The document discusses several system-oriented theories that examine the relationship between organizations and their environment, including legitimacy theory, stakeholder theory, and institutional theory. It provides details on political economy theory, legitimacy theory, stakeholder theory, and institutional theory, focusing on how organizations seek to maintain legitimacy and manage relationships with stakeholders in order to ensure support and resources.

2. LIMITLESS

3. GROUP MEMBERS
1. Md. Abdullah Al Masum---------------------------------749
2. Ruhul Amin------------------------------------------------
-----759
3. Md. Kabir Hasan--------------------------------------------
-768

4. SYSTEM ORIENTED THEORIES
The entity is influenced by, and influences, the society in which it
operates
Focuses on the relationship between them
The
Organization
Interest
Groups
Investors
Industry
Bodies
Suppliers
Government
Media
Consumers
Employees

5. SYSTEM ORIENTED THEORIES
SystemOrientedTheory
Legitimacy Theory
Stakeholder Theory
Institutional Theory
Political Economy
Theory

6. POLITICAL ECONOMY THEORY
• Political economy is ‘the social, political and economic framework within which human
life takes place.
Classical
Bourgeois
Political
Economy
Theory
 Related to the works of Karl Marx
 Considers class interests, structural
conflict and inequity
 Accounting reports and
disclosures favoured the position
of those who control scarce
resources
 Does not considers the Class
interests
 Concerned with interactions
between groups in an essentially
pluralistic world
 Legitimacy Theory and
Stakeholder Theory derive from
this branch

7. LEGITIMACY THEORY
 Operation within the bounds and norms of their respective societies.
 Activities are perceived to be ‘legitimate’
 Bounds and norms are not fixed so it requires the organisation to be responsive

8. SOCIAL CONTRACT
Corporations will meet the needs and demands of the society according to the way
society’s expectations.
Important issues to be addressed are-
Human
Environment &
Other social issues

9. HOW TO DETERMINE SOCIETY’S EXPECTATIONS
• To propose a relationship between corporate disclosure and community expectations
• To rely on the media, with the media being observed to shape community
expectations

10. LEGITIMACY GAP
• If the organization fails to fulfill the needs and demands of the society it will be difficult
to obtain the necessary support and resources to continue operations.
2 major sources of GAP
1. Societal expectations may change
2. When previously unknown information become known

11. ACTIONS TO MAINTAIN LEGITIMACY
• Adapt output, goals and methods of operation to conform to definitions of legitimacy
• Conforms with the organisation’s present practices
• Forecasting future changes
• Protecting past accomplishments

12. COMMUNICATION TO MAINTAIN LEGITIMACY
• Educate and inform the community about changes in performance and activities
• Change perceptions but not behaviour
• Manipulate perception by deflecting attention from the issue to other related issues
• Change external expectations

13. ROLE OF PUBLIC DISCLOSURE
• To implement each of their suggested strategies
• To provide information to the interested parties
• To draw attention to their strengths
• To appear consistent with social values and expectations

14. EXAMPLES OF EMPIRICAL STUDIES ON
LEGITIMACY THEORY
Deegan and Rankin (1996)
used Legitimacy Theory to explain changes in annual report environmental disclosure
policies around proven environmental prosecutions
prosecuted firms disclosed significantly more environmental information in the year of
prosecution than any other year
prosecuted firms disclosed more information than non-prosecuted firms

15. STAKEHOLDER THEORY
• The stakeholder theory is a theory of organizational management and business ethics
that addresses morals and values in managing an organization.
Definition of Stakeholder
• Any identifiable group or individual who can affect the achievement of an
organisation’s objectives, or is affected by the achievement of an organisation’s
objectives

16. 2 BRANCHES OF STAKEHOLDER THEORY
Stakeholder
Theory
Ethical
Branch
Managerial
Branch

17. ETHICAL BRANCH OF STAKEHOLDER THEORY
• All stakeholders have the right to be treated fairly by an organisation
• Issues of stakeholder power are not directly relevant
• Management should manage the organisation for the benefit of all stakeholders
• Firm is a vehicle for coordinating stakeholder interests
• Management have a fiduciary relationship to all stakeholders
• Where interests conflict, business managed to attain optimal balance among them
• Each group merits consideration in its own right
• Management is bound to provide information, even if not used

18. RIGHT TO INFORMATION—ACCOUNTABILITY
• Accountability involves two responsibilities
– to undertake certain actions
– to provide an account of those actions
Reporting is assumed to be a responsibility rather than demand driven

19. MANAGERIAL BRANCH OF STAKEHOLDER
THEORY
• Attempts to explain when corporate management will be likely to attend to the
expectations of particular (powerful) stakeholders
• More organisation-centred
– stakeholders identified by the organisation
– extent to which organisation believes relationship needs to be managed in interests of the
organisation
• Specifically considers the different stakeholder groups within society, and how they
should best be managed
• Expectations of stakeholders considered to impact on operating and disclosure policies

20. STAKEHOLDER POWER UNDER
MANAGERIAL BRANCH
Stakeholder power is a function of the stakeholder’s degree of control over resources
required by the organisation.
• Organisation will not respond to all stakeholders equally, but to the most powerful
• Major role of management is to assess the importance of meeting stakeholder
demands so as to achieve strategic firm objectives
• Expectations and power relativities of various stakeholders change over time
• Organisation must continually adapt operating and disclosure strategies

21. ETHICAL VIEW VERSUS MANAGERIAL VIEW
• Management might either be ethically aware, or focused on the survival of the
organisation
• Management will arguably be driven by both ethical and performance considerations

22. EXAMPLES OF EMPIRICAL STUDIES
• Roberts (1992)
– found measures of stakeholder power and their related information needs can
provide some explanation of levels and types of corporate social disclosures
• Neu, Warsame and Pedwell (1998)
– firms more responsive (in terms of corporate environmental disclosure) to the
concerns of financial stakeholders and government regulators than to
environmentalists

23. INSTITUTIONAL THEORY
Institutional theory is a theory on the deeper and more resilient aspects of social
structure.
• Provides an explanation about why organisations tend to take on similar characteristics
and form
• Particular organisational forms might be adopted in order to bring legitimacy to the
organisation
• Provides a complimentary perspective to both legitimacy theory and stakeholder
theory
• Links organisation practices to societal values

24. DIMENSIONS OF INSTITUTIONAL THEORY
Isomorphis
m
• Coercive
• Mimetic
• Normative
Decoupling
Institutiona
l Theory

25. • Isomorphism
– refers to ‘a constraining process that forces one unit in a population to resemble
other units that face the same set of environmental conditions
• Decoupling
– Refers to the situation in which the formal organizational structure or practice is
separate and distinct from actual organizational practice.

26. PROCESSES OF ISOMORPHISM
Coercive isomorphism
Arises where organisations change their institutional practices because of
pressure from those stakeholders upon which the organisation is dependent
Mimetic isomorphism
Organisations often copy other organisation’s practices for competitive
advantage and to reduce uncertainty
Normative isomorphism
Pressures from ‘group norms’ to adopt particular institutional practices.

27. SUMMARY
• We can see that there is much overlap between the three theories just discussed
• Sometime a joint consideration of different theoretical perspectives can provide a
more holistic understanding of particular practices

28. Thanks
Everyone…