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3.1.1 Legitimacy, Reputation, and Influence

Legitimacy is a critical resource associated with improved reputation, which can in turn result in increased benefits and reduced risks. A reputation is a type of social assessment-based memory connected with what a certain organization should be. It represents the attractiveness of the organization. Corporate reputations are built up over time in a dynamic and lengthy process and can be hard to manage directly (Biloslavo and Trnavcevic 2009). Reputations are associated with stakeholder trust that the organization will proactively protect its stakeholders. Strong positive reputations act as insurance partially protecting an organization against crises. Indeed, some executives see reputation insurance as a primary benefit of sustainability initiatives. Organizations seen as more caring avoid costly and dangerous negative scrutiny (Hunter and Bansal 2007). If something negative occurs, prior sustainability initiatives can be used to counter charges of unethical behavior allowing market value to be sustained (Peloza et al. 2012). Negative reputations are likely to prompt criticism and regulation in the event of a sustainability-focused crisis. One of the main challenges of reputation management for extraction-based (e.g., oil) companies involves communicating about environmental issues (Domenec 2012).

In terms of reputation, companies can be divided into three groups: green companies, companies that are on their way to becoming green, and others (Biloslavo and Trnavcevic 2009). The ideal green company fully promotes financial, social, and environmental sustainability. Its employees communicate ethically among themselves and with the company's stakeholders. Few organizations achieve this ideal, even environmental NGOs and nonprofits. However, the green company reputation is achieved when most of its stakeholders (both internal and external) believe the company is fully committed to the long-term, ideal goal of zero: zero emissions, zero waste, and zero environmental impact. Such a reputation helps an organization differentiate itself from competitors, adds value to the brand, and improves stakeholder relationships. Legitimacy can do more than protect an organization and provide it with access to resources. It can serve as a source of influence. Those with high legitimacy may have the opportunity to lead debates about appropriate environmental practices (Hunter and Bansal 2007). The formation of a green company reputation is enabled by two interrelated processes: perception and communication. Perceptions are influenced by an individual's own experiences and everything he or she has heard or read about the organization which carries information about its operations and activities. Different communication activities are used to create a green reputation (e.g., promotion, sponsorship). Often, the communication surrounds a proactive change in the company's operation (e.g., a change of business policy, new or modified products, or a change in the production process). A green reputation is more likely when both the production process and the product itself change or were pro-environmental initially.

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