Academic journal article Journal of Management and Organization

Toward a Life Cycle Theory of Board Evolution: Considering Firm Legitimacy

Academic journal article Journal of Management and Organization

Toward a Life Cycle Theory of Board Evolution: Considering Firm Legitimacy

Article excerpt


Previous research notes that firms are subject to legitimacy pressures from their environment, leading them to adopt conforming elements - structures and processes - in order to gain, maintain, and repair legitimacy, a critical resource for firm survival (Meyer & Rowan, 1977; Zucker, 1987; Suchman, 1995). Whereas legitimacy has been defined in numerous ways over the wide application of this construct (Bitektine, 2011), definitions generally converge to refer to a quality that is conferred onto firms when they appear to conform to the customs and practices of their environment. Thus, being perceived as legitimate results in substantial benefits, such as the firm's right to exist, obtain resources, and thrive (Dowling & Pfeffer, 1975; Suchman, 1995).

The importance of firm legitimacy to survival and success has become a foundational element of several theories of the firm - such as agency, resource dependence, and institutional theory among others - making legitimacy an 'anchor-point' (Suchman, 1995) to our understanding of firm behavior. Yet, few studies explore the richness of the interplay between the pressures existing in a firm's dynamic environment and the strategic legitimating actions that firms undertake in response; that is, the actions that firms effect in order to enhance others' perceptions of their legitimacy (cf. Oliver, 1991; Suchman, 1995; Zimmerman & Zeitz, 2002). Research suggests that a primary action firms take to engage in strategic legitimation is altering their board of directors (Hillman, Cannella, & Paetzold, 2000; Zimmerman & Zeitz, 2002; Certo, 2003; Higgins & Gulati, 2006; Adams, Hermalin, & Weisbach, 2010; Perrault, 2014).

Accordingly, in this paper we draw on previous literature suggesting that a firm's legitimacy depends on how closely its governance aligns with the expectations of its environment (Suchman, 1995; Stoker, 1998; Zimmerman & Zeitz, 2002; Monk, 2009), and on research suggesting that firms respond to changes in their environment by altering board composition (Pfeffer, 1972; Hillman, Cannella, & Paetzold, 2000). We extend these previous conceptions by positing that board characteristics represent an important device in a firm's attempt to mitigate legitimacy pressures through strategic action. In doing so, we build on recent research suggesting that the board's role and characteristics are dynamic concepts that are tied to a firm's life cycle (cf. Zahra & Pearce, 1989; Lynall, Golden, & Hillman, 2003; Bonn & Pettigrew, 2009).

Indeed, previous research shows that legitimacy pressures evolve with a firm's environment, such that considerations of context (Jawahar & McLaughlin, 2001; Aguilera & Jackson, 2003) and temporality are relevant to an understanding of board evolution (Bonn & Pettigrew, 2009). However, these concepts have been scarcely integrated in corporate governance studies to date. Zahra and Pearce (1989) argue that internal and external contextual factors, such as those encompassed by the life cycle model, are key to understanding optimal board configurations. Bonn and Pettigrew (2009) set forth a research agenda premised on the idea that the three primary roles of the board identified by agency, decision-making, and resource dependence theory become predominant at different stages of the firm's life cycle, further impacting board characteristics.

As such, we note that the composition of the board of directors fulfills both a substantive and a symbolic role in the firm's quest for legitimacy (Mizruchi, 1996; Zimmerman & Zeitz, 2002; Certo, 2003). For instance, Arthaud-Day, Certo, Dalton, and Dalton (2006) argue that an organization's legitimacy is interconnected with the image of its strategic leaders such that stakeholders favor associations with firms whose leaders appear more proper and appropriate. Zimmerman and Zeitz (2002) claim that an important role of the board is to increase the legitimacy of new ventures by formalizing network ties with relevant external organizations. …

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