Legitimacy, Public Value, & Capital Allocation DISSERTATION of the University of St. Gallen

325 Pages·2017·4.16 MB·English

by  Celine Bilolo

Legitimacy, Public Value, & Capital Allocation

D I S S E R T A T I O N
of the University of St. Gallen,
School of Management,
Economics, Law and Social Sciences
and International Affairs
to obtain the title of
Doctor of Philosophy in Management

submitted by

Céline Bilolo

from

Germany

Approved on the application of

Prof. Dr. Thomas Berndt

and

Prof. Dr. Timo Meynhardt

Dissertation no. 4705

Difo Druck GmbH, Bamberg 2018
The University of St. Gallen, School of Management, Economics, Law, Social
Sciences and International Affairs hereby consents to the printing of the present
dissertation, without hereby expressing any opinion on the views herein expressed.

St. Gallen, October 25, 2017

The President:

Prof. Dr. Thomas Bieger
FOREWORD
Eine Fundamentalfrage der Ökonomie ist, warum es überhaupt Organisationen bzw.
Institutionen gibt. Die Antwortmöglichkeiten sind vielfältig. Äusserst fruchtbar
diesbezüglich sind und waren etwa die Ansätze der Neuen Institutionenökonomie
zum Beispiel von Coase, Williamson, North, Hart etc., die im Wesentlichen auf die
Transaktionskostentheorie, Propery-Rights-Ansätze und die Principal-Agent-Theorie
zurückgehen. Gerade in jüngerer Zeit, die nicht zuletzt von einer zunehmend
kritischeren Grundeinstellung von Teilen der Öffentlichkeit gegenüber allein
ökonomischen Ansätzen geprägt ist, rückt ein breiteres Unternehmensverständnis in
den Mittelpunkt des Interesses, das das Unternehmen in seinem vielfältigen
Zusammenspiel mit der Gesellschaft an sich sieht. Will man sich vor diesem
Hintergrund mit dem Begriff der Legitimität von Unternehmen auseinandersetzen, so
steht man als Ökonom vor (mindestens) zwei Herausforderungen: Zum einen ist der
Begriff der Legitimität zwar zunächst denkbar abstrakt – ähnlich wie etwa Begriffe
der Fairness oder der Gerechtigkeit – aber in vielen nicht-ökonomischen
Wissenschaften wie der Soziologie, der Philosophie oder den Rechtswissenschaften
vielfältig diskutiert. Man ist insofern gut beraten, hier einen inter- bzw.
multidisziplinären Ansatz zur Schärfung des Begriffs der Legitimität zu wählen. Zum
anderen, und damit zusammenhängend, besteht die Herausforderung, den so
geschärften Begriff der Legitimität wiederum in einem ökonomischen
Zusammenhang zu operationalisieren, ihn also jenseits seiner Abstraktheit messbar
zu machen.
Die vorliegende Arbeit von Frau Bilolo stellt sich in umfassender und fundierter
Weise diesen beiden Herausforderungen. Sie greift damit ein ebenso schweres, wie
fundamentales Thema auf, das äusserst komplex und in Theorie wie Praxis von
allergrösster Bedeutung ist. Mit höchster Sorgfalt und grösster Innovationskraft wird
eine zentrale Forschungslücke geschlossen: Denn wenn auch die Legitimität von
Unternehmen als soziales Konstrukt zwar grundsätzlich anerkannt wird, so finden
sich doch kaum empirische Ansätze hinsichtlich ihrer Überprüfbarkeit. Und wenn es
auch mittlerweile eine umfangreiche Forschung zum Thema ‘Corporate Social
Performance’ gibt, so sind doch vielfach die Performance-Massstäbe inkonsistent
-IV- FOREWORD
oder unklar und – nochmals problematischer – es wird in den meisten Arbeiten wenig
theoretisch fundiert, worin denn eigentlich die soziale Komponente der ‘Social
Responsibility’ bestehen soll.
Folgerichtig wird in der Arbeit von Frau Bilolo zunächst das theoretische Konzept
der Legitimität, seine Einordnung in den organisatorischen Kontext und seine
Entwicklung im 20. Jahrhundert dargestellt. Dies gelingt ihr in bestechender Weise;
es liest sich ausgesprochen spannend, die historische Entwicklung eines
fundamentalen Begriffs nachzuverfolgen, wobei immer auch der ökonomische Bezug
hergestellt wird. Und so finden sich entsprechend neben eher soziologisch und
philosophisch geprägten Arbeiten (selbstverständlich) auch die ökonomischen
Vertreter wie Weber, Drucker oder – aus Sicht der Universität St. Gallen besonders
wichtig – Ulrich. Man wünschte sich auch bei vielen anderen Arbeiten eine solche
Sorgfalt in der Literaturarbeit; denn letztendlich geht es dabei immer auch darum,
nicht nur Entwicklungswege der Forschung aufzuzeigen, sondern die Fundamente
derzeitigen Denkens und Forschens zu explizieren. Eine besonders innovative
Leistung der vorliegenden Arbeit besteht darin, das Konzept der Legitimität mit dem
des Public Value zu verknüpfen, womit sich – ganz zentral – die Möglichkeit
ökonomischer Messbarkeit eröffnet. Hierzu wiederum wird ein eigener Public Value
Index erstellt und es werden mit äusserster Sorgfalt die verschiedenen Dimensionen
des Public Value empirisch getestet.
Es kann keinen Zweifel an der Exzellenz und dem innovativen Charakter der Arbeit
von Frau Bilolo geben. Diese Dissertation ist daher sowohl der Theorie als auch der
Praxis wärmstens ans Herz zu legen und ihr ist breiteste Aufmerksamkeit zu
wünschen. Wer sich mit sozialer Verantwortung und ‘social performance’ von
Unternehmen, deren Legitimität für die Gesellschaft und dem Public Value
beschäftigt, wird diese Arbeit mit grösstem Nutzen beiziehen.

St.Gallen, November 2017 Prof. Dr. Thomas Berndt
ACKNOWLEDGEMENTS
As my PhD journey finally comes to an end, I realize that a doctoral thesis is not just
the product of hard work and perseverance: it is also, more importantly, the product
of many valuable encounters, conversations, and debates. I was fortunate to have been
surrounded by incredibly supportive and inspirational people who enabled me to
pursue this endeavor and ultimately bring it to a close. Although the number of people
involved in this project is greater than can be acknowledged here, I would like to take
the opportunity to acknowledge those who were particularly involved at different
stages of my thesis.
First and foremost, I would like to express my sincerest gratitude to my supervisor,
Prof. Dr. Thomas Berndt, who accompanied me on this journey from the very
beginning in February 2013. By giving me constructive guidance on the one hand and
the academic freedom to develop my own thoughts on the other, Prof. Dr. Thomas
Berndt encouraged me to take unconventional paths in the accounting and finance
field and trusted in my ability to find solutions to challenges along the way. Secondly,
I am particularly indebted to my second supervisor, Prof. Dr. Timo Meynhardt, whose
supportiveness, invaluable advice, and deep knowledge in the field of public value
ensured my progress and enabled me to develop the Public Value Index. Thirdly, I
would like to offer my profound gratitude to my supervisor at the University of
Oxford, Dr. Marc Ventresca, who distilled in me an interest in organizational theory
and took the time to provide extensive consultation that enriched, in particular, the
theoretical part of this thesis. Together, these three geniuses formed a harmonious
triumvirate of intellectual guidance and rigorous debates from which this thesis
benefited significantly.
With regard to the empirical part of this thesis, I would also like to thank the raters,
who demonstrated interest in the topic and agreed to participate in the rating rounds.
In particular, I would like to thank my colleague, Anne Bäro from the HHL Leipzig
Graduate School of Management, for our brilliant Skype sessions and collaboration
throughout the rating process.
-VI- ACKNOWLEDGEMENTS

Moreover, I would like to thank my fellow doctoral students at the University of St.
Gallen and the DPhil community at the University of Oxford for their feedback and
friendship over the years. At the University of St. Gallen, a very special thanks goes
to my work colleague and friend, Dr. Ludwig Müller, whose patience and reliability
are without equal. I would also like to thank Dr. Pepe Strathoff for introducing me to
the public value topic, as well as Elisabeth Radek, Dr. Hendrik Fröse, and Dr. Roman
Ornik for the numerous fruitful discussions that made my PhD such an unforgettable
experience. At the University of Oxford, the inspiration I drew from our seminars and
debates (including many late-night work sessions in the DPhil room with Tanja
Ohlson and Beata Gafka) were invaluable. I would also like to acknowledge Dennis
R. West, who was endlessly helpful as a critic and counselor.
A very special gratitude goes to my three editors-in-chief, Mumbi-Maria Wachira,
Avril M. Perry, and Dr. Rocío Robinson. The hard work you put in was beyond my
expectations. I suppose the only way to thank you adequately would be to edit your
work in return. I would also like to thank Professor M. Kathryn Reynolds and Gloria
Nagel, who proofread my first research proposal and provided valuable feedback at
a very early stage of this thesis. Furthermore, I would like to express my gratitude to
my mentors, Prof. Dr. Lebela Kitoko, Prof. Dr. Eberhard Grein, and Jyoti Chopra, as
well as to my close friends in Germany, particularly Anja Walkam and Victoria
Mastenina, for your emotional support and encouragement throughout the years.
I would like to express my deepest gratitude to my extended family and Benedikt
Hoeschel for his wholehearted support from the beginning until the very last minute
of this journey. You were my anchor of strength, willingly sacrificed holidays for
joint library sessions, and have supported me in a hundred different ways on this long
road. Finally, the most important acknowledgement goes to my parents, Renate
Rothärmel-Bilolo and Prof. Dr. Mubabinge Bilolo, for their love, patience, and
unconditional support. I am forever grateful to you for your guidance over the path
my life has taken. It is to you that I dedicate this thesis.

St. Gallen, November 2017 Céline Bilolo
OVERVIEW OF CONTENTS
Foreword................................................................................................................. III
Acknowledgements .................................................................................................. V
Overview of Contents ........................................................................................... VII
Zusammenfassung ............................................................................................... XIV
Abstract.................................................................................................................. XV
List of Figures ...................................................................................................... XVI
List of Tables ...................................................................................................... XVII
List of Notifications and Abbreviations ............................................................. XIX

CHAPTER 1
Introduction ............................................................................................................... 1
1.1 Research Motivation ...................................................................................... 1
1.2 Problem Statement ......................................................................................... 6
1.3 Research Objective ........................................................................................ 8
1.4 Research Questions ........................................................................................ 8
1.5 Scope ............................................................................................................. 9
1.6 Structure of the Thesis ................................................................................. 10
1.7 Research Design .......................................................................................... 11

PART I THEORY DEVELOPMENT

CHAPTER 2
Organizational Legitimacy in Organizational Theory Literature in the 20th
Century .................................................................................................................... 14
2.1 Chapter Objectives: What are the Foundations of Legitimacy? .................. 14
2.2 Closed Systems: Early Thoughts on Power and Authority ......................... 17
2.2.1 Historical Context of Rational and Natural System Models .......... 17
2.2.2 Weber: Ideas on Legitimate Order ................................................. 18
2.3 Natural Models until the 1950s ................................................................... 22
2.3.1 Overview ........................................................................................ 22
2.3.2 Old Institutionalism: Early Thoughts on Institutionalization and
Purpose ........................................................................................... 23
2.3.2.1 Barnard: The Pivotal Role of Organizational Purpose ...... 23
2.3.2.2 Selznick: Should Efficiency be the Central Concern? ...... 24
2.3.3 Parsons: Legitimacy as Congruence with wider Societal Values .. 27
-VIII- OVERVIEW OF CONTENTS

2.4 Open Systems .............................................................................................. 31
2.4.1 Overview ........................................................................................ 31
2.4.2 Organizations as Social and Open Systems ................................... 32
2.4.3 Berger and Luckmann: Cognitive Aspects of Legitimacy ............. 34
2.4.4 First Attempts to Conceptualize the Environment and Resource
Dependency Theory ........................................................................ 37
2.4.4.1 External Evaluations and First Ideas on Assessing
Legitimacy ......................................................................... 37
2.4.4.2 Organizational Effectiveness ............................................. 40
2.5 Institutional Theory ..................................................................................... 43
2.5.1 Overview ........................................................................................ 43
2.5.2 New Institutionalist Views on Legitimation .................................. 45
2.5.2.1 Conformity to Institutionalized Rules and Frameworks ... 46
2.5.2.2 Isomorphism, Contagion, and Legitimating Elements ...... 47
2.5.2.3 Taken-for-grantedness of Institutional Scripts, Cultural
Support, and External Legitimation .................................. 50
2.5.2.4 Institutional Politics, Delegitimation, and Legitimacy
Conflicts ............................................................................ 52
2.6 Management and Business Education Perspectives on Legitimation ......... 57
2.6.1 Overview ........................................................................................ 57
2.6.2 Suchman: Managing Legitimation ................................................. 59
2.6.3 Management Education: Creating a Cognitive Base ...................... 64
2.6.3.1 Ulrich: Normative Processes for Orientation .................... 64
2.6.3.2 Drucker: The Importance of Measurement ....................... 68
2.7 Synthesis of Organizational Legitimacy: Where are We Today? ............... 71

CHAPTER 3
Legitimacy through Public Value Creation ......................................................... 77
3.1 Chapter Objectives: Rediscovering the Notion of Value ............................ 77
3.2 Philosophic Foundations of Value ............................................................... 79
3.2.1 Axiology: The Philosophical Study of the Nature of Value and
Valuing ........................................................................................... 79
3.2.2 ‘What is Value’? ............................................................................. 81
3.2.3 Value Relativism in Philosophy ..................................................... 82
3.3 Economic Foundations of Value ................................................................. 84
3.3.1 ‘What has Value’? .......................................................................... 84
OVERVIEW OF CONTENTS -IX-
3.3.2 Marginal Utility Theory ................................................................. 85
3.4 Psychological Foundations of Value ........................................................... 88
3.4.1 Overview ........................................................................................ 88
3.4.2 ‘How are Values rooted in Selfs’? ................................................. 88
3.4.2.1 Values as Belief Systems and Their Measurement ........... 88
3.4.2.2 Basic Needs and Perception as Reference Points for the
Act of Valuing ................................................................... 90
3.5 Public Value: What makes an Organization valuable for Society? ............. 93
3.5.1 Public Value Research and Related Streams .................................. 93
3.5.2 Moore: What is Public Value Creation? ......................................... 94
3.5.2.1 Origins of Public Value Research ..................................... 94
3.5.2.2 Calling a Public into Existence and the Court of Public
Opinion .............................................................................. 94
3.5.2.3 Linking Perspectives on Accountability, Legitimacy, and
Public Value ...................................................................... 96
3.5.3 Meynhardt: Providing Psychological Sources for the Abstract
Notion of Value ............................................................................ 101
3.5.3.1 Starting with a Structure for the very Act of Valuing ..... 101
3.5.3.2 Object of Evaluation: The Public in Public Value .......... 102
3.5.3.3 From Basic Needs to Four Basic Public Value
Dimensions ...................................................................... 104
3.5.3.4 Assessing how organizations contribute to society ......... 106
3.5.4 Public Value and Predominant Management Paradigms ............. 109
3.5.4.1 Historical Context of Shareholder Value ........................ 109
3.5.4.2 The Rise of Shareholder Value ....................................... 111
3.5.4.3 Stakeholder Theory ......................................................... 114
3.5.4.4 Management Paradigms: Corporate Social
Responsibility .................................................................. 116
3.5.4.5 Integrating Management Paradigms with Public
Value................................................................................ 119
3.6 Interim Conclusion: Legitimacy through Public Value ............................ 122
-X- OVERVIEW OF CONTENTS

PART II EMPIRICAL ANALYSIS AND IMPLICATIONS

CHAPTER 4
Public Value Index Development ........................................................................ 127
4.1 Chapter Objectives: Public Value Data Generation .................................. 127
4.2 From ASSET4 to Public Value: Rationale for archival data ..................... 128
4.2.1 CLVS Questionnaire Data: Public Value Atlas ........................... 128
4.2.2 Mass Media Platforms: Social Discourse Platforms .................... 129
4.2.3 Mass Media Platforms: Integrated Archival Databases ............... 130
4.3 ASSET4 Data Collection Process ............................................................. 134
4.4 Reliability Study ........................................................................................ 136
4.4.1 Study Objectives ........................................................................... 136
4.4.2 Design of the Reliability Study .................................................... 136
4.4.3 Ensuring the three Types of Reliability ........................................ 137
4.4.3.1 Stability: Test-retest Design (Intra-rater Reliability) ...... 137
4.4.3.2 Replicability: Test-test Design (Inter-rater Reliability) .. 137
4.4.3.3 Accuracy: Highest level of replicability (Validity) ......... 144
4.4.4 Calculation Methodology ............................................................. 144
4.4.5 Results .......................................................................................... 148
4.4.5.1 Inter-rater Reliability ....................................................... 148
4.4.5.2 Intra-rater Reliability ....................................................... 150
4.4.5.3 Validity ............................................................................ 151
4.4.6 Discussion of Findings and Limitations ....................................... 154
4.4.6.1 Randomization ................................................................. 154
4.4.6.2 Representativeness .......................................................... 155
4.4.6.3 Overlap of HA and UI ..................................................... 156
4.4.6.4 Alpha Values ................................................................... 156
4.4.6.5 Transferability from ASSET4 to Public Value ............... 157
4.5 Public Value Index .................................................................................... 159
4.5.1 Inclusion Criteria .......................................................................... 159
4.5.2 Public Value Score Calculation .................................................... 160
4.5.3 Index Summary Statistics ............................................................. 162
4.5.4 Industry Rankings ......................................................................... 164
4.5.5 Limitations .................................................................................... 169