Hello, here is the completed work.Let me know if any changes are required.Thank you

Running head: LEGITIMACY THEORY

Legitimacy Theory
Name
Title
Date

LEGITIMACY THEORY

2
Introduction

For any corporate organization, there is a responsibility that the organization is expected
to fulfill. This is the responsibility to ensure the wellbeing of the society in general. Social and
moral values are issues that the society is geared towards observing and reacting to. Legitimacy
is defined as a perception that the actions of an entity are proper, desirable and are within the
confines of a society’s beliefs and norms (Deephouse & Suchman, 2008). In essence, there exists
a social contract within which an organization is required to operate. This concept of legitimacy
provides the foundation for the legitimacy theory. The legitimacy theory states that
organizations/entities are bound by a social contract in which the organization consents to
performing socially accepted actions in return for approval of its objectives and in the process
ensuring its continued existence (Mousa & Hassan, 2015).
The legitimacy theory is an instrumental tool that is used to explain the disclosures that
are related to both social and environmental impact that an organization has. As the world
becomes more aware of environmental and social impacts of activities of organization, there is
increasing pressure for organizations to comply with certain regulations and requirements. One
of the most efficient way for a company to obtain legitimacy is through the disclosure of data
and information regarding their social and environmental footprints. The theory explains the
strife by organizations to operate in a manner that the society around it approves its operations
and objectives thereby ensuring that the organization is in a position to continue thriving within
that society (Deegan, 2006).
The theory seeks to explain the behavior of an organization in regards to both social and
environmental aspects. Legitimacy plays a crucial role in determining the growth and survival of
a company within the given society (Deephouse & Suchman, 2008).

LEGITIMACY THEORY

3
Volkswagen AG Background

Volkswagen AG is a German-based company dealing with manufacturing and selling of
vehicles. It deals with all types of vehicles from passenger cars, commercial vehicles,
motorcycles, sports cars as well as trucks. It is also involved with the production of components
for the vehicles it manufactures. The company operates under four divisions; Passenger Cars,
Commercial Vehicles, Power Engineering and Financial Services (Volkswagen AG, 2020).
The company was founded in 1937 and its founding car was the Beetle which
skyrocketed the company’s sales. It grew over the years, acquiring major car brands of the time
such as Skoda, Bentley, Lamborghini, Bugatti, Scania and Porsche. It serves customers across
the globe under the group name Volkswagen AG.
The company has an estimated 671,205 employees working for it across the globe. The
company had an estimated revenue of €252.6 billion for the year 2019 with the profits amounting
to € 14 billion. In general, Volkswagen global car market share was 12.9% for the year 2019
(Volkswagen AG, 2020).
Analysis
Corporate Social Responsibility has become a crucial concept in companies across the
globe. Ethical behavior of an organization plays a critical role in determining the success of a
company. A company has responsibilities to not only the stakeholders but also the society it
operates within. However, every organization is bound to make mistakes and judgment calls
which do not sit well with the members of the society. These mistakes have a tremendous effect
on the company’s reputation which in turn affects its sales as well as the stock prices (Mousa &

LEGITIMACY THEORY

4

Hassan, 2015). All this causes a domino effect in the form of loss of customer loyalty,
stakeholder’s promotion, customer’s affection and desire to purchase from the brand.
Volkswagen (VW) has had its fair share of mishaps which proved critical to its
legitimacy. The most infamous incident was the ‘Dieselgate’ scandal in which the Enviro...