Corporate social irresponsibility and stakeholders' support: evidence from a case study

Abstract

Stakeholders' decisions regarding whether to continue to support a firm after it has been perceived as culpable for socially irresponsible behaviour is "coin of the realm" in selecting which firms (or which parts of a firm) will be able to survive a corporate social irresponsibility (CSI) scandal. Our empirical setting is an embedded polar case of audience support, the Parmalat case, following a severe CSI scandal. The scandal represented a "trigger event" that ignited an active reevaluation of the firm on behalf of its stakeholders. We show that, while the firm's cognitive legitimacy was not harmed by the CSI scandal, two dimensions of legitimacy played a key role in stakeholder evaluations: moral and pragmatic legitimacy. The capacity to manage the interplay between these two dimensions emerged as a key factor underlying stakeholders' support. Finally, we argue that if pragmatic legitimacy is feeble it is unlikely that the firm is able to maintain stakeholders' support. Our study suggests that possessing a sound source of competitive advantage in one (or more) of the businesses in which the firm operates is decisive to maintain the support of independent stakeholders following CSI scandal.