Abstract for: Legitimacy Crises and Organizational Behavior

Organizations depend on a variety of stakeholders in order to survive. One key influence on stakeholder support is the organizationís perceived legitimacy. This paper presents a model of the interaction between an organization and its stakeholders under the conditions of a legitimacy crisis. The organizationís discretion in gaining legitimacy is restricted by the level of available resources. Results indicate that an organization facing a severe legitimacy crisis may not only to fail to restore legitimacy; it may even destroy the remaining constituent support through a vicious circle of overacting and mistrust. Results also suggest that a threshold of legitimacy not only exists for new ventures, but for organizations of all ages, because a legitimacy challenge may push the organization back below the threshold, ultimately leading to its demise. Moreover, the ability to conquer legitimacy crises depends heavily on the organizationís initial resource endowment.