Perceptions of Legitimacy as a Motive to Change Inter-Organizational Relations

Institutional theory argues that organizational actions are often motivated by a desire to increase the organization’s legitimacy. We assess whether organizational actors’ perceptions of legitimacy (or the lack thereof) appear to impact a major structural decision, whether to convert an independent (contract) sales force to employee status (i.e. vertically integrate the selling function). We also examine whether legitimacy concerns drive the decision whether to shift the selling contract to a different independent sales force, one which may enhance the manufacturer’s legitimacy. Unlike much prior work, which inferred that a given action possessed legitimacy-enhancing properties, we explicitly examine organizational actors’ belief in the legitimating consequences of changing their interorganizational relationships. We also offer a strong test of this proposition in a setting seldom treated in empirical tests of institutional theory, namely, the for-profit sector. We find support in our data for a legitimacy motive.