Profit and the legitimacy of the Canadian banking industry

Abstract

PurposeLegitimacy is defined as the ability to exercise authority without resorting to open coercion. It is an essential asset for firms seeking to reach and maintain profitability. In this context, the purpose of this paper is to present the case of the Canadian banking industry, which has been highly criticized during the last decade for its record profits, low level of risk taking, high fees and buoyant CEO compensation packages. More specifically, this research aims to analyze the general public's perceptions of the industry during a 50‐month period, starting with the first strong reaction to recurrent announcements of record profits. It also seeks to look at industry reactions as a response to bank bashing.Design/methodology/approachThe case study in this paper was conducted in two steps. It first analyzed public perceptions by studying the content of a sample of newspaper articles on the Canadian banking industry from 1996‐2000. It then examined the industry's reactions by reviewing the documents found on the web site of the Canadian Bankers Association.FindingsThe study shows that the crisis faced by the banking industry was of limited but sustained intensity. The industry used a mixed strategy, justifying itself through its public discourse and mounting a program to inform and educate the Canadian public on the effects of economic factors in their lives. The banking industry limited its reactions to Sethi's first‐level strategy found in the literature.Originality/valueThe paper highlights how the general public perceive profit levels in the Canadian banking industry and how legitimacy is clearly an issue in this context.