainly to the organisational, social, economic or cultural environment in which each stakeholder exists and which influences their perception. We suggest that there are two primary moderators: an organisation’s legitimacy and the implicit theories of corporate leadership/leaders.

Organisational legitimacy: the power at a top manager’s disposal is partly defined and bestowed by the organisation. If the organisation is considered legitimate, then the manager nominated by its authoritative bodies to run it will benefit from the legitimising salve that this legitimacy brings—and vice versa. An organisation that


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is recognised on a given market, one which enjoys a certain prestige, will be supportive of a new manager who has had the honour of being chosen by this legitimate and legitimising organisation. However, if, for example, this same organisation is also known for its high turnover of top managers, then it will not provide any new top manager with a leadership role that will reinforce his legitimacy, as the role itself has been delegitimised. The links between organisational legitimacy and managerial legitimacy, and between organisational legitimisation and managerial legitimacy, are subtle and ambivalent.

Organisational legitimacy moderates the attribution of legitimacy.

Social representations: the social representations of strategic leadership and top managers are another moderating variable that have as yet been explored very little. Our definition of legitimacy places values at the heart of the attribution process; more specifically, the evaluations made by stakeholders are based on beliefs and representations as to what strategic leadership is and should be and what a top manager is and should do. But what in fact do we know about the content and the nature of these beliefs? There are studies that currently explore the content and the effects of the implicit theories of leadership on the attribution of leadership (Shyns and Meindl 2005; Petit 2008); none, however, focuses on the functions of leadership or on top managers themselves and the effect they have on the attribution of legitimacy. We have yet to see research that would allow us to measure the content and effects of the social representations; such research would complete our understanding of the attribution of legitimacy, and in

particular, of the variations in this process that occur at an individual and cultural level.

The content and nature of social representations made in relation to corporate leaders, in particular those made by stakeholders, moderate the attribution of legitimacy.

D. Effects of Managerial LegitimacyWhat are the possible effects of a variation in the legitimacy of a top manager?

We suggest that legitimacy partly determines the discretionary power held by top managers, depending on whether their legitimacy has a positive or negative impact on how they are viewed. The more a top manager’s power is recognised as legitimate, the more that manager will gain in efficiency through the backing and commitment among stakeholders, who are responsible for transmitting and implementing strategic decisions. In other words, all things being equal, it is the greater or lesser legitimacy conferred on a manager’s power that enables us best to predict the effective power wielded by that manager. We emphasise the notion of effective power here, as it is in the early stages—when strategic decisions are being laid out operationally—that a top manager’s legitimacy plays the most crucial role.

The attribution of managerial legitimacy has a positive effect on the discretion a top manager has to run the company

This effectiveness comes from the influence that the recognition of legitimacy has on the adherence among stakeholders to the top manager, both as a person and in his decisions. This adherence


can in theory be witnessed at all levels: the attribution of legitimacy can have a positive influence on the adherence, commitment and cohesion of administrative and management teams, as well as other employees across an organisation (Tyler and Blader 2005).

The attribution of legitimacy has positive effects on the commitment of internal stakeholders (managers and employees).

It can also be said that the recognition of managerial legitimacy will encourage behaviour of trust and active support among external stakeholders, in particular those involved in the evaluation of top managers, such as analysts or the media (Fanelli 2006).

The attribution of legitimacy has positive effects on the commitment of external stakeholders (investors, analysts, regulatory bodies and the media).

E. Analytical Model and Perspective on Managerial LegitimacyFigure 1 summarises the points already made, offering an analytical framework by which to understand the legitimacy of a top executive. Using this framework, we can begin to discern the future research that might assist in developing the upper echelons theory, and more widely contribute to our understanding of the power held by top managers and the effects they have on their organisations.

Figure 2, drawn from this model and intended for top managers, provides one perspective by which legitimacy might be understood. It uses the five pillars of legitimacy and the two core types of legitimacy, and also emphasises the three levels at which legitimacy is developed—individual, organisational and environmental.


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Figure 1: Analytical model for managerial legitimacy

Stakeholders

Stakeholders… …who recogniseas legitimate

…a manager's power in its di�erent dimensions

This recognition has a qualitativeand quantitative in�uence on thelatitude this manager has to act.

Stakeholders

Stakeholders

Power of Ownership

Structural Power

Leadership

Power of Prestige

Power ofExpertise

Attributionof legitimacy

Latitude for actionManagerial discretion

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3. recommendation: Taking Care of Managerial LegitimacyFigure 2: Perspective on managerial legitimacy

Relationship with one's environment

Ownership Position

PersonalLeadership Expertise

Reputation

Relationship withone's organisation

Personal Development

Examplarity in people management

Equity in themanagementof resources

The suggestions made in this paper open the way for a series of new perspectives on the study of legitimacy among corporate leaders, in particular by building on the evaluation of legitimacy and then developing practices that will contribute to legitimacy.

A. Measuring Managerial LegitimacyThe first task is to develop a means by which to evaluate managerial legitimacy, thereby providing a new indicator of sound corporate governance. In order to be qualitative, it will have to take into account the various dimensions of a top manager’s power and leadership used by each stakeholder, whether internal or external, in their evaluation of managerial legitimacy. It will also have to include the types of legitimisation (instrumental/value-based) and the various ways in which legitimacy is validated (compliance with decisions, but also trust and active commitment on the part of stakeholders).

We can thereby begin to understand the nature and extent of the effects of variations in managerial legitimacy on a company.

Once applied to all stakeholders, this means of evaluation will then reveal the basis and the proportion with which each stakeholder confers legitimacy on the manager of any given company.

Finally, it will allow us to identify the individual, organisational or environmental factors that contribute to the creation, maintenance, destruction or repair of legitimacy within management teams.

More generally, by examining the mechanisms by which legitimacy is attributed, this means of evaluation

will allow stakeholders in corporate governance—and even companies themselves—to reflect on the conditions in which legitimate leaders are appointed and on their own responsibility in this key process of providing economic and social stability.

B. Identifying Positive Practices of Managerial LegitimacyBeyond new indicators, however, future research should lead to the emergence of new managerial practices. We need to understand how top managers, through their managerial practices, gain or lose points in terms of legitimacy. The changing profession of management and the changing context of leadership mean that some of these practices now need to be re-invented. How can managers pilot their own legitimacy? What elements do they exploit, in what context, and in relation to which stakeholders?

The renewal of solidarity between top and intermediary managers (Petit and Deffayet 2007), and the development of trust (Mari 2009) and collaboration in relations between management and the board of directors are just two ways to foster positive practices; these must be identified and defined to construct a positive benchmark for legitimacy practices among corporate leaders. They will have a greater chance of proving productive and lasting if they operate with an awareness of demands in the management profession; this means taking into account diverse interests and requests. Cameron’s model for the development of leadership (Cameron, Quinn and Degraff 2006), which relies on the integration of opposites, is one way to satisfy these demands in a positive and creative manner (insert 3).

4. Perspectives: Developing Managerial Legitimacy

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4. Perspectives: Developing Managerial Legitimacy

Insert 3: K. Cameron, r. E. Quinn and J. Degraff: The competing values framework (2006)Working on the indicators of efficient organisations, the authors identify two criteria: first, the target organisation, which distinguishes between organisations that are centred on their members (internal target) and those centred on the organisation itself (external target); second, the preferred structure, which distinguishes between organisations characterised by stability and control and those characterised by change and flexibility. They then use these criteria to provide an analytical framework (the competing values framework), which is made up of collaboration, creation, control, and competition quadrants and allows us to identify four major approaches to organisations (human relations model, open system model, rational goal model and internal processes model) and to leadership (mentor-facilitator, innovator-broker, monitor-coordinator and director-producer). The appeal of this framework is that it can be used to recognise the effort that managers must make in order to cater for these four seemingly opposed dimensions. Such a feat requires both flexibility and creativity. For example, in terms of leadership, it can be supposed that one must develop values and skills that make it possible to “take care of conflict” (catering for the “competition” and “collaboration” quadrants) or to promote a “practical vision” (“creation” and “control”).

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30

Legitimacy: A reading list

Appendix 1

423 av. J.C. Thucydides, History of the Peloponnesian War.

390 av. J.C. Plato, The Republic.

335 av. J.C. Aristotle, Politics.

1532 Machiavelli, The Prince.

1690 Locke. Two Treatises of Government.

1762 Rousseau. Du contrat social.

1846 Marx & Engels. L’idéologie allemande.

1921 Weber, M. Economie et Société.

1958 Parsons, T. Authority, legitimation and political action.

1959 French, J. R. P., & Raven, B. The bases of social power.Lipset, S. M. Some social requisites of democracy: economic development and political legitimacy.

1961 Homans, G. C. Social behaviour: its elementary forms.

1963 Adams, J. S. Toward an understanding of inequity. Blau, P. Critical remarks on Weber’s theory of legitimacy.

1965 Easton, D. A systems analysis of political life.

1966 Berger, P., & Luckman, T. The social construction of reality.

1968 Scott, M. B., & Lyman, S. M. Accounts.Stinchcombe, A. Constructing social theories.

1970 Bourdieu, P., & Passeron, J.C. La Reproduction: éléments d'une théorie du système d'enseignement.

1972 Berger, J., Zelditch, M., Cohen, B. P., & Anderson, B. Structural aspects of distributive justice: A status value formulation.

1973 Habermas, J. Raison et légitimité : problèmes de légitimation dans le capitalisme avancé

1975 Dornbusch, S. M., & Scott, W. R. Evaluation and the exercise of authority.Dowling & Pfeffer. Organizational legitimacy.Gamson, W.A. The strategy of social protest.

1977 Meyer, J. W., & Rowan, B. Institutionalized organizations: Formal structure as myth an ceremony.

1978 Tilly, C. From mobilization to revolution.Walster, E., Walster, G. W., and Bersheid, E. Equity: Theory and research.

1980 Lerner, M. J. The belief in a just world: A fundamental delusion.

1984 Zelditch, M., & Walker, H. Legitimacy and the stability of authority.

1986 Ridgeway, C., & Berger, J. Expectations, legitimation, and domination behaviour in task groups.

1987 Boltanski, L., & Thévenot, L. Les économies de la grandeur.

1992 Pharo, P. Sens et légitimité.

1994 Jost, J. T., & Banaji, M.R. The role of stereotyping in system-justification and the production of false consciousness.

1995 Suchman, M. Managing legitimacy: Strategic and institutional approaches.

1996 Sewell, W. H., Jr. Historical events as transformations of structures: Inventing revolution at the Bastille.

1997 Tyler, T. R. The psychology of legitimacy: A relational perspective on voluntary deference to authorities.

1998 Berger, J., & Ridgeway, C., Fisek, M. H., & Norman, R. Z. The legitimation and delegitimation of power and prestige orders.Zelditch, M., & Floyd, A. S. Consensus, dissensus and justification.

2001 Luhman, N. La légitimation par la procédure.

2005 Jost, J. T., & Major, B. The psychology of legitimacy.

Appendix 2

31

A guide to exploring legitimacy

Dimension Question For each statement, say whether it would be enough for you to “legitimise” your manager

Legitimised by position

1. He/she plays one or more important roles in the company2. He/she was nominated to the post by someone or by some authority you recognise as legitimate3. He/she is on the board of directors in other companies

Legitimised by expertise

4. He/she has considerable experience in the sector/profession5. He/she is competent6. He/she has a strategic vision that I rate highly7. He/she takes decisions that I rate highly8. He/she has a positive impact on company earnings

Legitimised by shareholding in the company

9. He/she is the company owner10. He/she holds shares in the company11. He/she has the support of company shareholders12. He/she knows how to impose decisions on shareholders

Legitimised by reputation

13. He/she graduated from a leading institute14. He/she has a solid reputation outside the company15. Those who earn a reputation for themselves are of value and I would consider their judgment valid

Legitimised by personal leadership

16. He/she has a vision17. He/she has charisma18. He/she knows how to make decisions19. He/she is a good manager20. He/she knows how to communicate21. He/she knows how to exert influence and be convincing when necessary

Legitimised by fairness of decisions and/or example set by behaviour

22. He/she knows how to reward and sanction company stakeholders23. His/her behaviour is exemplary 24. I can identify with his/her values

32

EDHEC risk and Asset Management research Centre2009 Position Papers• Gregoriou, G., and F.-S. Lhabitant. Madoff: A riot of red flags (January).

2008 Position Papers • Amenc, N., and S. Sender. Assessing the European banking sector bailout plans (December).

• Amenc, N., and S. Sender. Les mesures de recapitalisation et de soutien à la liquidité du secteur bancaire européen (December).

• Amenc, N., F. Ducoulombier, and P. Foulquier. Reactions to an EDHEC study on the fair value controversy (December). With the EDHEC Financial Analysis and Accounting Research Centre.

• Amenc, N., F. Ducoulombier, and P. Foulquier. Réactions après l’étude. Juste valeur ou non : un débat mal posé (December). With the EDHEC Financial Analysis and Accounting Research Centre.

• Amenc, N., and V. Le Sourd. Les performances de l’investissement socialement responsable en France (December).

• Amenc, N., and V. Le Sourd. Socially responsible investment performance in France (December).

• Amenc, N., B. Maffei, and H. Till. Les causes structurelle du troisième choc pétrolier (November).

• Amenc, N., B. Maffei, and H. Till. Oil prices: The true role of speculation (November).

• Sender, S. Banking: Why does regulation alone not suffice? Why must governments intervene? (November).

• Till, H. The oil markets: let the data speak for itself (October).

• Amenc, N., F. Goltz, and V. Le Sourd. A comparison of fundamentally weighted indices: Overview and performance analysis (March).

• Sender, S. QIS4: Significant improvements, but the main risk for life insurance is not taken into account in the standard formula (February). With the Financial Analysis and Accounting Research Centre.

2009 Publications• Goltz, F. A long road ahead for portfolio construction: Practitioners' views of an EDHEC survey. (January).

2008 Publications• Amenc, N., L. Martellini, and V. Ziemann. Alternative investments for institutional investors: Risk budgeting techniques in asset management and asset-liability management (December).• Goltz, F., and D. Schröder. Hedge fund reporting survey (November).

• D’Hondt, C., and J.-R. Giraud. Transaction cost analysis A-Z: A step towards best execution in the post-MiFID Landscape (November).

• Amenc, N., and D. Schröder. The pros and cons of passive hedge fund replication (October).

EDHEC Position Papers and Publications from the last four years

33

• Amenc, N., F. Goltz, and D. Schröder. Reactions to an EDHEC study on asset-liability management decisions in wealth management (September).

• Amenc, N., F. Goltz, A. Grigoriu, V. Le Sourd, and L. Martellini. The EDHEC European ETF survey 2008 (June).

• Amenc, N., F. Goltz, and V. Le Sourd. Fundamental differences? Comparing alternative index weighting mechanisms (April).

• Le Sourd, V. Hedge fund performance in 2007 (February).

• Amenc, N., F. Goltz, V. Le Sourd, and L. Martellini. The EDHEC European investment practices survey 2008 (January).

2007 Position Papers • Amenc, N. Trois premières leçons de la crise des crédits « subprime » (August).

• Amenc, N. Three early lessons from the subprime lending crisis (August).

• Amenc, N., W. Géhin, L. Martellini, and J.-C. Meyfredi. The myths and limits of passive hedge fund replication (June).

• Sender, S., and P. Foulquier. QIS3: Meaningful progress towards the implementation of Solvency II, but ground remains to be covered (June). With the EDHEC Financial Analysis and Accounting Research Centre.

• D’Hondt, C., and J.-R. Giraud. MiFID: The (in)famous European directive (February).

• Hedge Fund Indices for the Purpose of UCITS: Answers to the CESR Issues Paper (January).

• Foulquier, P., and S. Sender. CP 20: Significant improvements in the Solvency II framework but grave incoherencies remain. EDHEC response to consultation paper n° 20 (January).

• Géhin, W. The Challenge of hedge fund measurement: A toolbox rather than a Pandora's box (January).

• Christory, C., S. Daul, and J.-R. Giraud. Quantification of hedge fund default risk (January).

2007 Publications• Ducoulombier, F. Etude EDHEC sur l'investissement et la gestion du risque immobiliers en Europe (November/December).

• Ducoulombier, F. EDHEC European real estate investment and risk management survey (November).

• Goltz, F., and G. Feng. Reactions to the EDHEC study "Assessing the quality of stock market indices" (September).

• Le Sourd, V. Hedge fund performance in 2006: A vintage year for hedge funds? (March).

• Amenc, N., L. Martellini, and V. Ziemann. Asset-liability management decisions in private banking (February).

• Le Sourd, V. Performance measurement for traditional investment (literature survey) (January).


34

2006 Position Papers• Till, H. EDHEC Comments on the Amaranth case: Early lesson from the debacle (September).

• Amenc, N., and F. Goltz. Disorderly exits from crowded trades? On the systemic risks of hedge funds (June).

• Foulquier, P., and S. Sender. QIS 2: Modelling that is at odds with the prudential objectives of Solvency II (November). With the EDHEC Financial Analysis and Accounting Research Centre.

• Amenc, N., and F. Goltz. A reply to the CESR recommendations on the eligibility of hedge fund indices for investment of UCITS (December). 2006 Publications• Amenc, N., F. Goltz, and V. Le Sourd. Assessing the quality of stock market indices: Requirements for asset allocation and performance measurement (September). • Amenc, N., J.-R. Giraud, F. Goltz, V. Le Sourd, L. Martellini, and X. Ma. The EDHEC European ETF survey 2006 (October).

• Amenc, N., P. Foulquier, L. Martellini, and S. Sender. The impact of IFRS and Solvency II on asset-liability management and asset management in insurance companies (November). With the EDHEC Financial Analysis and Accounting Research Centre.

EDHEC Financial Analysis and Accounting research Centre2008 Position Papers• Amenc, N., F. Ducoulombier, and P. Foulquier. Reactions to an EDHEC study on the fair value controversy (December). With the EDHEC Risk and Asset Management Research Centre.

• Amenc, N., F. Ducoulombier, and P. Foulquier. Réactions après l’étude. Juste valeur ou non : un débat mal posé (December). With the EDHEC Risk and Asset Management Research Centre.

• Escaffre, L., P. Foulquier, and P. Touron. The fair value controversy: Ignoring the real issue (November).

• Escaffre, L., P. Foulquier, and P. Touron. Juste valeur ou non : un débat mal posé (November).

• Sender, S. QIS4: Significant improvements, but the main risk for life insurance is not taken into account in the standard formula (February). With the EDHEC Risk and Asset Management Research Centre.

2007 Position Papers • Sender, S., and P. Foulquier. QIS3: Meaningful progress towards the implementation of Solvency II, but ground remains to be covered (June). With the EDHEC Risk and Asset Management Research Centre.

2006 Position Papers• Foulquier, P., and S. Sender. QIS 2: Modelling that is at odds with the prudential objectives of Solvency II (November). With the EDHEC Risk and Asset Management Research Centre.

2006 Publications• Amenc, N., P. Foulquier, L. Martellini, and S. Sender. The impact of IFRS and Solvency II on asset-liability management and asset management in insurance companies (November). With the EDHEC Risk and Asset Management Research Centre.


35

EDHEC Economics research Centre2009 Position Papers • Chéron, A. Quelle protection de l’emploi pour les seniors ? (January).

• Courtioux, P. Peut-on financer l’éducation du supérieur de manière plus équitable ? (January).

• Gregoir, S. L’incertitude liée à la contraction du marché immobilier pèse sur l’évolution des prix (January).

2008 Position Papers • Gregoir, S. Les prêts étudiants peuvent-ils être un outil de progrès social ? (October).

• Chéron, A. Que peut-on attendre d'une augmentation de l'âge de départ en retraite ? (June).

• Chéron, A. De l'optimalité des allégements de charges sur les bas salaires (February).

• Chéron, A., and S. Gregoir. Mais où est passé le contrat unique à droits progressifs ? (February).

2007 Position Papers • Chéron, A. Faut-il subventionner la formation professionnelle des séniors ? (October).

• Courtioux, P. La TVA acquittée par les ménages : une évaluation de sa charge tout au long de la vie (October).

• Courtioux, P. Les effets redistributifs de la « TVA sociale » : un exercice de microsimulation (July).

• Maarek, G. La réforme du financement de la protection sociale. Essais comparatifs entre la « TVA sociale » et la « TVA emploi » (July).

• Chéron, A. Analyse économique des grandes propositions en matière d'emploi des candidats à l'élection présidentielle (March).

• Chéron, A. Would a new form of employment contract provide greater security for French workers? (March).

2007 Publications• Amenc, N., P. Courtioux, A.-F. Malvache, and G. Maarek. La « TVA emploi » (April).

• Amenc, N., P. Courtioux, A.-F. Malvache, and G. Maarek. Pro-employment VAT (April).

• Chéron, A. Reconsidérer les effets de la protection de l'emploi en France. L'apport d'une approche en termes de cycle de vie (January).

2006 Position Papers • Chéron, A. Le plan national d’action pour l’emploi des seniors : bien, mais peut mieux faire October).

• Bacache-Beauvallet, M. Les limites de l'usage des primes à la performance dans la fonction publique (October).

• Courtioux, P., and O. Thévenon. Politiques familiales et objectifs européens : il faut améliorer le benchmarking (November).


36

EDHEC Leadership and Corporate Governance research Centre2009 position papers• Petit, V., and I. Mari. La légitimité des équipes dirigeantes : une dimension négligée de la gouvernance d'entreprise (January).

EDHEC Marketing and Consumption research Centre – InteraCT2007 Position Papers • Bonnin, Gaël. Piloter l’interaction avec le consommateur : un impératif pour le marketing. (January).


37

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EDHEC BUSINESS SCHOOLLEADErSHIP & COrPOrATE GOVErNANCE rESEArCH CENTrE

393-400 promenade des Anglais06202 Nice Cedex 3Tel.: +33 (0)4 93 18 32 53Fax: +33 (0)4 93 18 78 40e-mail: [email protected]

Research at the EDHEC Leadership & Corporate Governance Research Centre examines corporate leadership practices in a context where governance reforms make it evident that strategic leadership and managerial legitimacy need to be reinvented.

The Centre’s objective is twofold: to produce detailed knowledge of the legitimacy/leadership practices employed by top managers and to reveal what are the stakes and practices involved in corporate governance; and to design seminars to help top managers and their teams in meeting the managerial challenges that face them as the role and context of corporate leadership evolves.

The EDHEC Leadership & Corporate Governance Research Centre is led by a multi-disciplinary team of professors in the fields of management, strategy, law and marketing. They do research in five different areas with a common aim of contributing to the development of positive managerial approaches to corporate governance. • Managerial legitimacy and corporate governance (Jean-Luc Arrègle, Valérie Petit, Isabelle Mari)• Development of strategic leadership: leadership styles of top managers (Valérie Petit)• Image and reputation of top managers (Véronique Boulocher)• Top management teams and governance in family firms (Isabelle Mari)• Ethics and regulations in top management teams (Björn Fasterling)

Copyright © 2009 EDHEC

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393-400 promenade des Anglais e-mail: joanne.finlay@edhec ...€¦ · This theory was later complemented by others, for example the entrenchment theory (Shleifer and Vishny 1986),