How Does Corporate Social Action by MNE Subsidiaries Improve Legitimacy in Foreign Host Countries?

Abstract

Multinational enterprise (MNE) subsidiaries are thought to suffer from legitimacy shortfalls when they operate in foreign host countries. These may be to structural factors in the home country of the MNE, within the MNE and in the host country, and institutional distance between host and home countries. It is often theorised that MNE subsidiaries may increase their legitimacy by embarking on corporate social initiatives that benefit host country actors or address social issues. Yet this theoretical prediction has not been widely demonstrated. How do corporate social initiatives by an MNE subsidiary improve its legitimacy with host country actors? What are the mechanisms that mediate the relationship between the performance of a social initiative and improved legitimacy? In this exploratory paper, I attempt to address the MNE corporate social action – legitimacy link using an organisational learning framework. I argue that managers of an MNE subsidiary operating in a host country purposively seek to legitimate the firm with primary and secondary stakeholder audiences and then institutionalise practises for meeting the demands of primary stakeholder audiences. Within this framework, I make preliminary propositions about the link between social initiative and legitimacy