Wall Street vs. Main Street: Firm Strategies for Defending Legitimacy and Their Impact on Different Stakeholders

Abstract

We assess the effect of firm strategies to defend legitimacy on two different stakeholder groups—the public (“Main Street”) and the investment community (“Wall Street”). We identify four types of firm strategies in response to challenges to their legitimacy—denial, defiance, decoupling, and accommodation— drawing from theory and from case studies of international outsourcing. We then develop and test hypotheses on the effectiveness of these strategies in defending legitimacy across these two stakeholder groups, using data from media reports and press releases on all 126 distinct accusations of the use of international sweatshops by U.S. firms from 1990 through 2002. We find that denial and defiance responses hinder the recovery of legitimacy on Main Street, and none of the responses has a positive effect on public perception, whereas Wall Street is unaffected by denial and defiance but views decoupling favorably. Main Street and Wall Street thus perceive firm actions to defend its legitimacy quite differently, suggesting that these worlds operate by separate moralities in which Main Street appears to privilege fairness as a core value, whereas Wall Street privileges profit.