Keywords

Introduction: Ethical Lenses and the Suitability of Habermas’ Discourse Ethics

Business legitimacy has evolved into a central concept in Communication Ethics. It is defined as “generalized perception or assumption that the actions of an entity are desirable, proper or appropriate within some socially constructed system of norms, values, beliefs and definitions” (Suchman 1995). The legitimate behavior of an organization can be viewed from three distinct perspectives: cognitive, pragmatic, and moral legitimacy (Suchman 1995; Long and Driscoll 2008). Whereas cognitive legitimacy refers to taken-for-granted norms and values of an organizations’ presence in society (Wagner and Seele 2017), pragmatic legitimacy stems from the benefits that an organization’s existence and actions can yield for society (Scherer et al. 2013). Both cognitive and pragmatic legitimacy mainly rest on the corporate compliance with national regulations and the assumption of stable societal expectations (Palazzo and Scherer 2006). In contrast, moral legitimacy is permitted to a corporation based on its conformity with (dynamic) social values and responsibilities and thus, relates to the moral judgments of the corporate conduct and behavior (Long and Driscoll 2008). What is deemed “appropriate” or legitimate also depends on the ethical principles in a given societal context. In this regard, three major streams of ethical thinking (Virtue ethics; Deontology; Utilitarianism) have served as the analytical basis for moral legitimacy issues. In addition, this chapter focuses on Habermas’ notion of discourse ethics, which recently gained novel traction in its extension as political CSR (Scherer and Palazzo 2007). Political CSR allows for a deliberative legitimation process in which corporations can actively engage in as political actors. Thus, the discourse ethical stream of moral legitimacy in its contemporary form has high practical relevance for practitioners (Scherer and Palazzo 2011).

Virtue Ethics

Virtue ethics describes individual and organizational virtues and vices by building on Aristotelian virtue ethics (Fernando and Moore 2014). Aristotle can be seen as “the first business ethicist,” advocating the idea that the individual is embedded in a broader community and should promote the well-being of society by striving for individual virtues, such as integrity (Solomon 2004). In turn, the larger community determines the positive character traits of the individual. Corporate legitimacy builds on customs and social recognition highlighting the possibility of those with a legitimate interest (stakeholder) to intervene in corporate actions of their concern (Sison 2011). Thus, legitimacy from a Virtue Ethics perspective is dominated by the role of the individual that is embedded in the organization. Hence, the limitations of this ethical stream arise in the form of the bounded rationality of individuals, who may have self-serving biases that are not favorable to the broader society (Solomon 2003). Boddy (2011), recently discussed the role of “Corporate Psychopaths” in this regard, and their role as a cause for the Global Financial Crisis. Moreover, Virtue Ethics – as a character-based approach – is often criticized for its aspirational nature, emphasizing what a person should do rather than focusing on what actions or behavior is permitted.

Deontology/Kant

In contrast, deontological ethics follows a rule-based approach, considering the duties of an individual and the rights of others. According to Kant’s categorical imperative, individuals should act only in such a way they want it to become a universal law. Therefore, some actions are seen as intrinsically good or bad. From a deontological perspective, upholding the rules is fundamental, and people should act according to them – regardless of the consequences. Consequently, a rule-based approach to legitimacy faces the challenge that certain groups or individuals are entitled to be treated in a given manner, yet, when the rights of individuals or groups conflict, Deontology provides limited guidance on how to balance them (Gao 2008). Transferred to the business context, this raises the question, which rules to follow and whose rights are prioritized; id est will the shareholder’s demand for higher dividends be prioritized over employees demands of a salary increase or the other way round?

Utilitarianism

Rather than focusing on the intrinsic value of actions, Utilitarianism is concerned with the outcome or consequences of actions. A behavior is deemed appropriate in a moral sense, if it maximizes the utility, meaning the maximization of happiness for the highest number of people while reducing adverse externalities (Gustafson 2013). This traditional formulation of Utilitarianism has evolved and presents itself as a cost-benefit analysis of business behavior in today’s societies (Gao 2008). Gao (2008) points out that the cost and benefits may take the form of economic, social, and human value, measured in monetary, societal, and emotional value. Thus, the calculation of legitimate business behavior is given, when the benefits outweigh the costs. In turn, corporate conduct is likely to be unethical once overall cost for society is higher than the benefits. The practical limitations of Utilitarianism lie in the limited possibility to foresee the outcome of future actions, and thus, the potential consequences for society. Further, minority voices are overruled by the net benefit for the greater society. Ultimately, moral legitimacy that follows a Utilitarian approach might solely focus on the result, overlooking the means taken to reach it.

Discourse Ethics/Habermas

Ethical discussions often center on the three previously mentioned streams overlooking the discourse ethical approach. Particularly representative in this stream is Habermas’ conception of discourse ethics (Harbermas 1984, 1987), which extends to the concept of deliberative democracy (Habermas 1996) and is also the point of reference for discussions about business legitimacy as Political Corporate Social Responsibility (Scherer and Palazzo 2007, 2011; Scherer et al. 2016; Scherer 2017). Discourse ethics prescribes rules for governance participation that rest on the criteria of non-persuasiveness, non-coercion, and expertise (Moon et al. 2005). Further, it is a process-focused approach that evades moral judgments of norms as opposed to the other ethical streams. The moral legitimacy underlying the Habermasian discourse ethics rests on communicative validity. Thus, individual validity claims are brought forth in a deliberative communication process, in which others can challenge the initial claim to arrive at a joint validity that goes beyond negotiation (Sabadoz and Singer 2017). Essentially, the deliberative process leads to legitimate decisions, actions and thus societal legitimacy.

Legitimacy Lost: Greenwashing

What is Greenwashing: The Standard Definitions

Complex ecological problems are increasing worldwide, bringing the planet to its limits. As a result, ‘Planetary Boundaries’ have been or are about to be reached – particularly concerning climate change, the global nitrogen cycle, and the loss of biodiversity (Whiteman et al. 2013). Business firms are criticized and depicted as one of the causes for the worldwide ecological problems. As a consequence, environmental and social management has become a critical aspect of their business conduct to assure the social legitimacy of the firm (Walker and Wan 2012). However, corporate scandals and catastrophes – such as the sinking BP’s Deepwater Horizon – remind the public that corporate commitment to address environmental problems often remains a mere symbolic communication gesture, also known as greenwashing (Matejek and Gössling 2014). Marciniak (2010) describes greenwashing as a negative form of ecological marketing and “the unjustified appropriation of environmental virtue by a company to create a pro-environmental image.” The term “greenwashing” was established over 30 years ago in 1986, when the biologist and environmentalist Jay Westerveld used the word to stress environmental hypocrisy in the hotel industry (Pearson 2010). Westerveld criticized hotels for promoting a green image by putting up signs that are encouraging the reuse of towels to save water, whereas the real intention aimed at profit maximization by cutting laundry costs. While greenwashing emphasizes the link to the natural environment, the closely related term “bluewashing” is used to indicate the connection to the blue color of the United Nations and its Global Compact (UNGC) initiative. The UNGC encourages socially and environmentally responsible business conduct with several thousand-participant companies worldwide. The symbolic adherence to ten UNGC principles and the exploitation of its lack of mechanisms to monitor compliance has been portrayed as bluewashing (Stamoulakis and Bridwell 2009). The term greenwashing is more commonly used than bluewashing, which is also reflected by its entry in the Oxford English Dictionary: “The creation or propagation of an unfounded or misleading environmentalist image” (Oxford English Dictionary 1990).

Motives for Greenwashing

An environmentalist image can be advantageous for a firm because it is associated with an enhanced reputation (Baum 2012), consumer purchase intention (Spack et al. 2012), and willingness to pay (Laroche et al. 2001). Most importantly, greenwashing is seen as a corporate activity to attain legitimacy, which in turn is critical for a wide range of corporate activities, such as resource access, the attraction of workforce, and business relations (DiMaggio and Powell 1983; Walker and Wan 2012). Legitimacy leads ultimately to increased financial performance (Deephouse 1999). Thus, corporations have strong incentives to engage in greenwashing. However, when a company is accused of greenwashing, the consequences can be detrimental.

A Co-constructionist View on Greenwashing: Accusation-Based Definition

Due to its disguised nature, greenwashing is not always obvious and is often interpreted differently. The tourism industry shows that a green standing does not always go along with responsible business conduct. In a study about ecotourism on the Galapagos Islands, Self et al. (2010) distinguish between “ecotours” and “greenwashed tours,” which both claim to protect the fragile biodiversity, yet differ substantially in their actual commitment. Seele and Gatti (2015) therefore argue that greenwashing lies in the eye of the beholder, meaning that the external accusation determines whether the corporate behavior is deemed to be greenwashing. The authors suggest an accusation-based definition of greenwashing consisting of: greenwashing (misleading green message of a firm and a greenwashing accusation), false greenwashing (consistent green message of a firm and a greenwashing accusation), no greenwashing (consistent green message of a firm without accusation), and potential greenwashing (misleading green message without accusation) (Seele and Gatti 2017). Consequently, greenwashing can remain covered, fostering a firm’s legitimacy. However, when the watchful eye of the public raises a greenwashing accusation – regardless of its justification – a firm can easily slide into a legitimacy crisis.

A legitimacy crisis can be viewed as a process-element that emerges from the interplay between legitimacy and greenwashing. The process can be divided into three phases: building, losing and/or restoring legitimacy. Legitimacy can be built on different pillars: (1) strategic manipulation (pragmatic legitimacy), (2) isomorphic adaptation (cognitive legitimacy), and (3) moral reasoning (moral legitimacy) (Seele and Gatti 2017). In an attempt to gain pragmatic legitimacy, companies strategically and “instrumentally manipulate symbols to attain social support,” often resulting in greenwashing accusation (Seele and Gatti 2017). As a result, instrumental legitimacy may last only for a short amount of time. Cognitive legitimacy is usually achieved when corporations mimic common/institutionalized business practices in response to uncertainty (DiMaggio and Powell 1983). However, “doing what everyone else does” can also lead to disparities between corporate claims and societal expectations, limiting the chances of gaining durable social acceptance. Thus, from a long-term perspective, building on pragmatic and cognitive legitimacy is not ideal. In contrast, moral legitimacy is gained when corporations engage in deliberative discourse to meet societal expectations. Although, this moral legitimacy building process can fail if no consensus is achieved, an infinite number novel attempts can be made. Moreover, moral legitimacy-building provides an avenue, when overcoming a legitimacy loss (phase 2), resulting for example from a greenwashing accusation, and when restoring legitimacy (phase 3). Ford Motor Company can serve as an example in this regard. The corporation managed to overcome a greenwashing accusation and turned into a celebrated “green” car manufacturer through a moral legitimacy building process (Mitchell and Harrison 2012). The next paragraphs will center on how businesses can gain moral legitimacy.

Legitimacy Gained: Credibility

Application Context 1: CSR Reporting

Corporations can engage in voluntary Corporate Social Responsibility (CSR) activities, such as CSR reporting to express their environmental and social commitment. CSR reporting is also known as non-financial reporting and is usually carried out by following a reporting guideline such as outlined by the Global Reporting Initiative (GRI), or ISO 26000 (Knebel and Seele 2015). CSR reporting is becoming widespread and even mandatory in some countries like India and for certain company types such as recently in the European Union (Gatti et al. 2018). Firms can signal their compliance with environmental and social standards to external stakeholders via CSR reports. This is a crucial step when it comes to establishing legitimacy or regaining legitimacy. However, CSR reports are often used as a tool for instrumental communication, and thus, tend to focus on mere pragmatic legitimacy. The reports’ lack of comprehensiveness, accessibility, and comparability and the amount of flexibility in the disclosure of non-financial data have been criticized in this regard (Knebel and Seele 2015). Thus, CSR reporting practices do not always go along with an increase in public trust or confidence in the business performance. This lack of trustworthiness is known as “credibility gap,” challenging the legitimacy of a firm (Dando and Swift 2003). Seele and Lock (2014) argue that credibility gaps arise when CSR reports are used as one-way communication tools that inform, rather than interact or engage stakeholders.

CSR Reporting in a “Deliberative Democracy”

CSR reporting in a Habermasian sense avoids the credibility gap that stems from pragmatic and cognitive legitimacy-building processes (Wagner and Seele 2017). Gaining moral legitimacy is at the center of political CSR and its deliberative underpinnings (Scherer and Palazzo 2011). In this sense, a firm’s (moral) legitimacy rises from credibility, which is attained through ethical discourse leading do discourse ethics contributing finally to deliberative democracy. The ethical discourse follows the four Habermasian validity claims of communicative action (truth, sincerity, understandability, and appropriateness) and political CSR’s demands of open discourse, participation, transparency, and accountability (Lock and Seele 2016b). Transferred into practice, this means that political CSR reporting goes beyond one-way communication and involves inter alia weblogs, social media and Wikis, but also unpublished communication means, such as stakeholder roundtables, and dialogues with employees, NGOs, and advocacy groups (Seele and Lock 2014). To raise reporting credibility and thus legitimacy, Lock and Seele (2016b) advice firms to focus on comprehensiveness, truth, sincerity, and stakeholder specificity of their CSR reports and regulators to provide a level playing field regarding CSR reporting regulations. In sum, corporate communication practices that are embedded in political CSR focus on a broad foundation of discourse and deliberation that is essential to establish sustained (moral) legitimacy. The described form of political corporate action should, however, not be confused with corporate political activities, which are more generally known as lobbying.

Application Context 2: Lobbying and Astroturf: Credibility Crisis in CPA

Corporate political activity (CPA) is defined as “corporate attempts to shape government policy in ways favorable to the firm” (Hillman et al. 2004). CPA functions as an umbrella term to subsume corporate activities that include inter alia campaign contributions, (direct) lobbying, government membership on company boards, voluntary agreements, PACs (political action committees), constituency building (forming grassroots and Astroturf groups) and sometimes even illicit practices such as bribery (Hillman et al. 2004; Lawton et al. 2013). The question has been raised whether firms should be allowed to influence public policy or even have a legitimate right to do so – in other words – is CPA “part of a healthy democracy or a source of perversion” that should be regulated (Dahan et al. 2013)? (Dahan et al. 2013). Since CPA is understood, practiced and perceived differently across countries, there is no unanimous answer to this question. Whereas some actions, such as bribery are widely denounced and prosecuted as an illegal practice, other CPAs are subject to context-specific interpretation, which leads to varying classifications of their legitimacy. Particularly noteworthy in this regard, are corporate constituency building processes that tap into legal grey zones. They go along with ethical challenges and frequently have detrimental legitimacy effects on the firm if they are discovered.

Lobbying: From Grassroots to Astroturf

In recent years, traditional forms of lobbying have been received as increasingly ineffective. In contrast, the so-called grassroots lobbying has become a rising star. In grassroots lobbying, a lobbyist indirectly influences policymakers and the governmental agenda by involving civil society through citizens’ movements that have a stake in an issue of concern (Lock and Seele 2017). Grassroots lobbying is a two-stage process in which lobbyists contact citizens, which in turn reach out to politicians via phone or email. The effectiveness of this lobbying strategy stems from the authenticity, trustworthiness, and credibility of the citizen group, which can exert power through their vote during an upcoming election (McGrath 2005). Grassroots lobbying can thus be seen as a legitimate democratic process that gives voters a (more) substantive collective voice.

Hitherto, on some soil grass does not grow, which led to the invention of Astroturf. Astroturf is a form of artificial grass, symbolizing the instrumental inversion of authentic grassroots activism (Lock et al. 2016). Astroturf lobbying is pseudo-grassroots lobbying meaning that “apparently grassroots-based citizen groups or coalitions that are primarily conceived, created and/or funded by corporations, industry trade associations, political interests or public relations firms” strive to exert political influence (Sourcewatch 2018). The lobbying strategy stretches the boundaries of legality, as the sponsoring and orchestrating company remains in the dark (Lyon and Maxwell 2004). The covert sponsorship is thereby the decisive element that marks the line between unintentional and intentional mislead. Regardless of legal sanctions that such a strategy might have and which are usually country-specific, if Astroturfing is uncovered, it can result in a significant legitimacy set-back, similar to the consequences of a greenwashing accusation. In fact, it is no coincidence that CSR and CPA – and likewise their instrumental inversions such as greenwashing and astroturfing – often share specific overlaps and should therefore not be treated in isolation.

As outlined by den Hond et al. (2014), the relation between CSR and CPA can take three states: misalignment, non-alignment, and alignment. In the case of misalignment, the company strives to accomplish diverging effects concerning a policy matter. An exemplary “worst case” of misalignment is, therefore, greenwashing combined with Astroturf lobbying. In such a scenario, the company follows a two-pronged approach of presenting a misleading environmental image to the public while at the same time covertly lobbying regulatory entities for lower environmental standards (den Hond et al. 2014). A non-alignment of CSR and CPA may evolve but can also be a deliberate firm choice. As a result, a non-alignment, as well as a misalignment of CSR and CPA, can substantially affect corporate reputation and compromise the ongoing legitimacy of a firm (Anastasiadis 2014). To avoid reputational and legitimacy losses firms can strive for CSR and CPA alignment.

Alignment of CSR and CPA: “Deliberative Lobbying”

Deliberative lobbying bridges CSR and CPA by setting out a minimal standard for CPA to coincide with proclaimed CSR strategies. It is defined as “a corporate political activity aligned with CSR that, based on discourse, transparency, and accountability, aims to resolve public issues” (Lock and Seele 2016a). Similar to political CSR reporting outlined above, the discursive pillar builds on Habermasian discourse ethics and the four validity claims of ideal speech. The exchange of arguments – on an equal level – is central, which is giving minority voices the possibility to participate in a dialogue that reaches consensus through the quality of the argument and not the power or position of an actor (Harbermas 1984). The second pillar of deliberative lobbying refers to transparency and thus, moral legitimacy creation. It means that the discourse process needs to be transparent to all stakeholders, giving them the possibility to gain relevant insights into the aspects of their concern. The third pillar of deliberative lobbying rests on the accountability of the actors. Not only should the discourse participants know each other, but also bear the responsibility for their statements and actions. In turn, the other discourse participants can hold them accountable. Corporate accountability is, therefore, an essential element of moral legitimacy that ensures societal control over corporate conduct (Seele and Lock 2014).

In sum, deliberative lobbying takes account of a dynamically evolving world, rather than looking at a static system. Thus, the corporate license to operate is gained through iterative discourse processes establishing moral legitimacy that can be redefined in future deliberations. Deliberative lobbying is, therefore, an “argument to maintain self-regulation against critics claiming that corporations should be excluded from all political processes.” (Lock and Seele 2016b). Conversely, the theoretical core of deliberative lobbying – political corporate social responsibility and thus Habermas’ discourse ethical approach – does not remain unchallenged. Consequently, the following paragraphs will focus on limitations of Habermas’ theory, political CSR , and possible future pathways of moral legitimacy creation, which go beyond the dominant schools of ethics depicted above.

Conclusion: Habermas’ Limitations as Idealized Philosophy/Normative Thinking

Habermas’ notions of deliberative democracy and ethical discourse represent an idealized philosophy. The theory was developed following World War II encouraging critical thinking and normative reasoning (Wagner and Seele 2017). Thus, the conceptual advancements of it, such as political CSR, remain also normative ideals with aspirational or desirable character (Schultz et al. 2013). Their realization and implementation in real-world settings are challenging and require substantial efforts. The practical limitations – still to overcome – are particularly visible when looking at the political CSR construct and the legitimacy of corporate political action conjointly. Political CSR theory depicts corporations as actors with a political mandate to participate in global governance especially in situations where national governments failed or are unable to uphold their regulatory duties (Scherer and Palazzo 2007, 2011). Still, this corporate political activity – especially in the form of taking over governmental tasks – is marked by a legitimacy deficit that derives from a missing democratic foundation (Wagner and Seele 2017). Corporate governance models worldwide are characterized by leadership that is selected, and not democratically elected. Hence, corporations have no operating license in the sense of political actors (Scherer and Palazzo 2007). Political CSR strives to overcome the absence of democratic legitimacy by proactive moral legitimacy creation. As outlined above, this can be accomplished through public dialogue and participatory processes that rest on the democratic mechanisms of discourse, transparency, and accountability. From a practical perspective, democratic stakeholder engagement is realized via CSR reporting in a deliberative sense and multistakeholder meetings, which both serve as tools for moral legitimacy creation. However, the “fuzziness” and nonbinding character of current CSR reporting standards (see, e.g., GRI G4.0) leaves room for reporting that appears to be political in a Habermasian sense (Wagner and Seele 2017). Closer examination reveals that corporations can provide too much information and even report on aspects that have no ground for comparison. Such Information overload and incomparability leave stakeholders uninformed and thus unprepared for an ideal discourse (Wagner and Seele 2017). Consequently, the outlined concepts of “political CSR reporting” and “deliberative lobbying” are exposed to the risk of misuse in the absence of a global governance framework that assures a level playing field in the global political economy (Bobby Banerjee 2014). Thus, the limitations but also the frontiers of Habermasian theory building lie inter alia in the transformation into practice relevant constructs, which can uphold their aspirational normative demands in a day-to-day business setting. In this sense, firm-level but also global governance structures that are based on the foundations of “committed” deliberation are promising future pathways – also for a sustained moral legitimacy of the corporation (Bobby Banerjee 2014; Wagner and Seele 2017).

Outlook: New Approaches Beyond Utilitarianism, Deontology and Virtue Ethics: Digital Democracy and Data Deliberation

In an increasingly inter-connected world dominated by information and communication technologies, corporations can use novel forms of moral legitimacy creation. In this new digital context, it is worthwhile to consider approaches that go beyond the dominant schools of ethical thinking. Progressive digitalization of corporate data and technological advancements are playing a pivotal role, particularly when it comes to CSR reporting (Seele 2016). Whereas early forms of digitalization in the reporting context referred to digitizing written reports into online publications, the more recent digitalization processes indicate a fundamental shift toward digitally enabled transparency and accountability. Thanks to substantial advancements in digital reporting standards that are already in use for financial reporting, CSR reporting can increase its credibility – and in turn firm legitimacy – by building on a unified digital standard, such as XBRL, namely, eXtensible Business Reporting Language (Seele 2016). The XBRL reporting standard is already used by the US Securities and Exchange Commission for digital financial data exchange and has recently moved into the focus of the GRI to advance its CSR reporting standard (Seele 2016). Applied on a global scale, a unified reporting language can offset the previously mentioned lack of comparability of firm data, giving stakeholders the ability to enter an informed discourse (Wagner and Seele 2017). Further, the precision of coding standards that follows from the referencing of CSR indicators to single data points in the XBRL repository signifies a shift toward standardization and rule-based regulation (compare to 1.2 Deontology/Kant). Consequently, the creation and propagation of misleading environmental performance data, as well as the exploitation of legal grey zones through unclear and fuzzy information will be complicated.

The key contribution of a digital reporting standard lies, however, in a 24/7/365 transparency of corporate behavior, which stands in sharp contrast to the current practice of reporting about passed business conduct (Seele 2016). The consequence of this time-ontological shift is twofold. On the one hand, digital transparency stands at the borderline of ubiquitous digital surveillance that can create new challenges for moral legitimacy. On the other hand, real-time sustainability data gives corporations the ability to contribute to the resolution of global public challenges in an entirely new manner of pro-social surveillance (Seele 2016). Corporations are key elements in global societies that are increasingly interconnected, not only by the Internet but also by the “Internet of Things” (Gershenfeld et al. 2004). The “Internet of Things” fosters data generation in an unprecedented manner, such that data volumes “double every 12 h rather than every 12 months, as is the case now” (Helbing and Pournaras 2015). Thus, corporations will gradually contribute to what is commonly known as “big data.”

In an ideal scenario, big data can empower citizens and foster the well-being of society at large. In its current form, however, the potential of big data often remains in closed, and or opaque corporate databases, rather than adding value to the broader society. Hence, Helbing and Pournaras (2015) call for the open sharing of data in a digital democracy, outlining that big data can help to solve the world’s challenges when governed in a pluralistic and bottom-up manner. The digital democracy framework that the authors depict represents a deliberative approach in a Habermasian sense. Thus, moral legitimacy creation of businesses embedded in a digital democracy can occur through the open sharing of corporate data, building a collective “data commons.” The data sharing can contribute to (1) societal debates and support governmental efforts that use data analytics to anticipate and resolve local (Seele and Schultz 2017), and global challenges (Helbing 2013) of the networked society, (2) a responsible governance of colossal transnational projects such as the Chinese Belt and Road Initiative, also known as the New Silk Road (Seele and Helbing 2018), (3) fostering and safeguarding peace (Helbing and Seele 2017). Consequently, for a new form of moral legitimacy creation in the digital democracy of tomorrow, this form of open data sharing can be labeled as “data deliberation .”