Suchman (1995b: 571) correctly points out that legitimacy has become “an anchor-point of a vastly expanded theoretical apparatus addressing the normative and cognitive forces that constrain, construct, and empower organizational actors.” The general concept of legitimacy is defined and discussed in Chapter 3. Weber was among the first social theorists to call attention to the central importance of legitimacy in social life. In his theoretical and historical work, he gave particular attention to those forms of action that were guided by a belief in the existence of a legitimate order, a set of “determinable maxims” providing models viewed by the actor as “in some way obligatory or exemplary for him” (Weber 1924/1968, Vol. 1: 31). In his analysis of administrative systems, both public and private, Weber examined the changing sources of legitimation as traditional values or a belief in the charis- matic nature of the leader increasingly gave way to a reliance on rational/legal underpinnings. Organizations were regarded as legitimate to the extent that they were in conformity to rational (e.g., scientific) prescriptions and legal or law-like frameworks.
Parsons (1956/1960a) applied the concept of legitimacy to the assessment of organizational goals. As specialized subsystems of larger societal structures, organizations are under normative pressure to ensure that their goals are congruent with wider societal values, as described in Chapter 2. The focus of the organization’s value system “must be the legitimation of this goal in terms of the functional sig- nificance of its attainment for the superordinate system” (Parsons 1956/1960a: 21). This conception of legitimacy, emphasizing the con- sistency of organizational goals with societal functions, was later embraced by Pfeffer and colleagues (Dowling and Pfeffer 1975; Pfeffer and Salancik 1978).
Meyer and Rowan (1977) shifted the focus from organizational goals to the structural and procedural aspects of organizations. The structural vocabulary of modern organizations—their emphasis on formality, offices, specialized functions, rules, records, and routines— was seen to be guided by and reflect prescriptions conveyed by wider rationalized institutional environments. These rule-like prescriptions are based on “norms of rationality”—on cultural beliefs, not only on the technical requirements associated with adapting to complex networks and social exchanges. These structures signal rationality irre- spective of their effects on outcomes. The master proposition they advanced was that, “independent of their productive efficiency, orga- nizations which exist in highly elaborated institutional environments and succeed in becoming isomorphic with these environments gain the legitimacy and resources needed to survive” (p. 352).
The principle of isomorphism was first applied to organizations by human ecologist Amos Hawley (1968), who argued that “units subjected to the same environmental conditions . . . acquire a similar form of organization” (see also Hawley 1950). Ecologists proposed that isomor- phism resulted from competitive processes because organizations were pressured to assume the form best adapted to survival in a particular environment (see Hannan and Freeman 1989), whereas neoinstitution- alists Meyer and Rowan (1977) emphasized the importance of “social fitness”: the acquisition of a form regarded as legitimate in a given institutional environment. DiMaggio and Powell (1983: 147) reinforced this emphasis on institutional isomorphism, focusing attention on coer- cive, normative, and mimetic mechanisms that “make organizations more similar without necessarily making them more efficient.” More so than Meyer and Rowan, DiMaggio and Powell recognized that the models developed and the mechanisms inducing isomorphism among structural features operate most strongly within delimited organiza- tion fields, rather than at more diffuse, societal levels. (Chapter 8 is devoted to the discussion of organization fields.)
Meyer and Rowan (1977) also argued that while organizations conform to institutional pressures by adopting appropriate struc- tures and rules, the activities of participants are often “decoupled” from these formal structures. That is, the actual behavior of organi- zational members frequently does not conform to official prescrip- tions or accounts. They propose two explanations for this departure: (1) local demands for efficiency of performance may conflict with externally generated pressures for ceremonial structural confor- mity; and (2) because the ceremonial rules “may arise from different parts of the environment, the rules may conflict with one another” (p. 355).
Meyer and Rowan’s isomorphism and decoupling arguments help to account for two notable features of all contemporary organi- zations. First, there exists a remarkable similarity in the structural features of organizational forms operating within the same organiza- tional field. One college tends to resemble another college, and one hospital is much like other hospitals. The recognition that organiza- tions must not only be viable in terms of whatever competitive processes are at work, but must also exhibit structural features that make them both recognizable and in conformity with normative and regulative requirements, goes a long way to explaining observed similarities among organizations in the same arena. Second, students of organizations at least since Barnard (1938) have long observed the presence of formal and informal structures, the former reflecting offi- cially sanctioned offices and ways of conducting business, the latter actual patterns of behavior and work routines. An uneasy tension exists between these structures. What was not clear until the work of the neoinstitutionalists is why such tensions exist. Even more funda- mentally, if they are disconnected from the work being performed, why do the formal structures exist at all? By positing an environment consisting not only of production pressures and technical demands (the “task” environment), but also of regulative, normative, and cultural-cognitive elements (the “institutional” environment), the relatively independent sources of informal versus formal structures are revealed.
Arguments regarding decoupling have been controversial and attracted considerable attention from the outset of neoinstitutional theory. It is useful to put them in a larger perspective. Since the rise of the “open system” perspective in the late 1950s, scholars have recog- nized that “loose coupling”—a realization that these systems “contain elements that are only weakly connected to others and capable of fairly autonomous actions” (Scott and Davis 2007: 93; see also Buckley 1968; Weick 1976)—is a conspicuous feature of all social systems. Organiza- tions, in particular, incorporate human actors of varying types and interests who are capable of independent action, and these actors are located in multiple units, many of which operate with only minimal central control. They are known to deal with external demands by developing specialized administrative units that deal with divergent demands by “mapping” these concerns into their own structures; for example, firms develop an internal legal unit to deal with legal demands (Buckley 1967; Thompson 1967/2003).
Organizations under pressure to adopt particular structures or procedures may opt to respond in a ceremonial manner, making changes in their formal structures to signal conformity, but then buff- ering internal units, allowing them to operate independent of these pressures. Although this is certainly a possible response, Meyer and Rowan imply that this response is widespread. Indeed, some theorists treat decoupling as the hallmark of an institutional argument. I believe this interpretation to be incorrect.
To begin, these decoupled responses are often seen to be merely symbolic, the organizational equivalent of smoke and mirrors (see Perrow 1985). However, to an institutionalist, the adjective merely does not fit comfortably with the noun symbolic. The use of symbols involv- ing processes by which an organization connects to the wider world of meaning exerts great social power (see Brunsson 1989; Pfeffer 1981). Second, numerous studies suggest that, although organizations may create boundary and buffering units for symbolic reasons, these struc- tures have a life of their own. Personnel employed in these units often play a dual role: They both transmit and translate environment demands to organizations, but also represent organizational concerns to institutional agents (see Hoffman 1997; Taylor 1984). In addition, the very existence of such units signals compliance. Edelman (1992) elabo- rates this argument in her discussion of organizational responses to equal employment opportunity/affirmative action (EEO/AA) requirements:
Structural elaboration is merely the first step in the process of com- pliance. Once EEO/AA structures are in place, the personnel who work with or in those structures become prominent actors in the compliance process: they give meaning to law as they construct definitions of compliance within their organizations. But while actors within organizations struggle to construct a definition of compliance, structural elaboration signals attention to law, thus helping to preserve legitimacy. (p. 1544)
Rather than assuming that decoupling automatically occurs, we should treat this as an empirical question: When and under what con- ditions do organizations adopt requisite structures but then fail to carry out the associated activities? Consistent with our pillars frame- work, which elements are involved can be expected to affect the response. Organizations are more likely to practice decoupling when confronted with external regulatory requirements than with normative or cognitive-cultural demands. Thus, research by Coburn (2004: 233), who studied the effect of curricular changes in elementary school read- ing programs, found that teachers were more likely to respond to “nor- mative messages than to regulative messages by incorporating them into their classroom and doing so in ways that altered their preexisting practice.” Organizations are also more likely to decouple structure from practice when there are high symbolic gains from adoption but equally high costs associated with implementation. Westphal and Zajac (1994) studied the behavior of 570 of the largest U.S. corporations over two decades when such firms were adopting long-term CEO compen- sation plans in an attempt to better align CEO incentives with stock- holder interests. Although many companies adopted these plans, a substantial number failed to use them to restructure executive compen- sation within a subsequent 2-year period. Adoption of a plan was found to enhance organizational legitimacy with stockholders and stock purchasers. Westphal and Zajac (1994; 1998) found that plan adoptions, regardless of whether they were used, resulted in improved market prices, and they found adoption to be associated with greater CEO influence over the board. At the same time, use of these plans could negatively impact CEO compensation. Accordingly, the researchers found that nonimplementation was also associated with greater CEO influence. In addition, Westphal and Zajac (1994) observed the familiar pattern involving late versus early adoption: Late adopters were less likely to implement the plan than early adopters, suggesting that decoupling is more likely to occur among reluctant adopters responding to strong normative pressures. (For reviews of other studies concerning the conditions under which decoupling occurs, see Boxenbaum and Jonsson 2008.)
Finally, a helpful approach to examining coupling processes in organizations is proposed by Hallett and Ventresca (2006), who revisit Gouldner’s (1954) classic study of industrial bureaucracy (see Chapter 2). They suggest that too much neoinstitutional research concentrates attention on wider environmental institutional frames—macro institu- tional orders—and so defocalizes the ways in which new meaning systems—micro institutional orders—arise through social interaction. As an alternative, they propose “a doubly constructed view”: on the one hand, institutions provide templates and guidelines for organiza- tions; on the other hand, “the meaning of institutions are constructed and propelled forward by social interactions” among organizational participants (Hallett and Ventresca 2006: 213). Gouldner studied a gypsum company being subjected to wider rationalizing pressures and describes how these institutional forces were mediated and interpreted by participants within varying organizational subsystems (in particu- lar, the office versus the mine), giving rise to diverse meanings and responses.
In sum, there are good theoretical reasons for attending to isomor- phism among organizational models and formal structures, and in the following sections I review additional research examining isomorphic pressures. However, to treat the existence of structural isomorphism as the litmus test for detecting institutional processes oversimplifies the complexity and subtlety of social systems. Varying, competing institu- tions and multiple institutional elements are often at work. Although they constitute new forms, they also interact with a variety of previ- ously existing forms with varying characteristics and in differing locations. Similarly, to treat decoupling as an automatic response to external institutional pressures has been shown to be oversimplified and misleading. Participants in organizations interpret these pressures in varying ways and construct a variety of responses, some of which may be strategically motivated, as discussed in a later section.
1. Varying Elements and Organizational Legitimacy
The meaning of legitimacy and the mechanisms associated with its transmission vary somewhat with the three institutional elements, as previewed in Chapters 3 and 6. General effects of institutional pro- cesses on organizational structures are readily apparent, but often overlooked. They become most visible when a longer time period is considered. A clear instance of the effects of regulatory forces— combined with cultural-cognitive constitutive processes—on for-profit organizations is represented by the structuring influence of incorpora- tion statutes. These social arrangements, allowing for the pooling of capital from many sources along with limitations on liability for those who managed these assets, were created early in the 18th century in England, but the misadventures of the South Sea Company set back the acceptance of these forms until the mid-1800s (Micklethwait and Wooldridge 2003: Ch. 2). In its early development, the corporate form was restricted to enterprises pursuing broadly public purposes, such as turnpikes and canals, but gradually it was appropriated for use by private firms, as detailed by social historians Seavoy (1982) and Roy (1997). Individually crafted charters granted by state legislatures were replaced by generic statutes providing a legal template for incorpora- tion available to a wide range of organizations. These legal (and cul- tural) changes were associated with the rapid expansion of business enterprise in England and the United States during the second half of the 19th century, fueled in good part in America by competition among the several states to pass legislation favorable to businesses wishing to incorporate.
The effect on organizational structure of normative influences is illustrated by the distinctive features of the American community hos- pital. During the late 19th and early 20th centuries, American physi- cians consolidated their social and cultural authority, upgraded their training systems, and exercised increasingly strong jurisdictional con- trols over the medical domain (Starr 1982). Although they became increasingly dependent on hospitals, which provided the technical equipment, laboratory facilities, and nursing services required for effective acute care, physicians were able to remain independent of administrative controls, organizing themselves into an autonomous medical staff to oversee clinical activities. This dual control structure— one administrative, the other professional-collegial—provided the organizing principle for community hospitals in the United States throughout the 20th century (White 1982). Only during the most recent decades have managerial interests begun to exert more direct controls over rank-and-file physicians in hospitals (see Scott, Ruef, Mendel, and Caronna 2000).
The power of shared cultural models as a basis for organizing is highlighted in Knorr-Certina’s (1999) study of high-energy physics and molecular biology laboratories. She argues that, more so than most types of organizations, the structural blueprint for these knowledge societies is object- rather than person-centered. The work takes place in the context of shared scientific knowledge—“distributed cognition, which then also functions as a management mechanism: through this discourse, work becomes coordinated and self-organization is made possible” (p. 242–243). Moreover, legitimation of these organizations is based on the congruence between the theories and practices of these laboratories and the wider scientific community of which they are a part. Many of the distinctive features of professional organizations are possible because of the unobtrusive controls exercised by shared sym- bolic systems linking actors to the objects of their work based in under- standings grounded in their invisible colleges.
We can supplement these more historical and process-oriented accounts with studies employing quantitative approaches. These stud- ies provide evidence of the increasing variety and sophistication of indicators employed. With regard to studies emphasizing the cultural- cognitive pillar, as noted, some scholars infer legitimacy from the prevalence of an organizational form (Carroll and Hannan 1989), and others interpret the increasing diffusion of a form as an indication of increasing legitimacy (Tolbert and Zucker 1983). These indirect and somewhat controversial measures tap into the cultural-cognitive and, to some extent, the normative dimensions of legitimacy. However, more direct measures of cultural cognitive support are based on a vari- ety of archival materials utilized to measure changes in meaning sys- tems and legitimating ideologies. For example, in studies described in Chapter 8, investigators have measured changes in legitimating “insti- tutional logics” as assessed by changes in professional discourse or media coverage (e.g., Rao, Monin, and Durand 2003; Scott et al. 2000). In an imaginative approach, Zuckerman (1999) assessed the “illegiti- macy discount” imposed by stock analysts on those firms whose markets did not match conventional industry-based classifications.
Employing a more individual-level approach to legitimacy pro- cesses, Elsbach (1994: 58) conducted studies combining impression management and institutional theories to examine how organizational agents “use verbal accounts or explanations to avoid blame or gain credit for controversial events that affect organizational legitimacy.”
Managers of companies in the cattle industry in California were asked to respond to a number of controversial events occurring within the industry, and their responses were evaluated by informants represent- ing influential groups (e.g., media, public officials). These qualitative studies provided the inputs for an experiment in which varying com- binations of situations (vignettes) and company responses were reported to experimental subjects who then rated the legitimacy accorded to the organization. Acknowledgments of problems in con- trast to denials, and references to widely institutionalized procedures in contrast to technical measures, led to higher legitimacy scores.
Analysts emphasizing the normative pillar have stressed mea- sures that assess certification and accreditation procedures utilized by professional associations (e.g., Casile and Davis-Blake 2002; Mezias 1995; Ruef and Scott 1998), opinions expressed by the public media (e.g., Hybels and Ryan 1996), and the endorsement of established com- munity organizations such as schools and religious organizations (e.g., Baum and Oliver 1992). Ventresca and Mohr (2002: 811) point out that the latter shift analysts’ attention away from measures that “emphasize organizations as independent objects toward the mea- surement of relations among objects and the inherent connectivity of social organization.”
Scholars favoring the regulative view of institution utilize measures that stress the extent to which organizations are under the jurisdiction of a given authority (e.g., Hannan and Carrol 1987; Tolbert and Zucker 1983), whether enforcement is vigorous or lax (Dobbin and Sutton 1998), and whether a specific organization has been approved by a licensing body or, conversely, has been subject to sanctions by an enforcement authority (e.g., Deephouse 1996; Singh, Tucker, and House 1986).
These and related studies demonstrate that it is possible to develop measures of legitimating processes in modern society, such that these institutional forces need not simply be asserted or assumed, but are subject to being assessed with empirical evidence. (For additional sum- maries and discussions of such studies, see Boxenbaum and Jonsson 2008; Deephouse and Suchman 2008; Greenwood, Raynard, Kodeih, Micelotta, and Lounsbury 2011; Kraatz and Block 2008.)
2. Varying Sources and Salience
The sources of legitimation are many and diverse in today’s com- plex and differentiated societies. Virtually all are themselves organiza- tions, including the state and professional associations, although some organizations, such as the media and rating agencies, serve as conduits for collecting the assessments of members of more general or special- ized publics (Deephouse and Suchman 2008). Who—which agencies or publics—has the right to confer legitimacy on organizations of a given type may not be a simple question in environments characterized by complexity or conflict. It is a truism of modern organization studies that organizations are highly differentiated, loosely coupled systems, in part because they must relate to many different environments. Univer- sities, for example, relate not only to educational accreditation agencies and professional disciplinary associations, but also to federal agencies overseeing research grants and contracts and student loans, to the National Collegiate Athletic Association for sports activities, to local planning and regulatory bodies for building and roads, among many other oversight bodies (see Richardson and Martinez 2009; Stern 1979; Wiley and Zald 1968).
In his study of commercial banks operating in the Minneapolis– St. Paul metropolitan area, Deephouse (1996) examined the effects of two different sources of legitimation: state regulatory agencies that made onsite assessments of the safety and soundness of a bank’s assets and metropolitan newspapers who reported information to the public about banking activities. Both sources were found to be positively asso- ciated with isomorphism in the asset strategies pursued by banks. Banks that experienced fewer enforcement actions from regulatory agencies and banks that received a higher proportion of positive reports in the public media were more likely to exhibit conformity to the industry average in their strategies for distributing assets across various categories of borrowers, such as commercial, real estate, and individual loans. This finding held up after the differences in their age, size, and performance (return on assets) was taken into account. Both of the legitimation sources were significantly associated with strategic isomorphism, although there was only a modest association of .34 between measures of regulatory assessment and public endorsement. This result suggests that legitimation sources vary in the attributes to which they attend in conferring legitimacy.
The salience of such legitimation agents can vary among organiza- tional subunits or programs, and also over time. In our study of hospi- tals in the San Francisco Bay area, for example, Martin Ruef and I (Ruef and Scott 1998) found that accreditation by an assortment of medical bodies, such as the American College of Surgeons, was independent of (and, in some cases, negatively associated with) accreditation by vari- ous managerial bodies, such as the American Hospital Association. Although the endorsement of both types of accreditation agencies was positively associated with hospital survival throughout the period 1945 to 1995, the strength of this relation was found to vary over time. Dur- ing the period before 1980, when professional medical associations exercised greater influence in the field, medical association accredita- tions were more strongly associated with hospital survival than were managerial endorsements, whereas after 1980, managerial accredita- tions were a stronger predictor of survival than medical endorsements. We argue that market and managerial logics have become more preva- lent in the health care field since 1980, challenging and, to some degree, supplanting the logics of the medical establishment. It appears that the influence of various regulatory and normative bodies varies depend- ing on the institutional logics dominant within the wider institutional environments.
In summary, individual organizations exhibiting culturally approved forms and activities (including strategies), receiving support from normative authorities, and having approval from legal bodies are more likely to survive than organizations lacking these evaluations. Legitimacy exerts an influence on organizational viability independent of its performance or other attributes or connections.
In the following section, I review arguments and related research concerning the effects of the institutional context on organizational structures. In much of this work, the underlying rationale implied is that the effects are due to legitimacy processes. However, other causal processes may also be at work.
Source: Scott Richard (2013), Institutions and Organizations: Ideas, Interests, and Identities, SAGE Publications, Inc; Fourth edition.