L

LA 21

▶Agenda21 (UN)

Labor Code of Practices

▶Ethical Trading Initiative

Labor Force

▶Community Relations

Labor Standards

▶Ethical Trading Initiative

Law

▶New Zealand Resource Management Act 1991

Lawmakers and Policymakers

▶Government (Role in Regulation, etc.)

S.O. Idowu et al. (eds.), Encyclopedia of Corporate Social RDOI 10.1007/978-3-642-28036-8, # Springer-Verlag Berlin

Laws of Governance

▶Corporate Governance

Leadership

▶Giving Voice to Values

Lean Management

▶Lean Thinking

Lean Production

▶Lean Thinking

Lean Thinking

Catarina Delgado1 and Branco Manuel Castelo2

1University of Porto, Porto, Portugal2Faculty of Economics, University of Porto:

OBEGEF (Observatory in Economics and

Management of Fraud), Porto, Portugal

Synonyms

Lean management; Lean production; Toyota

production system

esponsibility,Heidelberg 2013

L 1570 Lean Thinking

Definition

The expression “lean thinking” was first used by

Womack and Jones (1996) in the book with the

same name. Lean thinking is a Japanese inspired

management model which aims to reduce waste

(“muda,” in Japanese) in all phases. It is an

update of the Toyota Production System (TPS),

introduced to the western countries by Taiichi

Ohno, in 1988. Having inherited its principles

and set of tools (such as jidoka (autonomation),

heijunka (production leveling), kanban, and just-

in-time production), and being conceived to

reduce waste in resources and time, it is now

a management philosophy that considers waste

as anything that does not bring value to the cus-

tomer. Therefore, lean thinking has evolved to

a strategic management approach with a new

goal (continuous improvement of customer ser-

vice value), and a new set of more strategic-

oriented tools such as value stream mapping.

Introduction

The Toyota Production System (TPS) is

a philosophy of operations management, devel-

oped in Japan since the 1960s, taking as its

starting point the production system of Toyota

Motor Company. The TPS system seeks to man-

age operations easily and efficiently, making

optimal use of resources. The result is

a manufacturing system capable of meeting the

quality requirements and customer delivery at

less cost.

It is based on three basic ideas:

1. Integration and optimization of the entire

manufacturing process. TPS seeks to reduce

or eliminate unnecessary functions and pro-

cesses and activities such as inspection,

rework, and inventories, among others. Many

of the nonproductive functions that exist

within enterprises were created due to ineffi-

ciency or inability of the initial functions.

Thus, the concept of integration and optimiza-

tion begins at conception and design of a new

product/service and continues until the cus-

tomer delivery and after-sales service.

2. Kaizen (continuous improvement). In TPS, the

development of internal systems that encourage

continuous improvement of both procedures

and people within the company is a crucial

aspect. TPS is therefore a system designed to

provide peoplewith tools andmethods to enable

them to continually improve its performance.

3. Understand and respond to customer needs.

This means the responsibility to meet the

customer requirements in product quality,

delivery, quality, and cost.

Figure 1 shows a set of the key elements of

TPS.

In Fig. 1, the left side (just-in-time processes)

focuses on managing materials. The JIT produc-

tion requires a continuous flow of materials and

information, both coordinated according to the

pull approach (in which the customer initiates

the production process by placing an order),

working at a pace as close as possible to the takt

time (cycle time calculated according to demand

and time available).

The right side, jidoka, focuses on managing

the manufacturing process. Jidoka (or

autonomation, a word adapted by Ohno to

express the concept of automation with human

characteristics) may be defined as the decision to

stop and fix problems as they occur (rather than

pushing them down the line to be resolved later).

It involves the automatic detection of errors or

defects during production. When a defect is

detected, the halting of the production forces

immediate attention to the problem.

The bottom (the “foundations” of the house)

focuses on the fundamentals:

• Heijunka, or production leveling, involves the

creation of conditions for maintaining

a continuous production flow, inventory

reduction, and increased stability and consis-

tency of procedures.

• Standardized work focus on transforming pro-

cesses into stable and more predictable

processes.

• Kaizen (continuous improvement) is

a commitment of the organization to continu-

ously improve its performance by seeking

total elimination of waste while being

supported by people and simple systems.

Goal: Highest Quality, Lowest Cost, Shortest Lead Time

JidokaJust-in-Time

Heijunka KaizenStandardized

Work

Stability

Continuous FlowTakt TimePull System

Stop and notifyof abnormalities

Separateman’s work &machine’s work

Lean Thinking,Fig. 1 Toyota production

system – key elements

Lean Thinking 1571 L

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• Stability is the core element of TPS since

the waste can only be eliminated through

systems designed to be stable. Therefore, the

three previous elements enhance the stability

of TPS.

Some of the most popular and groundbreaking

tools introduced by TPS/lean thinking are

(1) just-in-time production (JIT), (2) the SMED

(“single minute exchange of die”) method (setup-

time reduction), (3) U-shaped cellular layout and

multiskilled workers, (4) kanban control system,

and (5) visual control and 5S.

Just-In-Time Production (JIT)

JIT focuses on producing the necessary parts,

when they are strictly necessary and in the quanti-

ties strictly necessary. A part/product produced

earlier or later than what is necessary is considered

waste. Thus, we have the JIT (just-in-time) as

opposed to the JIC (just in case (something goes

wrong)). The main goals are as follows: (a) almost

nonexistent inventories, (b) extremely short pro-

duction cycles, (c) rapid response to changes in

customer orders and to changes in product speci-

fications, and (e) excellent quality of products.

When production achieves these goals, inter-

mediate buffers do not make sense anymore.

Thus, in a JIT production system, to reduce the

inventories turns out to be more of a consequence

than a goal in itself. Since missing the reasons for

maintaining these inventories can be eliminated.

There are several possible ways for a company

to change its production system to begin

implementing just-in-time. One of them is the

following process, divided into ten steps:

1. Obtain approval and support of top manage-

ment. They must be aware of what it means

switching to just-in-time, in terms of costs,

benefits, and change in the structure of the

organization.

2. Develop a realistic and understandable

implementation plan.

3. Persuade workers, which entails training,

encouraging participation, namely, through

quality circles, and providing strong

leadership.

4. In the final assembly line, stabilize produc-

tion output in order to have, each day, the

same production rate. For this, you need to

use boxes or other containers with

L 1572 Lean Thinking

standardized parts and easily accessible,

according to the kanban system.

5. In intermediate stages, reduce waiting time

and batch size in all the stages of the produc-

tion process. They should be calculated con-

sidering the amounts required for the final

stage of production.

6. Remove the main warehouse inventory and

place it along the assembly line, where the

parts are needed.

7. Balance the production paces with the paces

of the final assembly. This can lead to the

need to replace some missing parts. A small

inventory may thus be necessary at this stage.

8. Reserve some free space in all areas or sec-

tions: if there are failures, it will be needed to

fill it with other parts or machinery or tools to

ensure the production and lost time.

9. Collaborate with vendors so that the pace of

deliveries is the same as the pace of

production.

10. Eliminate inventory previously maintained

just to manage long-term production and

production variations.

Setup-Time Reduction and the SMEDMethod

The change of materials or tools and the adjust-

ments that are made during the production pro-

cess is usually referred as setup. The sequence of

setup tasks does not add value to the customer,

yet they are necessary to the manufacturing pro-

cess. Therefore, setup cannot, in most cases, be

completely eliminated. When the setup cost or

the setup time in a machine is high, the produc-

tion batches are big and the inventory level high.

Thereby, faster and simpler setup procedures

allow smaller production batches, a decrease in

errors rate, and, therefore, a cost reduction.

One method that has revolutionized the man-

agement of operations in this area was proposed

by Shigeo Shingo in the 1960s. This method,

widely known as SMED (“single minute

exchange of die,” also called quick changeover),is a systematic approach to the reduction of the

change/adjustment of tools time. The SMED con-

sists on a sequence of six basic tasks:

1. Identify and separate the internal and external

setup activities.

2. Whenever possible, convert the internal activ-

ities into external activities in order to mini-

mize the time change.

3. Eliminate the need for adjustments by stan-

dardizing processes, tools, and procedures.

4. Improve manual operations through educa-

tion, training, and collecting and applying

ideas and suggestions given by the workers.

This can be implemented without significant

investment gains.

5. Improve equipment (through changes or

reconfiguration).

6. Create a chart of improvements to track the

results and congratulate the team.

U-Shaped Cellular Layout and Multiskilled

Workers

A cell is a group of processes designed to produce

a family of parts in a flexible manner. The move-

ment of materials is made through small batches,

which are transferred between cells. Employees

in the cells master multiple skills and may move

between cells and between positions within a cell.

This guarantees a very flexible manufacturing

strategy.

A U-shaped cellular layout arranges machines

and workers around a U-shaped line in the order in

which production operations are performed. Oper-

ators work inside the U-shaped line, machines

outside, and one of the workers supervises both

the entrance and the exit of the U-shaped line. It is

desirable that machines work as much indepen-

dently as possible and are rebalanced periodically

when production requirements change. The

U-shaped line satisfies the flow manufacturing

principle. This requires operators to bemultiskilled

to operate several different machines or processes.

It also requires operators to work standing up and

walking. When setup times can be neglected,

U-shaped lines are operated as mixed-model lines

where each workstation is able to produce any

product in any cycle. When setup times are larger,

multiple U-shaped lines are formed and dedicated

to different products.

The advantages of implementing a U-shaped

cellular layout are:

• Reduction of volumes of inventory of the final

product (and raw materials)

Lean Thinking 1573 L

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• Reduced manufacturing cycle time and thus

the lead times to customers

• Reducing the space occupied (as the need to

have necessary space to accommodate the

large inventories of goods in course of produc-

tion disappears)

• Better organization of space (since no longer

needed the movement of goods in course of

production between sections)

• Reduction of the inventory of raw materials

and finished products by the production cycle

is much faster

• Reduction of the cost of labor because of

better planning of operations

• Greater motivation, involvement, and partici-

pation of the traders who come to accept

greater responsibility for quality

• Greater occupancy rate of the equipment

Kanban Control System

Kanban is a Japanese word which means card,

bulletin board, or ticket. According to the JIT

manufacturing, the worker of the following pro-

cess withdraws the completed parts of the previ-

ous process and leaves a kanban. This kanban

represents the delivery of a certain amount (the

needed amount) of individual parts to process.

In the kanban system, the emphasis is placed

on the output and not on the input, since the

production flow is controlled by the customer.

The kanban system “pulls” the production pro-

cess, and a kanban is used to move and allow the

flow of production materials and information.

Once all the necessary parts are consumed by

the following process, a kanban is the way to

request the manufacture of more parts.

The kanban system is a small batch production

system. Each batch is stored in standardized con-

tainers, each with the same number of pieces. For

each batch, there is a kanban card. Parts inside the

container, followed by the card, are moved

through the work center, through all production

process’s stages, until they arrive (in the form of

finished part) to final assembly.

The kanban system controls operations and

coordinates and regulates the pull system. There

are two types of kanban cards: the production

kanban card (with product code, description,

batch size, container and work center identifica-

tion, and manufacturing date) and the

transportations kanban card, with the same infor-

mation as the production kanban and some

additional information (destination and departure

date). These two types of kanban allow a simpler,

faster, and self-ruled production and movement

system, which guarantees a better service to

customers, a reduction in inventory levels and a

better coordination (and cooperation) between

workstations.

Since the kanban system exposes the produc-

tion gaps and potential problems, to guarantee the

success of a kanban system successful implemen-

tation, the organizations must undergo some

changes (at the strategic, organizational, and tech-

nological levels). Examples of such changes are:

• Predictable and stable demand.

• Standardization and simplification of pro-

cesses’ workflows and of the design and pro-

duction steps of the products. It allows the

elimination of the unexpected (thus increasing

stability), the reduction in the number of mate-

rials/references to work with (thus reducing

the number of different kanban cards), the

reduction in setup times, and the reduction in

the overall operation time.

• Cell layout (preferably) or process-oriented

layout of workstations.

• Human resources practices that emphasize

education/training and job rotation (in order

to guarantee multiskilled and versatile

workers that can replace (or help) each other

whenever necessary) and the ability to per-

form adjustments, maintenance tasks, or qual-

ity control at the source whenever necessary

(empowerment, autonomous maintenance).

Visual Control and 5S

The visual control, also referred to as “visual

factory,” requires that in all workplaces, there

are simple available signals (sound or visual)

that inform people of what to do, when to do it,

what is going wrong, and who needs help. This

tool aims to help people in better managing and

controlling the processes, avoiding mistakes,

wasting time, and giving them more autonomy,

in a simple and intuitive manner.

L 1574 Lean Thinking

Thus, a visual control procedure should show

how the work should be executed, how things are

kept or stored, how things (e.g., materials and

tools) are used, the level of inventory control,

and display the status of processes. It should

also indicate when people need help, identify

hazardous areas, and support error-proof opera-

tions. Typical examples of control mechanisms

are the visual light signals, sound signals, mark-

ings painted on the pavement to indicate some-

thing, labels, etc.

The 5S is a tool focused on the mobilization of

employees through the implementation of

changes in the workplace, including waste dis-

posal, storage rooms, and cleanliness. The

method is called 5S because, in Japanese, the

words that describe each phase of implementa-

tion begin with the sound of the letter S:

1. Seiri (sort) – Everything that is not necessary

for the activity must be removed from the

workplace.

2. Seiton (set in order, everything in its place) –

Everything must have its place for that, being

required to be found easily.

3. Seizo (cleaning) – A clean workplace sends

the message that there is demand for quality

work.

4. Seiketsu (standardize) – The definition of

standards is essential to maintain the progress

achieved by the group.

5. Shitsuke (discipline, responsibility to sustain)

– Discipline means to work consistently across

organizational rules and standards, storage,

and cleaning.

The permanent concern to identify and then

eliminate waste is one of the central features of

lean thinking. Waste (“muda,” in Japanese), as

seen by this management approach, can be

caused by eight possible sources (Ohno 1988;

Womack and Jones 1996):

1. Overproduction: Producing too much or too

early, resulting in irregular flows of materials

and information, or excessive amounts of

inventories. Suggested tools: heijunka (pro-

duction leveling), with smaller batches andbalanced workstations, continuous flow, just-

in-time production (JIT), and quick tools

changeover.

2. Waiting times: Long periods when people,

equipment, materials, and parts or information

are waiting to proceed, resulting in irregular

flows, as well as long lead times. Some exam-

ples are delays caused by equipment break-

downs, delays in deliveries, bureaucratic

processes, lack of autonomy of people,

etc. Suggested tools: heijunka (production

leveling), product/service-oriented layouts,

setup-time reduction, and balancedworkstations.

3. Transportation: Excessive (and unnecessary)

movement of people, materials, and informa-

tion, resulting in unnecessary costs, delays,

and energy loss. For example, materials are

moved in and out of storage or handle more

than once. Suggested tools: improve transpor-

tation systems (smaller, quicker, and more

flexible), route, and capacity optimization.4. Inadequate procedures: Improper use of

equipment and tools; inadequate choice of

resources or processes; and procedures too

complex, incorrect, or without the necessary

information support. Suggested tools: stan-

dardize and simplify procedures, 5S, poka-yoke (error-proofing) solutions.

5. Excessive amounts of inventories: too much

time in storage, too many places of storage,

lack of information, misplaced products,

increasing costs, and decreasing performance

and the quality of the service provided to the

customer. Suggested tools: heijunka (produc-

tion leveling), JIT, setup-time reduction, and

improve process quality.6. Unnecessary motion: Disorganization of the

workplace, resulting in poor performance and

lack of concern for ergonomic aspects and

issues related to labor conditions. Examples:

delays caused by the need to look for certain

items, information, or people; Suggested

tools: 5S and product/service-oriented layouts

7. Defects (correction): Delays and additional

costs caused by the need to repair, rework,

recount, repack, etc., because work was not

done right the first time. Suggested tools:

poka-yoke (error-proofing) solutions, automa-tion, standardize procedures and materials,

and quality at the source (each worker is

Lean Thinking, Table 1 Basic principles/steps of lean thinking (Adapted from Womack and Jones 1996)

Step Main goal Key questions Next actions

1. Identify

value

Understand what the

customer/end user

perceives as “value”

What features or

attributes in the product

or service the customer

considers worth paying

for?

Identify the features or attributes of the product/service

that do not meet the needs or expectations of the

customers. Those are the potential opportunities for

improvement.

Suggested tools: voice of customer (VoC), qualityfunction deployment (QFD)

2. Map the

value stream

(value chain)

Map the value

stream and identify

waste

What are the steps

(actions/processes)

necessary to meet the

client’s requests (that is

to develop, produce,

and deliver the desired

results)? And those that

are expendable?

In the value stream map, classify activities into three

main groups: activities that (1) create value; (2) do not

create value, but are necessary (as supporting

activities) or unavoidable for the moment, due to

current technology or established management//

working styles (e.g., planning meetings and preventive

maintenance); and (3) do not add value and are totally

expendable

Suggested tools: value stream mapping (VSM), eightsources of waste framework

3. Create flow Create a continuous

production flow,

with minimal

buffers between

steps of the process

How can we align

production with

customer demand?

Production pace set to takt time (calculated as the

quotient between planned production time and

customer demand)

Suggested tools: heijunka

4. Establish

pull

Produce only what is

needed when needed

in order to prevent

the accumulation of

inventories (waste)

When does the

customer want the

product to be delivered?

Production only to respond to specific demand

Suggested tools: just-in-time production, kanbancontrol system, setup-time reduction (and SMED tool)

5. Seek

perfection

Continuously seek

ways to create value,

while the waste is all

eliminated

How can even more

value be created?

Continuous improvement (kaizen) of the products/

services offered to the customers and of the processes

Suggested tools: 5S, poka-yoke (error-proofing)solutions, procedures standardization, PDCA cycle

Lean Thinking 1575 L

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responsible for the quality of his own workbefore it is sent to the next step of the process).

8. Unused human potential: unused employee

minds and creativity. Suggested tools:

empowerment and training.

In addition to “muda,” lean thinking considers

the existence of two other dimensions of inter-

vention in the battle against waste and wasteful

practices (Hill 2011): “mura” (imbalance or

unevenness in the pace or the quality of the output

of an operation) and “muri” (to overburden or to

cause strain on equipment or operators). To elim-

inate “muri,” the solution is the pull approach,

implemented by means of a just-in-time produc-

tion system. To identify and eliminate “mura” is

necessary to standardize processes, to level the

production (heijunka), in order to eliminate their

variability.

According to Womack and Jones (1996), the

five basic principles/steps of lean thinking are

(1) identify value, (2)map the value stream, (3) cre-

ate flow, (4) establish a pull approach, and (5) seek

perfection. They are summarized in Table 1.

Hines et al. (2004) emphasize the difference

between lean at a strategic level (lean thinking)

and lean at an operational level (lean production),

with its set of tools that focus in providing value

for the customer (see Fig. 2). They also state that

other improvement approaches (such as six

sigma, theory of constraints, total productive

maintenance (TPM), total quality control/

management (TQC, TQM), etc.) “can be (and

have been) used in conjunction with lean” since

“any concept that provides customer value can be

in line with a lean strategy” (Hines et al. 2004,

p. 1006).

CapacityDrum-Buffer-Rope,

TOC

ResponsivenessAgile, Postponement

LeanThinking

5 Principles

LeanProduction

LevelScheduling,

Kanban,Takt Time,

etc.

Variability6σ, SPC

AvailabilityTPM

Prod. ControlMRPl+II, ERP, APS

QualityTQM, TQC

OperationalLevel (Tools):

Eliminate Waste

Strategic Level:Understand Value

Lean Thinking, Fig. 2 A framework for lean (Hines et al. 2004)

L 1576 Lean Thinking

Key Issues

Womack et al. (1990) state that the success of

Japanese firms is due to lean thinking, their core

management philosophy. Lean thinking aims to

combine the craft production advantages of

highly skilled and customized work with the

mass production low cost advantages. It does so

through the elimination of the activities that, in

the value stream, do not add value to the customer

or end user (“muda”), through the standardization

of unbalanced processes (“mura”) and through

a better capacity – load alignment in overburden

processes (“muri”).

Lean thinking, as a minimizing waste manage-

ment philosophy, may be related to some of the

UNGC CSR principles (UNGC 2010), namely,

those in the environmental area. However, its

main focus is still the value created for the cus-

tomer, by improving the quality of products and

services and reducing costs and delays, not envi-

ronmental efficiency. The development of prac-

tices to reduce energy consumption, for example,

is still not considered in many of the lean organi-

zations as a tool to reduce waste, nor is energy

included in the list of sources of waste (Ohno

1988; Womack and Jones 1996), which has

been extensively used by lean thinking practi-

tioners. Wills (2009) suggested a similar list

with seven environmental wastes (energy,

water, materials, garbage, transportation, emis-

sions, and biodiversity) and a set of tools, based

on the tools of lean, to help to reduce waste and

increase the “value for the environment.”

In an influential study, Rothenberg et al.

(2001) examined the relationship between lean

manufacturing practices and environmental per-

formance as measured in terms of air emissions

and resource use. Their findings suggest that

there is a negative association between lean man-

agement and reduction of air emissions of vola-

tile organic compounds. In particular, they found

that lean plants are more likely to resist the large

capital expenditures for pollution abatement

equipment that would reduce emissions beyond

what is required by current regulation. This is so

because some goals of lean production may be in

conflict with environmental performance. For

example, given that the use of water in some

processes is critical to product quality, lean plants

are likely to trade off greater water consumption

in those areas for superior quality (Rothenberg

et al. 2001).

Although the majority of the main benefits of

lean thinking reported by Womack et al. (1990)

pertain to operational efficiency, some of them,

in particular the reduction of accidents at work

and the increased involvement, motivation, and

Lean Thinking 1577 L

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participation of people, are related to CSR

issues. Womack et al. (1990) seem to have

a somewhat optimistic idea of the impact of

lean thinking managerial style on worker con-

ditions, as do other authors. For instance, Zadeh

(2004, p. 8) states that “because lean

manufacturing requires employees to learn

new skills, it would put upward pressure on

wages and improve management’s behavior

toward workers.” Among the implications of

lean thinking and just-in-time on the factory,

it is possible to count the shrinkage in the num-

ber of traditional unskilled manual jobs and the

blurring of the distinction between blue- and

white-collar work in the jobs that remain in

consequence of the increasing reliance on new

technology for production and stock control

(Huzzard 2003).

There are, however, researchers that point out

several detrimental consequences for the

employees. For example, it may be said that

responsibility for setting standard operating

times remains outside the control of the work

group (Huzzard 2003). The lean thinking

approach follows the principles of standardiza-

tion, economies of scale, and Tayloristic methods

of work organization. It exhibits high intensity of

work, central control over flows and paces, and

short cycle times, and has been described as

“management-by-stress” approach (Huzzard

2003).

Critics of lean thinking point out several

other negative aspects (Huzzard 2003): it seg-

ments the workforce, thus undermining solidar-

ity; it involves a broadening of skills, but not

a deepening of them; the kaizen process implic-

itly involves the establishment of a new division

of labor with an elite performing the kaizen tasks;

growing wage differentials between core and

peripheral (largely female) workers; unrestricted

duration and flexibility of working hours; and

a lack of a role for unions in work design.

Huzzard (2003, p. 34) concludes that “if such

accounts are a more accurate depiction of

organizational realities under lean thinking, it

seems difficult to envisage how it might be

compatible with improvements in the quality of

working life.”

Future Directions

The “reduce waste and wasteful practices while

improving the value creation” philosophy is, in

theory, easily transferred to any organization,

independently of the sector in which it operates.

However, tools and main methods of lean think-

ing are not easily transferred to certain types of

organizations, like the services organizations

(healthcare, financial, knowledge-intensive,

etc.), the low-volume manufacturing organiza-

tions, and organizations in the public sector. In

effect, there is a need to adapt tools and methods

(and create new ones) for these kinds of organi-

zations since they only use a small number of

tools from lean production (such as 5S, VSM).

There is also a need to rewrite the list of eight

types of waste for these organizations since the

traditional list, originally published by Ohno

(1988), is not suited for them.

The application of lean to a supply chain is

also a topic that has been receiving great atten-

tion. Issues like the international sourcing oppor-

tunities, with long lead times, the high number of

actors, the bullwhip effect, and the diversity of

organizational styles are somewhat difficult to

tackle. In the same way, different sections of the

supply chain may be affected by different types

of “muda,” and the traditional accounting sys-

tems do not recognize “muda” in the same way

lean thinking does (specially with inventories,

time, and rework). Therefore, the identification

and elimination of “muda” may be difficult and

that is why much development is still expected in

this area. The same happens to the current trend

of greening operations and supply chains.

There is also an ongoing debate concerning

the concepts of lean supply chain, agile supply

chain, and leagile supply chain. Some authors

argue that they are mostly the same concept;

others state the differences between them.

There is a need for clarification and theory

consolidation.

Another important future development per-

tains to CSR aspects related to lean thinking.

Lean can potentiate the greening of operations

and supply chains due to its waste reduction

approach. However, its main focus is to improve

L 1578 Learning About the “Life” of Various Populations

value to the customer, and there is still work to be

done when it comes to adapt lean thinking to

consider a triple bottom line approach in the

definition of value.

Cross-References

▶Competitive Advantage

▶Corporate Social Responsibility

▶Kaizen

▶ Plan-Do-Check-Act (PDCA) Cycle

▶ Supply Chain Management

▶TQM

▶Waste Management

References and Readings

Hill, A. (2011). The encyclopedia of operations manage-ment. Upper Saddle River, NJ: Pearson Education.

Hines, P., Holweg, M., & Rich, N. (2004). Learning to

evolve: A review of contemporary lean thinking. Inter-national Journal of Operations & Production Man-agement, 24(10), 994–1011.

Huzzard, T. (2003). The convergence of the quality ofworking life and competitiveness – A current Swedishliterature review. Stockholm: National Institute for

Working Life.

Ohno, T. (1988). The Toyota production system: Beyondlarge-scale production. Cambridge, MA: Productivity

Press.

Rothenberg, S., Pil, F. K., & Maxwell, J. (2001). Lean,

green, and the quest for superior environmental per-

formance. Production and Operations Management,10(3), 228–243.

UNGC. (2010). The UNGC Annual review. United

Nations Global Compact.

Wills, B. (2009).Green intentions: Creating a green valuestream to compete and win. Boca Raton: CRC Press.

Womack, J., & Jones, D. (1996). Lean thinking. NewYork: Simon & Schuster.

Womack, J., Jones, D., & Roos, D. (1990). The machinethat changed the world. New York: Rawson

Associates.

Zadeh, S. (2004). The path to corporate responsibility.

Harvard Business Review, 12, 2–10.

Learning About the “Life” of VariousPopulations

▶Ecology

Learning of the Life Cycles of VariousPopulations

▶Ecology

Learning Organization

▶ Integrative Management Approach of CSR

Learning Systems

▶Communities of Practice

Legal and Ethical Responsibilities

▶Compliance/Legal Compliance

Legal Compliance

▶Compliance/Legal Compliance

Legal Theory

▶Legitimacy Theory

Legislation

▶New Zealand Resource Management Act 1991

Legitimacy

▶License to Operate

▶ Social License

▶Trust

Legitimacy Theory 1579 L

Legitimacy Theory

Adriana Schiopoiu Burlea1 and Ion Popa2

1University of Craiova, Craiova, Dolj,

Romania2Academy of Economics Studies,

Bucharest, Romania

Synonyms

Corporate governance; Institutional theory;

Legal theory; Sustainable development; Trust;

Voluntary social and environmental disclosures

L

Definition

Suchman (1995, p. 574) considers that “Legitimacy

is a 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.”

In our conception, legitimacy theory has the

role of explaining the behavior of organizations

in implementing and developing voluntary social

and environmental disclosure of information in

order to fulfill their social contract that enables

the recognition of their objectives and the survival

in a jumpy and turbulent environment.

Social perceptions of the organization’s

activities are reported in accordance with the

expectations of society. In the situation when the

organization’s activities do not respect social and

moral values, the organization is severely

sanctioned by society; these sanctions may

even lead to the failure of the organization. The

organization has to justify its existence through

legitimate economical and social actions that do

not jeopardize the existence of the society in

which it operates, nor the natural environment.

Introduction

The new economic, social, and environmental chal-

lenges given to organizations and to governments

mean that they have to respect the rules, values, and

norms of society and to voluntarily disclose social

and environmental information in order to prove

their compliance. Legitimacy theory has the role of

providing an explanation of the disclosure of social,

economic, and environmental information.

The global financial crisis and the instability of

financial markets put pressure on organizations to

reevaluate their value systems and to emphasize

the importance of legitimacy. The correlation of

tangible financial resources with intangible

legitimacy resources is important for shaping

a new organizational vision. Many scholars have

criticized the promotion of legitimacy theory in this

respect (Mobus 2005; Owen 2008). Legitimacy

theory was sometimes seen only as a “plausible

explanation of managerial motivations” without

any real effort to determine how a disclosure “. . .may or may not promote transparency

and accountability towards non-capital provider

stakeholder groups” (Owen 2008, p. 248).

Legitimacy theory is a theoretical construct used

for making viable predictions. Thus, organizations

must voluntarily disclose social and environmental

information in order to consider their legitimacy as

a resource. The relationship between legitimacy

and resources attracted and still attracts the

attentions of social and accounting researchers

(Lindblom 1994; Mobus 2005; Tilling and

Tilt 2010). In their opinion, the disclosure of

information must be accompanied by concrete

actions realized in compliance with social and

environmental norms and values.

The abstract nature of legitimacy makes it very

difficult to discover the mechanism by which the

organizations are motivated to voluntarily disclose

social and environmental information. The organi-

zation often associates the symbolic representation

of its image with its culture and considers that in

order to attain legitimacy it is necessary only to

improve its culture and to promote it in the external

environment.

Legitimacy theory has a very rich disciplinary

background based on management theory, institu-

tional theory, and stakeholder theory. Strategically

speaking, the sustainability of legitimacy theory is

based on the management heritage that connects

traditional norms and values with modern ethics.

L 1580 Legitimacy Theory

Therefore, this chapter lays out the different

answers to the following questions:

• When should an organization be considered

legitimate?

• When is an organization considered legitimate?

Who affect its legitimacy?

• Is legitimacy an objective or an end for the

organization?

Paradoxically, the crucial role of the

legitimacy of organizations, institutions, and

society’s survival is motivated, unfortunately,

by negative social and environmental phenomena

generated by the lack of legitimacy. The

legitimacy literature suggests that the

survival of an organization depends on its

legitimation processes and on how the continuous

pressures and challenges are managed. The

purpose of the legitimation processes is to obtain

and maintain the stakeholders’ approval.

Key Issues

Why Does an Organization Need Social

Approval in Order to Develop Its Legitimate

Activities?

The entire life cycle of the organization reflects on

the organization’s image. Legitimacy, as a status or

condition (Lindblom 1994), cannot be confused

with any institution because the legitimacy exists

only by power of the organization’s credibility and

virtue. The legitimacy operates in an institutional-

ized environment created by the stakeholders,

which exert their internal and external pressure.

Legitimacy theory, even if it is used for voluntary

disclosure of social and environmental norms and

values, does not have to be considered by the cor-

poration as a panacea that solves their social and

environmental problems in order to demonstrate to

the stakeholders that the activity they develop is

ethical and respects certain norms and values.

On the contrary, legitimacy has been considered

as one of the conditions for the acceptance of

corporations’ actions by stakeholders.

It is not difficult to identify organizational

motives for disclosure of environmental informa-

tion in the media and in corporate annual reports

because these motives are found in the life cycle

of the organization, which is reflected in its

reputation and pressure from external and

internal stakeholders.

The real difficulty consists of the homogeni-

zation of the organization’s activities, norms,

values, and culture with the norms, values, and

culture of the society in which it acts.

Taking into consideration that legitimacy con-

sists of a final social acceptability, we can affirm

that legitimacy becomes an end for the organization

and, consequently, is a prefinal objective because

the finality of this objective means the failure of the

organization.

Legitimacy theory acts on two levels:

• At an organizational level, we have strategic

legitimacy theory (SLT).

• At amacro level, there is institutional legitimacy

theory (ILT).

The strategic level of legitimacy develops in the

internal environment of the organization, and

the institutional level of legitimacy develops in the

external environment. Blending those two levels

falls upon the reflection of the organization’s

image in society. Thus, the fact that an organization

has legitimacy means that it is perceived and

accepted by the stakeholders and society as having

the right to exist and perform moral activities.

The acceptance is a mutual process: on one

hand, an organization has legitimacy if it is

accepted by the society, and on the other hand,

the society is accepted by an organization if it

offers some social and economic advantages.

The expectations of society are not only

moral but also economic because an organiza-

tion, operating within a certain society, is mor-

ally obliged to ensure the survival and prosperity

of the respective society. On the other hand,

society has to provide the appropriate human,

material, and legal resources for the organiza-

tion in order to assure normal operating condi-

tions and profit.

When the organization considers that society

can no longer provide the appropriate level of

resources (e.g., competent human resources), it

leaves it (delocalization). When the same organiza-

tion does not obey the rules of the same society, it

risks losing its legitimacy and even its existence is

jeopardized.

Legitimacy Theory 1581 L

L

The credibility of an organization depends on its

legitimate activities in consonance with the moral

rules of the society. The power of an organization

consists of its legitimacy that is not necessarily

a legal validity, but a tacit respect of legal and

voluntary moral norms (Gunningham et al. 2004).

Legitimacy Types

From the affirmation and justification stages of its

existence until ensuring its own survival, an orga-

nization goes through different types of legitimacy

(Zucker 1987; Suchman 1995) that are justified by

the multiple types of perception of this mechanism

according to the present interests of society and

individuals and by the importance that society and

the stakeholders give to the organization.

First of all, the organization needs to attain

a cognitive legitimacy, which is intended to expandits moral legitimacy that justifies its social exis-

tence, and therefore, in order to ensure its own

survival (in context with internal and externallegitimacy), the organization is involved in the

construction and development of its pragmatic

legitimacy (see Fig. 1).In Fig. 1, the different types of legitimacy are

correlated with organizational internal and exter-

nal environments. The reflection of the organiza-

tional image in its external environment enhances

or repairs cognitive legitimacy. The organization

aims to achieve recognition from its main stake-

holders (e.g., employees, customer, media, and

financial institutions) for short-term projects with

an immediate and powerful visibility. These

short-term projects are designed to prepare the

ground for sustainable capacity development.

Legitimacy operates at many levels, but for an

organization, it is very important to act in conso-

nance with industry standards. For example, the

environmental incidents produced by companies

like Exxon Valdez, Shell, BHP Limited, and

Alcoa have had a negative impact on the entire

industry image, being perceived as a pollutant and

irresponsible industry. The negative media cover-

age of these incidents generated an increase of

concerns of society about social and environmental

responsibilities and put pressure on the organiza-

tions to include detailed disclosure of the environ-

mental information in their annual report. In this

context, the legitimacy is an important intangible

resource, and like any resource, it must be man-

aged carefully, especially if the organization’s

image has been affected by major incidents

(Tilling and Tilt 2010).

The economic, social, and environmental chal-

lenges require organizations to manage responsibly

some risks which may affect their legitimacy. The

other corporate scandals (i.e., BP Oil Spill, Bhopal

Disaster, Parmalat, Arther Andersen, HealthSouth

Corporation, KPMG, The AIG, and Enron) are

the consequences of not taking into consideration

legitimacy theory.

Internal and external knowledge are put

together for improving the life cycle of the legiti-

macy, taking into consideration past experiences

and future strategies. The interconnection between

the legitimacy types and the internal and external

environment of the organization proved the impor-

tance of moral legitimacy in sustaining pragmatic

legitimacy. The strong relationship that exists

between the organization and the values of the

society in which it activates makes the solidity of

the legitimacy to be based on viable inputs and

outputs of the organization and often acts as

a constraint factor for the other organizational

activities, but in consensus with society’s values

(Dowling and Pfeffer 1975).

The quality of the legitimacy depends on the

management of the organization that has the role

to assure the interaction between the internal and

external environment and to prevent, in time, the

erosion of its image and implicitly of its pragmatic

legitimacy. Therefore the management of the orga-

nization and the management of legitimacy are

interrelated and critically influence one another to

fulfill economic, social, and environmental goals.

Aldrich and Fiol (1994) configured

social-political legitimacy as a process by which

all stakeholders, including the government, should

accept and support the activity of an organization,

only if it is in consent with existing norms, rules,

and national and international laws.

Public pressure should not be perceived as

a punitive factor or in a negative sense; it should

be considered a support factor for the organiza-

tion’s legitimacy and in the reduction of the risks

which have the potential to negatively impact its

External environment(society looking in)

Internal environment(managers looking out)

Cognitive Legitimacy

Moral Legitimacy

Pragmatic Legitimacy

Enhance/ Defence/Repair

Create/Gain

Mentain/Extend

Legitimacy Theory,Fig. 1 The life cycle of

legitimacy

L 1582 Legitimacy Theory

image. The improvement of the communication

process between the organization and society

should be realized both by actions motivated by

legitimation tactics and by disclosure of informa-

tion in the annual report.

The Instability of Legitimacy

Legitimation is the process by which an organiza-

tion obtains its legitimacy. During this complex

process, the legitimacy passes from the creation

and extension stages to the maintaining one and

continues with actions that justify, motivate, and

defend its position. Therefore, “organisational legit-

imacy is a valued but problematic resource”

(Ashforth and Gibbs 1990, p. 191) and is difficult

to attain, but it is more difficult to maintain and

improve.

Cognitive legitimacy is the foundation of the

visible symbols of legitimacy. Thus, cognitive

legitimacy is difficult to attain and, at the

same time, it is sustainable only if it exceeds

a minimum threshold. If cognitive legitimacy is

difficult to attain, then pragmatic legitimacy is

difficult to control because of its external visibility,

and moral legitimacy is difficult to overcome

because of its normative evaluation (see Fig. 1).

In the present economic and social conditions,

when the organizations operate in an increasingly

turbulent environment, legitimacy, especially

pragmatic legitimacy, becomes increasingly unsta-

ble. To survive in this unstable environment, the

organization must adhere to norms and overcome

the superficial barriers raised by conformity

(Suchman 1995). The organization must pass

from a symbolic and inaccurate disclosure to

a formal compliance disclosure in its effort to

gain and maintain legitimacy.

The fact that stakeholders’ pragmatic legitimacy

influences the organization’s pragmatic legitimacy

implies a huge effort for the organization to survive.

The normative standard of the organization’s

conduct constructs the moral legitimacy and

contributes to the creation of an organizational

culture that supports the decision-making process.

The degree of stability of the organizational

legitimacy depends on the following factors:

• The quality of the organizational management

• The efficient allocation of resources and

efficient use of the scarce resources

• The solidity of normative standards of conduct

• The increase of the visibility of socially respon-

sible activities in the external environment

simultaneously with its regulatory autonomy

The instability of legitimacy is generated by the

fluctuation of the organizational power and author-

ity over its stakeholders. The positive relationship

that exists between legitimacy and power forces the

organization to take into consideration the approval

or disapproval of the stakeholders in the decision-

making process. This interdependence escalates

organizational legitimacy into a phenomenon

difficult to manage, but legitimacy can be

Legitimacy Theory 1583 L

L

constructed over time, taking into account the

evolution of social norms and values.

The instability of legitimacy is present in every

phase of the legitimacy process. For example,

establishing and maintaining legitimacy are two

phases of the legitimacy process in which the

organization needs to win and keep the support

of the stakeholders for its activities. In the next

phases, extending and defending legitimacy, theorganization must fight against all challenges.

Ashforth and Gibbs (1990, p. 180) consider that

extending legitimacy is important “to win the

confidence and support of wary potential

constituents” and, in the mean time, legitimacy

must be defended from the negative impact of

corporate scandals. Thus, the strategic nature of

voluntary social and environmental disclosures is

reflected in the annual reports.

The intangible form of legitimacy makes more

difficult the iterative process of voluntary social

and environmental disclosures. Therefore, the

instability of legitimacy is a ubiquitous process

that marks the organization’s activities from

beginning to end.

The Relationship Between Legitimacy Theory

and Stakeholder Theory

The power exercised by stakeholders on the legiti-

macy of an organization has been recognized both

by the organizations and society. Hybels (1995,

p. 243) considers that relevant stakeholders influ-

ence the organizational legitimacy by the control

they exercise on the organization’s activities.

First of all, the power of media is widely recog-

nized as having the strongest influence on organi-

zational legitimacy. The customer perceives

organizational legitimacy not only by its activities

but by the image that the media promotes in the

organization’s external environment. Investorsperceive legitimacy as a threat while they are

involved in the legitimacy process. These dual

positions of investors can generate a potential

conflict between the following actors: manager

and investors, manager and media, and investors

and media. Community expectations are changing

every day and organizational legitimacy depends

on its degree of adaptation to a dynamic

environment.

Organizational legitimacy in stakeholder rela-

tionships (Mitchell et al. 1997) is based on the

following elements:

• The mutual contractual relationship

• The stakeholders’ interest on the organization

• The risk assumed by stakeholders

• The moral claim

The idea is that the stakeholders do not confer

legitimacy on an organization, but its activities are

able to provide legitimacy. The role of stake-

holders is to accept the legitimacy and to sustain

the existence of the organization. Therefore, the

stakeholders’ perceptions of the activities of the

organization must be in consensus with their

needs. The pressure that stakeholders exert on the

organization does not lead to the attaining of the

organizational legitimacy but is a barrier between

ethical and unethical activities of the organization.

The role of active and passive stakeholders in

obtaining andmaintaining legitimacy is reflected in

the support of organizational socially responsible

practices (Mitchell et al. 1997; Suchman 1995).

Stakeholder expectations are motivated by the

message conveyed by a responsible image of the

organization. The lack of transparency of social and

environmental activities has a negative impact on

stakeholders’ behavior. For example, if the

stakeholders do not have an overview of social

environmental activities of organization, they

cannot measure the results and their objectives are

difficult to achieve. Moreover, the negative

incidents reflected by corporate scandals lead to

a strong negative reaction from both active and

passive stakeholders.

The influence of stakeholders on the intensity

of coverage of a negative phenomenon is recog-

nized as an amplifying factor of the negative

impact. For example, the influence of media in

spreading a negative phenomenon depends on

the intensity of the attention paid by the media to

this phenomenon. As a phenomenon is given more

attention, the greater is the negative impact on the

community. The community perceives the magni-

tude of the negative phenomenon not depending

on its real consequences but according to how the

media presents it. Legitimacy theory is the tool

that manages the stakeholders’ perceptions of the

needs for attaining the organizational legitimacy.

L 1584 Legitimacy Theory

Thus, legitimacy offers to an organization the right

to perform its activities in consensus with stake-

holders’ interests (Suchman 1995).

Future Directions

Strategic actions will be strictly bounded by the

institutional environment and by accountability

requirements. Therefore, it is important to note

that the long-term impact of legitimacy on the

economic and financial performance of the organi-

zation will generate many internal conflicts of the

multidimensional construct of legitimacy, which

will influence the transition from legitimacy to

illegitimacy and from illegitimacy to legitimacy.

Thus, the role of independent media in driving the

legitimacy of the organizations will be very impor-

tant only if accompanied by the other stakeholders,

community, and government regulators.

Other studies should concern the role of

the stakeholders in the manipulation of the

community’s perception of the organizational

legitimacy. Stakeholders can act to prevent the

loss of legitimacy and not destroy the image of an

organization. The role of stakeholders becomes

a vital one in the prevention and reduction of

illegitimate risks, and the organizations will have

the opportunity of a precise action at every level of

legitimacy based on the evolution and changes of

the values and expectations of society as a whole.

In this context, trust becomes an element in shaping

organizational legitimacy, and it reflects organiza-

tional behavior.

Legitimation strategy is a very important

mechanism that influences the perception of

the organization by its stakeholders. Thus, the

factors that help or impede the organization in

attaining, maintaining, and defending its legiti-

macy should be explored through empirical

investigations.

Cross-References

▶Business for Social Responsibility

▶Business Judgment Rule

▶Compliance/Legal Compliance

▶Ethical CSR

▶Management

▶ Servant Leader/Servant Leadership

▶ Stakeholder Theory

▶Trust

References and Readings

Aldrich, H. E., & Fiol, C. M. (1994). Fools rush in? The

institutional context of industry creation. Academy ofManagement Review, 19, 645–670.

Ashforth, B. E., & Gibbs, B. W. (1990). The double-edge

of organizational legitimation’. Organization Science,1, 177–194.

Dowling, J., & Pfeffer, J. (1975). Organizational legiti-

macy: Social values and organizational behavior.

Pacific Sociological Review, 18, 122–136.Gunningham, N., Kagan, R., & Thornton, D. (2004).

Social licence and environmental protection: Why

businesses go beyond compliance. Law and SocialInquiry, 29, 307–341.

Hybels, R. C. (1995). On legitimacy, legitimation, and

organizations: A critical review and integrative

theoretical model. Academy of Management Journal,Best Conference Proceedings, 38, 241–245.

Lindblom, C. K. (1994). The implications of organiza-

tional legitimacy for corporate social performance

and disclosure. In Critical Perspectives on AccountingConference, New York.

Mitchell, R., Agle, B. R., & Wood, D. J. (1997).

Toward a theory of stakeholder identification and

salience: Defining principles of who and what really

counts. Academy of Management Review, 22,853–886.

Mobus, J. L. (2005). Mandatory environmental disclo-

sures in a legitimacy theory context. Accounting,Auditing, and Accountability Journal, 18(4),492–517.

Owen, D. (2008). Chronicles of wasted time? A personal

reflection on the current state of, and future prospects

for social and environmental accounting research.

Accounting Auditing and Accountability Journal,21(2), 240–267.

Suchman, M. (1995). Managing legitimacy: Strategic and

institutional approaches. Academy of ManagementReview, 20(3), 57l–610.

Tilling, M. V., & Tilt, C. A. (2010). The edge of legiti-

macy: Voluntary social and environmental reporting

in Rothman’s 1956–1999 annual reports. Account-ing, Auditing, and Accountability Journal, 23(1),55–81.

Zucker, L. G. (1987). Institutional theories of

organizations. Annual Review of Sociology, 13,443–464.

License to Operate 1585 L

Legitimate Authority

▶Authority Versus Bureaucracy

Legitimate Power

▶Authority Versus Bureaucracy

Lending for Poverty Eradication,Professor Muhammad Yunus

▶Grameen Bank

L

Leveraged Buyouts

▶ Private Equity

Liability

▶Accountability

▶ Stakeholder Accountability

Liability to Loss in Property

▶Risk Management, Environmental

Liberal Egalitarianism

▶Ethical Theories

Libertarianism

▶Ethical Theories

License to Operate

Anne Ellerup Nielsen

Department of Language and Business

Communication, Centre for Corporate

Communication, Aarhus, Denmark

Synonyms

Legitimacy; Permission to operate; Social license

to operate

Definition

In many textbooks and articles about Corporate

Social Responsibility (CSR), “license to operate”

is a frequently used concept used to indicate the

limit of behavior established for a company to

gain recognition and acceptance in its surround-

ings. More specifically, a “license to operate”

may be defined as “Grant of permission to under-

take a trade or carry out a business activity, sub-

ject to regulation or supervision by the licensing

authority.” However, this definition does not take

into account the numerous social aspects and the

dynamics embedded in the concept from

a theoretical and practical perspective. In the

following text we get deeper into the meaning

of the concept from an institutional and legiti-

mate perspective.

Introduction

In most countries, business licenses are granted to

companies by government authorities on the

basis of their professional competence and abili-

ties to meet certain standards set by law or regu-

lation. However, in a CSR context, the concept of

“social license” has emerged as more pertinent

concept which stresses the growing societal

dimension integrated in business management

and operations. “Social license” is addressed as

a right to operate according to “the degree to

L 1586 License to Operate

which a corporation and its activities are accepted

by local communities, the wider society, and

various constituent groups” (Gunningham et al.

2003). Following this notion, a “social license to

operate” becomes a complement to the official

legally based license issued by government

authorizes in that a social license is granted

beyond compliance. In the social sense and

since there are no one-fits-all formal limits for

an organization to receiving “a license to oper-

ate” it is a fluid and socially constructed concept

based on cultural habits and conventions.

Key Issues

“License to operate” is paramount in new institu-

tionalism, which has gained an important posi-

tion in organizational theory. According to

sociologists Powell and Di Maggio, corporations

are considered as social institutions that require

institutional legitimacy in order to survive

(1991). Adopting a new perspective on organiza-

tion theory and sociology defined as “new insti-

tutionalism” they reject classical economics and

seek to explain organizational behavior as

a product of cognitive and cultural changes

(ibid). New institutionalism deals with the influ-

ence that institutions have on human behavior

through rules, norms, and established conven-

tions. The increasing pressure that organizations

meet from their stakeholders with regard to tak-

ing socially responsible initiatives is challenging

their legitimacy and only balanced by their ability

to respond to these stakeholders’ tacit needs and

expectations. It is this ability that many compa-

nies, scholars, journalists, and analysts refer to as

“a license to operate.” “License to operate” is

thus addressed as a relevant concept in political

and more particularly in institutional theory.

According to the neoclassical model of market

economy, businesses’ primary role is to make

profits for their shareholders and to create eco-

nomic wealth for the business benefiting society

as a secondary spin-off of their activities. Within

this reasoning, social problems are to be

addressed and handled by governments. A large

body of CSR literature which saw the light of day

in the 1960s and 1970s is highly inspired by

neoclassical thinking and liberal democracy in

which an instrumental and utility maximization

approach to CSR management research and prac-

tice is predominant. However, with the last

20 years of globalization and increased empow-

erment of corporations, winds have blown with

more political, integrative, and ethical

approaches toward businesses’ role in society.

According to Garriga and Mele (2004) who

have mapped the theoretical landscape of CSR,

these global changes have, if not replaced, at least

supplemented the instrumental approach to busi-

nesses’ CSR management research and practice.

Among these the political approach in which the

“license to operate” is a cornerstone focuses par-

ticularly on businesses and their connection and

interaction with society. In order to keep their

“license to operate,” businesses must hence dem-

onstrate their legitimacy by responding to stake-

holders in their local and global environment.

Garriga and Mele (2004) point out two major

political theories which have influenced organi-

zations’ role and responsibility in the local and

global society. Corporate constitutionalism and

corporate citizenship have both broadened the

scope of corporate responsibility and paid atten-

tion to the impact of organizations’ social power

outside organizational borders.

Corporate Constitutionalism and Corporate

Citizenship

The growing institutional status of organizations

can be considered in light of the changes of soci-

ety that have taken place during the last two to

three decades, especially in European countries.

In their article about implicit and explicit CSR,

Matten and Moon (2008) have studied sociolog-

ical aspects of CSR including how the economic

and political changes have influenced corporate

social behavior. Politically, the decreasing capac-

ity of the welfare state to handle social problems,

for example, job integrating and unemployment,

has stimulated the corporate world to take part in

restoring the legitimacy of the political system.

Furthermore, education, health care, and environ-

mental issues have inspired the proliferation of

actors and networks, decentralized processes, and

License to Operate 1587 L

L

self-regulation of businesses resulting in a vague

of deregulation and privatization during the

1990s and 2000s in many countries across

Europe. Financial changes in the European econ-

omies also partly explain the European busi-

nesses’ increasing contribution and interference

in social regulation. The growth of socially

responsible investment and focus on CSR aspects

by investment companies motivate business to

engage in CSR programs in order to enhance

their shareholder image and position themselves

as good corporate citizens. Finally, cultural

changes, that is, the increasing expectations and

hence standardizations of health and safety, envi-

ronment policies and focus on human rights, etc.,

are behind the more explicit focus on CSR in

Europe. European businesses’ CSR practices,

hence, overlap with the American CSR model,

where businesses since the 1920s and in the form

of corporate philanthropy have undertaken mas-

sive corporate social actions that from

a European perspective may seem overwhelming

and usually an issue left in the hands of national

governments. Yet, in recognition that national

governments can no longer on their own bear

the burden of societal issues resulting from

increased immigration, fiscal pressures, etc.,

without contribution from the corporate world,

European business have been exposed to norma-

tive, isomorphic, and mimetic pressures. Isomor-

phism is rooted in mathematics and signals that

one structure can be extended from one domain to

another so that if two objects are isomorphic, then

a property which is true of one object is also true

of the other. This pressure that has grown with the

transfer and imitation of behaviors from business

practices in one environment to those of another

has forced companies to adopt more explicit CSR

procedures and policies adapted from American

corporations to a European and more govern-

ment-driven context than in the USA (Matten

and Moon 2008). Companies’ investment in

legitimacy is thus constantly negotiated in rela-

tion to the changes and emergences taken place

in the contextual environment where they oper-

ate. Consequently, what it took to earn a license

to operate and deserve legitimacy 20 years ago

is thus incomparable with what it takes in

today’s global world where a growing number

of social activities and projects are initiated and

managed beyond the power and influence of

national governments. But how does the

“licence to operate” concept relate to the con-

cept of legitimacy? This will be the main issue

in the following section.

Legitimacy

As it appears above, legitimacy and a “licence to

operate” may be considered as two sides of the

same coin. Legitimacy is a multifaceted concept

that is conceived differently in different contexts

according to the situation and the problem to

which organizations are confronted. Its overlap

to the “license to operate” concept is obvious.

Suchman (1995) who has demonstrated a special

interest in studying legitimacy, characterizes it

as a “process whereby an organization justifies

to a peer or superordinate system its right to

exist, reintroducing the ‘grant’ or ‘permission’

element we saw above in the definition of

‘license.’” However, the two concepts are not

completely overlapping. While legitimacy

focuses on how an organization is perceived by

its stakeholders at any point in time, a “license to

operate” is something that the organizations has

acquired or owns according to its doings in the

eyes of its stakeholders. Suchman defines legit-

imacy as “a generalized perception or assump-

tion 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 definition

of legitimacy as a social construction stresses its

fluid and contextual nature as a correlation

between a set of behaviors and shared beliefs

of some social group, whereby there is no guar-

antee for an organization to retain legitimacy by

its constituencies unless they share common

interpretations of what are the beliefs, attitudes,

and values that are shared and to which extent

they are shared. Following Suchman, corporate

legitimacy may take three forms, pragmatic,

cognitive, and moral legitimacy, and is

grounded in three types of reasoning or assess-

ments: (a) pragmatic assessments of stakeholder

relations, (b) normative evaluations of moral

L 1588 License to Operate

propriety, and (c) cognitive definitions of appro-

priateness and interpretability (Suchman 1995).

(a) Pragmatic legitimacy articulates an exchangeof legitimacy between an organization and its

stakeholders which they value in terms of

their self-interested benefits from the organi-

zation’s activities. In order to ascribe prag-

matic legitimacy to an organization,

stakeholders scrutinize the practical conse-

quences (e.g., cost savings or payment) of

these activities on them. Consequently, the

organization has an interest in influencing

stakeholders and the wider public’s assess-

ments of the benefits they may gain from the

social engagements of the organization.

(b) Moral legitimacy is based on a positive nor-

mative judgment of the organization and its

activities. While pragmatic legitimacy is

based on instrumentalism and self-interest

of the stakeholders in relation to the activities

of an organization, moral legitimacy is more

altruistic in nature and based on judgments

about whether the organization’s activities

result in societal benefits according to the

socially constructed value system of the

stakeholders. Moral legitimacy includes dif-

ferent subtypes of legitimacy: (a) consequen-

tial legitimacy related to the accomplishment

of an organization, (b) procedural legitimacy

garnered to an organization on the basis of

the processes adopted to realize effective-

ness, (c) structural legitimacy based on an

organization’s socially constructed capacity

to perform specific tasks, and (d) personal

legitimacy gained by an organization

according to the charisma of its leader(s).

Delegated to an organization on the basis of

its capacity and willingness to enter into pub-

lic discussions, moral legitimacy is granted to

organizations that deliberate rather than

manipulate their public (Palazzo and Scherer

2006).

(c) The third type of legitimacy, cognitive

legitimacy, points to legitimacy earned

through behavior that is necessary and inev-

itable in business life and therefore taken

for granted by the public. Accordingly,

Suchman distinguishes two forms of

cognitive legitimacy which link to compre-

hensibility and taken-for-grantedness,respectively (Suchman 1995).While compre-

hensible legitimacy is provided for organiza-

tions that prove coherent, understandable,

and meaningful in their activities, taken-for-

grantedness implies their automatic adapta-

tion to mainstream social expectations and

procedures. However, since cognitive legiti-

macy operates at the subconscious level, it is

difficult to manage and control directly.

Suchman’s description of legitimacy thus pro-

vides insights into the myriad and fluidity embed-

ded in corporate legitimacy and that businesses

have to live up to in order to earn their license to

operate. In the following, further details of how

a license to operate may be granted at different

levels and within different issues of CSR will be

presented.

Issues and Practices of CSR

In Archie B. Carroll’s key reference article “The

Pyramid of Corporate Social Responsibility:

Toward the Moral Management of Organiza-

tional Stakeholders” (Carroll 1991) published in

Business Horizon, he conceptualizes CSR as

a pyramid composed of four layers of responsi-

bilities that businesses are expected to accom-

plish. From the bottom of the pyramid,

businesses have economic, legal, ethical, and

philanthropic responsibilities. His layered

approach gives us a rough picture of the premises

and conditions under which a license to operate is

granted by stakeholders to organizations.

(a) Economic responsibility. Since making

a profit is embedded in doing business, the

practice of demonstrating economic respon-

sibility can hardly be considered as an activ-

ity that may prompt a license to operate.

Taken for granted, the effort of generating

a profit and benefiting society through creat-

ing jobs and welfare may be considered as an

example of cognitive legitimacy, because as

pointed out by Caroll (1991), it is required

from businesses in general.

(b) Legal responsibility is also required from

businesses and thus not an issue that is nego-

tiable with stakeholders. However, although

License to Operate 1589 L

L

it is required that businesses comply with the

law and that if they do, they are in the legal

sense entitled to a license to operate, it is in

some part of the world a challenge in itself to

live up to compliance. In Asia and certain

Third World countries, corruptive behavior

toward government or local authorities can

be more the rule than an exception. Conse-

quently, the violation of regulation and cor-

ruption practices is common procedure and

therefore not necessarily a hindrance to gain

a license to operate in the social sense. In

opposition, norms and habits in Western cul-

tures, minor violations at the local level is

more or less accepted and even taken for

granted under certain circumstances when

businesses want to negotiate with NGOs,

suppliers, and do business with locals. Con-

sequently, what is a prerequisite for gaining

a license to operate in one culture is negotia-

ble in other cultures.

(c) Ethical Responsibility. In Carroll’s sense,

organizations are not obliged, hence only

expected to demonstrate ethical responsibil-

ity (Carroll 1991). In practice, ethical respon-

sibilities “embody those standards, norms or

expectations that reflect a concern for what

consumers, employees, shareholders, and the

community regards as fair, just, or in keeping

with the respect or protection of stakeholders

‘moral rights.’” Ethical responsibility is thus

demonstrated by businesses that take initia-

tives above the law to promote societal goals,

for example, environmental management in

order to fight climate change, community

involvement in sports clubs to reduce obesity,

employee relations to improve the working

conditions, corporate governance initiatives

such as, establishing codes of ethics, social

reporting, etc. As these initiatives are

connected to the cultural and business con-

ventions which are practiced in a community,

this type of social engagement is likely to

foster the “social license to operate” of an

organization in accordance with its corporate

social performance, and with the degree of

recognition it enjoys by stakeholders in the

community. The “social license” that an

organization’s corporate social performance

record inspires by its stakeholders is propor-

tional with the expectations and norms of

social engagement that exist in the commu-

nity where it belongs. Ethical responsibility is

thus likely to provide both a moral or prag-

matic legitimacy depending on whether an

ethical engagement is motivated by self-

interest for the organization and/or its stake-

holders. With the growing disempowerment

of government regulators, businesses’ volun-

tary social initiatives have augmented the

displacement of ruling conventions and stan-

dards for what it takes to gain a license to

operate.

(d) Philanthropic responsibility is neither

claimed, neither expected from businesses,

but following Carroll (1991) it is desired

that they act as good corporate citizens by

engaging in activities that are likely to pro-

mote human welfare and goodwill. Donating

to global or local communities in order to

support good deeds have been part of good

corporate citizenship in the American society

for years, but charitable contributions

through giving campaigns and donation pro-

grams are increasingly initiated by European

corporations. From a license to operate per-

spective philanthropy is thus more a question

of granting reputational legitimacy to busi-

nesses than about providing them with

a license in the legal or even the social

sense. Even though the levels for gaining

a license to operate are disparate and cultur-

ally bound to the conventions and norms in

a society, philanthropic responsibility is still

mainly considered beyond the limit of what is

required of businesses.

In spite of establishing a hierarchical demar-

cation between economic, legal, ethical, and phil-

anthropic responsibility, respectively, Carroll’s

pyramid (1991) does not help us in setting stan-

dard for where to draw a fixed limit below or

above the levels and degrees of responsibility

that organizations must accomplish in order to

gain their license to operate. It remains

a question of how their stakeholders interpret

what the limits are for good and bad social

L 1590 License to Operate

business behavior in a given community and to

which extent the organizations are perceived to

live up to the norms and standards for demon-

strating economical, legal, ethical, and philan-

thropic responsibility within this community.

The importance of approaching the concept of

license to operate to the domains and levels of

Carrols models of CSR and corporate citizenship

is its demonstration of how these levels tend to

dislocate once they are transferred into licenses

of operate in practice. As pointed out above,

legitimacy and “license to operate” are based on

assessments and values that are socially

constructed and thus subject to different social

and cultural interpretations and understandings.

It does not mean, however, that “license to oper-

ate” is of no use. On the contrary, the notion is

widely used by researchers and practitioners to

signal where they themselves or constituent

groups establish the limits between business and

society, and how these limits come to determine,

activate, and construct what it takes for an orga-

nization to gain a license to operate in some

community of shared beliefs and attitudes.

Future Directions

As the limits of expectations concerning corpora-

tions’ CSR engagement are constantly redefined,

new standards and norms for how corporations are

to behave emerge with the movement of society

toward explicit CSR in light of globalization, pri-

vatization, and neoliberalism. As pointed out by

distinctive management researchers Porter and

Kramer (2006), there is already an increasing pres-

sure on corporations to adopt CSR as a business

case and as a competitive strategy. For the same

reason the exploitation of a close tie between

a social issue and a corporation’s business is

increasingly accepted and perceived as a great

opportunity to both leverage its resources and ben-

efit society. Through spread and implementation

of this trend we may expect that, from

a competitive perspective, corporations seeking

to gain a license to operate will be faced with

still more sophisticated practices of corporate

social methods and initiatives. Therefore, the

disclosure and transparency of best practices of

CSR is an emergent issue that has set the corporate

agenda for discussing more explicitly CSR chal-

lenges in relation to corporate strategy, implemen-

tation, organization, and communicating

processes. Several CSR researchers who are par-

ticularly interested in studying the link between

strategizing, organizing, implementing, and com-

municating CSR, for example, Morsing et al.

2008, Nielsen and Thomsen 2011, Du et al.

2010, etc., have contributed to demonstrate that

engaging in dialogue through networking,

cocreating, negotiating CSR with stakeholders is

increasingly important in reputation management.

Time will show whether such interactions will

result in new national and international standards

and regulations for how much it takes for

a corporation to gain a license to operate.

Cross-References

▶Carroll, A.B.

▶Corporate Citizenship

▶Corporate Social Responsibility

▶CSR Communication

▶Legitimacy Theory

▶ Philanthropic CSR

▶ Pyramid of CSR

References and Readings

Carroll, A. B. (1991). The pyramid of corporate social

responsibility: Towards the moral management of

organizational stakeholders. Business Horizons, 34(July/August), 39–48.

DiMaggio, P. J., & Powell, W. W. (1991). Introduction.

In W. W. Powell & P. J. DiMaggio (Eds.), The newinstitutionalism in organizational analysis (pp. 1–38).Chicago: University of Chicago Press.

Du, S., Bhattacharya, C. B., & Sen, S. (2010). Maximizing

business returns to corporate social responsibility

(CSR): The role of CSR communication. InternationalJournal of Management Reviews, 12(1), 8–19.

Garriga, E., & Mele, D. (2004). Corporate social respon-

sibility theories: Mapping the territory. Journal ofBusiness Ethics, 53, 51–71.

Gunningham, N., Kagan, R., & Thornton, D. (2003).

Social license and environmental protection: Whybusinesses go beyond compliance. London: Centre

Lobbying 1591 L

for Analysis of Risk and Regulation, London School of

Economics and Political Science.

Matten, D., & Moon, J. (2008). Implicit and explicit CSR:

A conceptual framework for a comparative under-

standing of corporate social responsibility. Academyof Management Review, 33(2), 404–424.

Morsing, M., Schultz, M., & Nielsen, K. (2008). The

‘Catch 22’ of communicating CSR: Findings from

a Danish study. Journal of Marketing Communica-tions, 14(2), 97–111.

Nielsen, A. E., & Thomsen, C. (2011). Sustainable devel-

opment: The role of network communication. Corpo-rate Social Responsibility and EnvironmentalManagement, 18, 1–10.

Palazzo, G., & Scherer, A. G. (2006). Corporate legiti-

macy as deliberation: A communicative framework.

Journal of Business Ethics, 66, 71–88.Porter, M. E., & Kramer, M. R. (2006). Strategy and

society: The link between competitive advantage and

corporate social responsibility. Harvard BusinessReview, 84(12), 78–92.

Suchman, M. C. (1995). Managing legitimacy: Strategic

and institutional approaches. Academy of ManagementReview, 20, 571–610.

L

Life Cycle Assessment Models

▶ Sustainability Assessment Models

Life Cycle Engineering

▶ Product Life Cycle

Life on Earth

▶Natural Environment

Like an Organ

▶Organic

Like an Organism

▶Organic

Limiting Impacts

▶Mitigation

Livable

▶Organic

Livelihood

▶ Sustainability (World Commission on Envi-

ronment and Development Definition)

Living Planet

▶Natural Environment

Living Wage

▶Minimum Wage

Lobbying

Matthias S. Fifka

Cologne Business School (CBS), Dr. J€urgen

Meyer Endowed Chair for International Business

Ethics and Sustainability, Koeln, Germany

Synonyms

Government relations; Lobbyism; Public interest

representation; Special interest representation

L 1592 Lobbying

Definition

There is no universally accepted definition

of lobbying, since the understanding of what

lobbying is and what activities it encompasses

varies significantly. Moreover, lobbying can

come in many forms. Generally, it is possible to

distinguish between direct and indirect lobbying.

The former consists of a “communication [. . .]

between the organization’s representative and

the governmental decision maker” (Hrebenar

and Scott 1990, p. 69). Thus, there is direct

contact – either in person or through communi-

cation media – between the governmental deci-

sion maker and the organization’s representative.

The latter can be a lobbyist directly employed

by the company or hired from an external firm,

but also an employee of the firm whose prime

occupation does not consist of lobbying, such as

a manager. Especially high-ranking managers

often have easy access to political decision

makers and enjoy credibility advantages over

hired lobbyists, which is why they also become

active in the transmission of interests.

In contrast, indirect lobbying or grass rootslobbying takes a different path. It can be seen as

the attempts of groups to generate public pressure

on governmental decision makers. This is usually

done by mobilizing the public in general or an

organization’s members in specific in their role as

voters, based on the assumption that politicians

will be inclined to pay attention to those who are

responsible for their reelection. Moreover, grass

roots lobbying can be more authentic since the

concerns are articulated by the people themselves

and not by a lobbyist. However, artificially gen-

erated mobilization is likely to have only little

credibility and thus is referred to as astro turf

lobbying.As pointed out, the understanding of lobbying

varies significantly with the respective national

context. In continental Europe, for example, the

word “lobbying” usually has a very negative con-

notation to it, because it is associated with undue

political influence. In Anglo-Saxon countries by

comparison, lobbying is more often seen as an

essential element of the political process. The US

Senate (1956, p. 22), as one of the major targets of

national as well as international lobbying efforts,

has clearly articulated this view: “Lobbying [. . .]

is, in its proper use, a necessary and beneficial

adjunct to the orderly processes of government.”

This perception can mostly be attributed to the

long tradition of lobbying in Anglo-Saxon

democracies.

Introduction

The word “lobbying” originates from the English

word “lobby,” the hall of parliament, where

already in the seventeenth century people were

waiting to petition politicians and to ask favors.

Due to these origins, lobbying traditionally and

still today is sometimes considered to solely

encompass efforts directed at the legislativebranch of government. Nevertheless, the execu-

tive branch also is frequently addressed by lob-

byists. Here, the respective efforts are mostly

targeted at departments and agencies as they are

responsible for converting rather broad legisla-

tion into specific rules and regulations, which the

lobbyists seek to influence. The top ranks of the

executive, such as presidents or prime ministers,

are subject to lobbying to a much lesser degree,

since they are usually regarded as representatives

of a state in its entirety and not particular inter-

ests. There is dispute about whether the judicialbranch can also be a target of lobbying. Tradition-

ally, there had been the “myth of the nonpolitical

judicial system” (Mack 1997, p. 193). For

moral reasons, the judiciary did not seem to be

the appropriate platform for the transmission of

special interests. However, in the 1960s, citizen

groups increasingly discovered the possibility to

pursue their interests bymaking use of the judicial

system. Thus, four forms of lobbying can be

identified in specific.

Legislative lobbying aims at addressing mem-

bers of parliament or their staff in order to influ-

ence the law-making process. This can happen at

different stages. Interest groups often become

active in the first step of the legislative process

already and initiate laws themselves. For that

purpose, they provide legislators with prepared

bills, additional material and statements by

Lobbying 1593 L

L

experts on why the respective law is necessary.

The challenge here is to identify the respective

politicians who might be willing to submit the

respective bill drawn by the interest group. In

a second step, lobbyists try to influence the

drafting of bills. In this context, they benefit

from the fact that politicians have to deal with

a large number of proposed laws in a short time

and can neither get profound insights in all mat-

ters nor obtain the relevant in-depth information.

Thus, they rely onmaterial provided by lobbyists,

who often enjoy an “information advantage” over

the politician. Nevertheless, lobbyists have to

provide correct information in order not lose

their credibility and access to lawmakers with it.

The third step of the process consists of the work

in committees or work groups, where bills are

discussed before they reach the full plenum. Lob-

byists meet with the respective members, try to

convince them of their position and thus forge

a bill that reflects the interests they represent.

Lobbyists can also try to “kill a bill” on this

stage so that it is never presented to parliament

in its entirety. The final stage, the actual vote in

parliament, is the last step in the process. Here

lobbyists mostly become active when a close vote

is expected and the possibility exists to tilt the

decision in one’s favor by convincing individual

politicians to vote for or against the respective bill.

Executive lobbying is less common than its

legislative counterpart, but is still of significant

importance. This type of lobbying is unique since

it is strongly party-bound. Usually, the executive

branch, at least on higher levels, is dominated by

the party or parties in power, whereas in parlia-

ment there are usually more parties to be found.

As pointed out above, most executive lobbying

focuses on departments and agencies. Since they

can enact (“quasi-judicial power”) and enforce

regulation, they are an important target. Often

interest groups are affected more by specific reg-

ulation than the rather broad laws made in

parliament.

As pointed out above, there is dispute on

whether targeting the judicial branch should

also be seen as lobbying. Legal provisions on

lobbying do not consider activities directed at

the judiciary as lobbying, as can be demonstrated

by the US Lobbying Disclosure Act of 1995.

It defines lobbying as “any written or oral commu-

nication (including an electronic conversation) to

a covered executive branch official or a covered

legislative branch official that is made on behalf

of a client with regard.” Although not considered

lobbying by legal definition, judicial lobbying

has become a political reality and is being used

for the transmission of interests. There are several

forms of judicial lobbying. Many judicial sys-

tems, especially in the Anglo-Saxon world,

allow the filing of so-called friend of the courtbriefs (amicus curiae). They permit a third party

that is not directly involved in a case to state its

opinion if it can demonstrate that it will be

impacted by the respective decision. Moreover,

interest groups try to influence the appointment or

election of judges, especially those in higher

office. Instead, filing a lawsuit cannot generally

be considered to be a form of lobbying, since it

can have manifold purposes and mostly is

apolitical.

Like direct lobbying, grass roots lobbying also

comes in many forms. As pointed out above,

grass roots lobbying mostly focuses on elected

politicians, based on the assumption that they are

seeking election or reelection and will listen to

the voters. Thus, the legislative branch is the

primary target of this form of lobbying: “In each

legislator’s eyes, the wants and needs of her or his

own constituents are paramount. Satisfying them

is key to the legislator’s ‘bottom line’ – reelec-

tion” (Mack 1997, p. 187). There is dispute on the

question whether grass roots lobbying only con-

sists of the attempt to mobilize the members of

one’s own interest group or the public in general.

Kollman (1998, p. 3) considers grass roots lob-

bying as “attempts by interest group leaders to

mobilize citizens outside the policymaking com-

munity to contact or pressure public officials

inside the policymaking community.” According

to this definition, grass roots lobbying aims at

citizens in general. Targeting them can have

more impact, but is more costly and technically

more difficult than solely addressing a group’s

members. In both cases, voters are urged to write

letters or e-mails to their political representatives

or to call them in order to communicate a specific

L 1594 Lobbying

standpoint. Other possibilities are fundraising or

campaign support to help certain politicians to

obtain or maintain office. Finally, the initiation

of demonstrations or boycotts can be aimed at

transmitting a certain interest or to garner politi-

cal attention for a specific issue.

Key Issues

The key controversy with regard to lobbying is

the question of its role and appropriateness in the

political process. On the one side, it can be

regarded as an essential element that permits

political participation as well as the articulation

and transmission of interests. The right to petition

the government is included in the constitution of

most democracies. On the other side, lobbying

can be seen as an instrument of undue influence,

which primarily can be used by well-organized

and financially powerful pressure groups that

often pursue narrow interests. Again, it could be

argued that this is a justified mechanism that pro-

tects small groups against a tyranny of the

majority.

Often, lobbying is described as the fifth power,

referring to the media often being considered the

fourth power, aside from the legislative, execu-

tive, and judicial branches. However, other than

the three institutionalized powers, the media and

lobbyism are hardly subject to legal restrictions.

A core problem of placing limitations on lobby-

ing is the difficulty of defining, monitoring, and

sanctioning it. Thus, questions like these arise:

When a politician meets a representative of an

interest group is that always a form of lobbying?

Do invitations that politicians receive necessarily

attempt to lobby them?

Despite these difficulties, governments have

made attempts to regulate lobbying and to make

it more transparent. Some important examples

shall be given here. In the USA, the LobbyingDisclosure Act of 1995 defines if a person is to be

considered a lobbyist under the law: “Any indi-

vidual who is employed or retained by a client for

financial or other compensation for services that

include more than one lobbying contact, other

than an individual whose lobbying activities

constitute less than 20% of the time engaged in

the services provided by such individual to that

client over a 6-month period.” These persons

have to register with Congress and regularly fill

out a form stating under whom they became

active and the amount they received as fee for

their services. Organizations in turn have to pro-

vide information on whom they hired as lobbyists

and on their respective expenditures, so that

a cross-check is possible. This does not restrict

the scope of lobbying itself, but it allows for the

possibility to legally pursue violations and reign

in uncontrolled lobbying. Moreover, it makes

lobbying more transparent. The extent to which

companies and associations are engaged becomes

visible, since the reports filed are accessible for

everyone, either in printed form or online.

In the European Union, registration of lobby-

ists happens on a voluntary basis, which has been

heavily criticized by those who demand manda-

tory registration like in the USA. The European

Parliament has spoken out for obligatory regis-

tration, but such a step has been denounced by the

European Commission. Thus, in June 2011, the

Parliament and the Commission have launched

a joint online platform and have called for volun-

tary registration by organizations and individuals

who seek to influence the political decision-

making process. The incentive for registering

voluntarily is getting easy access to the parlia-

mentary buildings. Registration is also connected

to signing a code of conduct. Furthermore, regis-

tered lobbyists have to disclose their income from

lobbying and the share of individual clients in it

on an annual basis. The register can be viewed

online and fosters transparency of the lobbying

process (European Union 2012).

There is also specific regulation within some

member states of the European Union. In Ger-

many, for example, registration is also voluntary

and is reduced to representatives of associations.

Calls for obligatory registration have been

voiced, but they have not been translated into

legislation so far. In France, as another example,

we do not even find the possibility of voluntary

registration. Although professional lobbying is

quite young there, especially in comparison to

Anglo-Saxon countries, it has grown

Lobbying 1595 L

L

considerably since 1980. Several parliamentary

initiatives have been taken and bills on regulation

have been introduced, but none has been adopted

so far. Likewise, statutory registration has been

discussed in Great Britain, but the British

parliament has also not agreed to make any

respective laws.

An important reason for why parliaments are

not inclined to place limitations upon lobbying is

the so-called revolving-door phenomenon, which

is another key issue with regard to lobbying. It

describes the practice that legislators and regula-

tors become lobbyists after their careers in the

legislative or executive branch, and vice versa.

Especially in departments and agencies it is not

uncommon that former lobbyists or industry pro-

fessionals obtain governmental positions. They

are hired by government for their expertise and

their experience with private industry. Often,

they serve as transmitters for governmental inter-

ests into the companies for which they once

worked. In turn, former governmental decision

makers are hired as lobbyists because of their

acquaintance with political processes and their

access to politicians in office. In the USA, since

1998, almost half of the members of Congress

who left office have registered as lobbyists. Con-

sequentially, limitations on using the revolving

door have been established in the USA in order to

prevent that a tight relationship between govern-

ment and private industry develops over time.

The rules mostly require former politicians who

become lobbyists and vice versa to wait for a

certain amount of time – normally 2 years –

before they can become active on issues they

once were concerned with (White House 2009).

This, however, is an exception in international

comparison, since most countries do not

regulate switching between the private and the

public sector.

Overall, lobbying itself has become a large

private sector industry that has been growing

considerably, which is another controversial

issue. Due to the tight registration and disclosure

requirements, there is profound data available

for the US Opensecrets.org (2012), a nonprofit

organization that compiles data from the official

public lobbying records and aggregates it, which

has calculated that total lobbying spending has

increased from $1.44 billion in 1998 to $3.32

billion in 2011, though recently a stagnation can

be observed. In the same period, the number of

active registered lobbyists has risen from 10,408

to 12,654, but had reached its peak already in

2007 at 14,840. In the European Union, there is

heavy dispute on the number of lobbyists,

since registration is voluntary. Siim Kallas,

Vice-President of the European Commission,

has estimated that there are about 15,000 active

lobbyists, while the two professional associations

of lobbyists – the European Public Affairs

Consultancies Association and the Society of

European Affairs Professionals – only have

a membership of 1,000 lobbyists and estimate

that an additional 500 nonmembers are active,

bringing the total number to only 1,500 overall

(EurActiv 2008). Nevertheless, this latter esti-

mate is too low, since by the beginning of May

2012, 4,741 lobbyists had voluntarily registered

in the EU Transparency Register established in

June of 2011 (European Union 2012).

The increasing importance and professionali-

zation of lobbying can also be seen in the fact that

universities offer courses to prepare students for

a lobbying career. Usually, the respective courses

are integrated into Public Affairs or Public

Relations degrees. Aside from these courses of

study, many active lobbyists also hold law

degrees since legal matters are core to their

profession.

Future Directions

One of the core issues regarding lobbying in the

future is the effort to make it more transparent.

Especially after the large lobbying scandal

around Jack Abramoff became public in the

USA in 2006, calls for more openness and regu-

lation increased, especially in the Western world.

However, as pointed out above, in most jurisdic-

tions there is a strong hesitation toward manda-

tory registration and the disclosure of clients and

income generated from lobbying. Thus, sugges-

tions to foster transparency have mostly been of

voluntary nature.

L 1596 Lobbying

In the business world, companies have

begun to voluntarily disclose information on

their lobbying activities in their sustainability

and corporate social responsibility (CSR) reports.

International reporting standards and guidelines

have driven that development by calling for such

disclosure. The Global Reporting Initiative

(GRI), as the most prominent international

reporting standard, considers information on

“public policy positions and participation in

public policy development and lobbying” (2011,

p. 38), a core objective of disclosure. Moreover,

companies are asked to provide information on

the “total value of financial and in-kind contribu-

tions to political parties, politicians, and related

institutions by country” (2011, p. 38).

The ISO 26000 (2010) as a voluntary and non-

certifiable standard for CSR contains a section on

fair operating practices. It demands transparency

on policies and activities related to lobbying and

political participation. Moreover, it explicitly

asks companies to establish policies which man-

age the activities of people who are hired to lobby

on the organization’s behalf. Finally, the ISO

26000 recommends that companies refrain

from contributions which could exert undue

influence on politicians or policymakers in favor

of specific interests or could be perceived as an

attempt to do so.

Therefore, lobbying clearly has become an

issue of CSR. However, this has mostly hap-

pened so far with regard to transparency and

improved disclosure. Concerning the develop-

ment and implementation of internal manage-

ment systems that design and control the

lobbying policies and efforts of companies, as

laid down by the ISO 26000, significant efforts

still have to be made. In this context, there is

sufficient potential for future research targeted

at developing the respective strategies and oper-

ational measures.

Another issue that has not received adequate

attention so far – neither by business nor by

academia – is the concept of socially responsible

lobbying. Here, lobbying is seen as an effective

instrument of CSR, based on the promotion of

policies that serve a wider social interest. Thus,

businesses use their power and political access

not to pursue their own narrow business interests

but to support social, environmental, and eco-

nomic issues. The underlying idea of socially

responsible lobbying is that businessmen or

their spokesmen enjoy more clout on the political

level than representatives from nongovernmental

organizations or citizen groups do. Frequently,

the term social lobbying is used as a synonym

for socially responsible lobbying, which can be

misleading, however. Social lobbying, especially

in an Anglo-American context, usually describes

traditional lobbying that is taking place at social

events such as dinners, sports tournaments, and

receptions.

Socially responsible lobbying is connected to

several advantages that other instruments of

CSR, for example, the establishment of founda-

tions, sponsoring, and cause-related marketing,

do not offer. First of all, it is rather inexpensive,

since all that is required is the manager’s or

lobbyist’s time. The respective person can

often use the possibility to promote social or

environmental issues when conferring with

a governmental decision maker on company-

related economic interests. Second, as pointed

out above, company representatives usually

benefit from easy access to politicians and

bureaucrats and can thus articulate concerns that

might not be heard or only receive little attention

otherwise. Third and most important,

a company’s CSR initiative can be much more

effective, when done in coordination with the

government, as Vogel (2008, p. 41) points out:

“[L]obbying needs to become a critical compo-

nent of a CSR strategy. It is not enough

for companies to engage in sophisticated private

initiatives, however strategic [. . .]. Without

government support, many socially beneficial

corporate programs will have limited impact.”

The gravest problem with regard to socially

responsible lobbying is credibility. Neither

governmental decision makers nor the public

might trust the effort of a company representa-

tive to promote social or environmental con-

cerns. This skepticism can mostly be

attributed to the rather negative image of lob-

bying, which is usually associated with the pur-

suit of narrow business interests. To address

Local-Community Actors and CSR 1597 L

this problem, businesses can lobby on eco-

nomic, social, and environmental issues that

are clearly of importance to them and target

their efforts at external conditions that are via-

ble for their success. This way, social value and

business benefit can be created at the same

time. The effectiveness is leveraged by the

cooperation between business and government

and the potential inclusion of civil society

actors. Overall, socially responsible lobbying

can be judged as a very powerful tool of CSR

that is still underestimated and underused, but

enjoys significant future prospects.

Cross-References

▶Corporate Social Responsibility

▶Global Reporting Initiative

▶ ISO 26000

L

References and Readings

EurActiv (2008). EU lobbyists scramble over their exact

numbers. http://euractiv.com/pa/eu-lobbyists-scram-

ble-exact-numbers/article-173152. Accessed 3 May

2012.

European Union (2012). Transparency register. http://

europa.eu/transparency-register/index_en.htm. Accessed

1 May 2012.

Hrebenar, R. J., & Scott, R. P. (1990). Interest grouppolitics in America. Englewood Cliffs: Prentice Hall.

International Organization for Standardization (ISO).

(2010). Guidance on social responsibility. Geneva:ISO.

Kollman, K. (1998). Outside lobbying – public opinion &interest group strategies. Princeton: Princeton Univer-sity Press.

Mack, C. S. (1997). Business, politics, and the practice ofgovernment relations. Westport: Quorum Books.

Opensecrets.org (2012). Lobbying database. http://www.

opensecrets.org/lobbying/index.php. Accessed 2 May

2012.

The Global Reporting Initiative. (2011). Sustainabilityreporting guidelines. Amsterdam: Global Reporting

Initiative.

United States Senate (1956). Report of the select commit-

tee for contribution investigation. In 48th congress

second session, Washington, DC.

Vogel, D. (2008). Socially responsible lobbying. HarvardBusiness Review, Feb, p. 41.

White House (2009). Ethics. http://www.hitehouse.gov/

issues/ethics/. Accessed 2 May 2012.

Lobbyism

▶Lobbying

Local Agenda 21

▶Region

Local Community

▶Region

Local Food

▶Locally Grown/Locally Raised

Local Food Movement

▶Locally Grown/Locally Raised

Local Governance

▶Territorial Social Responsibility and Territo-

rial Small and Medium-Sized Enterprises

Local Sustainable Development

▶Region

Local-Community Actors and CSR

▶NGOs and CSR

L 1598 Locally Grown/Locally Raised

Locally Grown/Locally Raised

Martin Quinn

Business School, Dublin City University,

Glasnevin, Dublin, Ireland

Synonyms

Food patriotism; Local food; Local food move-

ment; Locally raised; Regional food

Definition

Locally grown (or local) food refers to efforts to

build self-reliant food systems in a particular area

or region. Local food may be organically grown,

but this is not necessarily so to define it as local or

locally grown. The term “food systems” refers

not only to production and consumption of food,

but also to ecological, historical, and political

factors particular to an area or region. This

implies that any understanding of local food

systems will be grounded in contextual factors

and any analysis of such systems will not be

value-free or universal. Feenstra (2002) defines

a local food system as “a collaborative effort

to build more locally based, self-reliant food

economies – one in which sustainable food

production, processing, distribution and con-

sumption is integrated to enhance the economic,

environmental and social health of a particular

place.” Additionally, as locally grown food

aspires to realize self-reliance, the local economy

and society are arguably enhanced. Locally

grown food is also associated with broader

sustainable agriculture, which involves food pro-

duction using methods that are not harmful to the

environment, provide fair wages and respect

workers and supports local communities.

Introduction

Locally grown food is an alternative to large-

scale corporate agricultural models where food

producers are more separated from end con-

sumers. In the corporate agricultural model,

multiple levels of processors/manufacturers, dis-

tributors, and retailers separate the food producer

and consumer. This separation removes the qual-

ity control of food away from producers and

toward distributors. In contrast, locally grown

food and local food systems redevelops the rela-

tionship between end consumers and food pro-

ducers. This relationship is at its most visible in

the local farmers’ markets now commonplace

across Europe and the USA.

As noted in the definition above, the concept

of locally grown food must be analyzed in the

context of a local food system. A local food

system is more than agricultural production,

rather a set of processes up and down the food

chain which is contextual and collaborative.

Lyson (2005) uses the term “civic agriculture,”

which also embodies the social nature of a local

food system. For example, a preference to buy

locally grown food will help support local

employment. The term “local food movement”

is used by many writers to describe the collective

members of a local food system whose common

goal is to promote the local food economy. The

local food movement includes not just producers

and consumers, but also community gardens,

food co-ops, farmers’ markets, and seed-savers

groups.

A key tenet of the local food movement is to

separate the benefits of economic progress in

food production from potential disadvantages.

Historically, locally grown food was the principal

method of food production. For example, early

European planters in the USA grew, raised, and

processed all food requirements on the planta-

tion. Over time, advances in food production

technologies and increased availability of faster

transportation (e.g., railroads, followed by auto-

mobiles and highways) meant excess food could

be sold for profit and transported to other regions

for centralized processing. Today, refrigeration

and air transport make it possible to ship fresh

produce on a global scale. Thus, over time, a local

food economy transformed into a regional one

and can now be viewed on a global scale. An

irony of a regional or international food economy

Locally Grown/Locally Raised 1599 L

is that locally grown food may be shipped hun-

dreds of miles/kilometers to a distribution or

processing center to find its way back to a local

grocery shelf, where it is cheaply available.

Although cheap food is an advantage to con-

sumers, it can be argued that a sizeable portion

of the economic benefits of food produced in

a region may leave that region. During the

1970s, economist E.F. Schmacher promoted the

notion of “local economies” as an alternative to

regional or global economies. Local economies,

as noted by DeLind (2006), can “reframe an

economic orientation with more ecological and

cultural understandings of people in place.” In

essence, this means characteristics of locally

grown food are not subsumed by a globally ori-

ented marketplace. On the other hand, local food

movements are not advocating a return to food

shortages nor against sharing food resources with

other localities.

L

Key Issues

As with other sustainability issues, the locally

grown food movement has increased in popular-

ity in the past decade or so. It can be argued that

a direct result of the increasing awareness of

locally grown foods is that consumers have an

increased choice of local food products, more

ways to buy, better quality products, and

improved product knowledge. Similarly, local

producers’ margins may have improved due to

cutting out links in the distribution chain. There

are several issues around locally grown food

ideals, which are subject to ongoing debate and

are discussed below.

Defining “Local”

The definition of “local” is problematic. Unlike

organically grown foods which must comply with

rigorous certification standards, inspection pro-

cesses and labeling, locally grown food means

different things to different people. In

a geographic sense, local is regarded as position

with regard to surrounding objects, or a place,

district, neighborhood, or region. Legal authori-

ties such as the US Department of Agriculture

and the European Commission for Agriculture

and Rural Development do not offer, nor adopt,

a definition of local in the context of agricultural

production.

US not-for-profit organization Sustainable

Table proposes locally grown food can be

described as a series of concentric circles. The

first circle is growing food at home; the next

circle is food grown in the immediate commu-

nity; subsequent circles relate to food grown in

the state, region, and then country. This interpre-

tation of local is flexible in that the meaning of

the term local can be adapted depending on

factors such as seasons and climate, for example,

some countries may produce certain fruits in

northerly regions in summer time, but year-

round in southerly regions. A related interpreta-

tion of local is by distance. Local food producers

may interpret local as the distance within which

they can reasonably transport their produce;

a days-goods-distance (400 miles, 600 km) is

a common measure. An issue with definitions of

local based on distance is that it can be argued

that local has little to do with distance or area. For

example, the area of Great Lakes in Canada

would subsume many European countries. Addi-

tionally, when many countries have adjoining

borders, as in mainland Europe, local may

include produce from another country.

Local can also be interpreted in terms of ecol-

ogy, whereby locally grown food is defined in

terms of climate, soil type, or watershed. The

World Wildlife Fund (WWF) defines such

regions as ecoregions. An ecoregion is

a “relatively large unit of land or water containing

a distinct assemblage of natural communities and

species, with boundaries that approximate the

original extent of natural communities.” Thus

an ecoregion includes the notion of

a community, which includes people and places,

and is possibly a more unifying concept of local

and more in line with concept of a local food

system as noted by Feenstra (2002).

Where local is defined relative to distance,

ambiguity can be introduced by industrial-scale

food production and distribution. Locally grown

food may be grown and harvested close to the

point of purchase and/or consumption but may

L 1600 Locally Grown/Locally Raised

have traveled a considerable distance through

processing and distribution systems before

returning to the locality. Local food advocates

propose that adequate product labeling may

address this issue by indicating the origin of the

food and the location of processing. In some

cases, the place of origin and place of processing

food is restricted by law to specific localities or

regions, for example, Champagne wine and Cam-

embert cheese to regions of France and Feta

cheese to Greece. Under European Union law,

local food products may be granted a Protected

Geographical Status which implies that only

foods originating and processed in the region

are permitted to trade as such.

Locavores

The origin of the term “locavore” is attributed to

Jessica Prentice, a chef and food writer from the

San Francisco area, who first used the term on

World Environment Day (June 5) in 2005.

A locavore is someone who eats locally grown

or locally produced food. The meaning of local is

problematic, as described above, but a locavore is

typically considered to consume and or/produce

local produce within a 100-mile (160-km) radius.

The word has been formally recognized by the

Oxford American Dictionary since 2007.

The locavore movement proposes numerous

advantages of consuming locally grown food,

some of which are described in more detail

below. Locally grown food is arguably fresher

and tastier, which in turn offers a higher nutri-

tional value. The variety of food is likely to be

broader, as producers focus less on high-yield,

longer-life food varieties. The local economy

retains money within the region and arguably

costs – monetary, social, and environmental –

are lower. Finally, as many local producers use

more traditional or organic farming practices,

local soil is likely to be better sustained.

Labeling

Product labeling is a general consumer issue. For

locally grown food, labeling is complicated given

the ambiguity in defining the precise meaning of

local. Further complication is added by the fact

that large retailers increasingly offer organic

produce. While products may be labeled (and

certified) as organic, this does not imply locally

grown food. Even, if produce were labeled with

the precise locality of origin, it may not be certain

that the produce is entirely local. Thus, the term

locally grown is considered by retailers and pro-

ducers as embracing the growing/raising process

as local. Seed, for example, is thus excluded from

the meaning of local. Until labeling improves to

a full “farm-to-fork” system, local food (in a strict

interpretation) may be best sourced from local

family farms, farmers’ markets and cooperatives,

and community agriculture schemes.

Impacts of Local Food Systems

As noted in the introduction, local food systems

may (re-)develop the relationship between

end consumers and producers, which may

have impacts on the immediate local economy.

The impacts of local food and local food systems

do however extend beyond the locality or region.

The following are some of main impacts, both

locally and beyond.

1. Food quality is increased, due mainly to fresh-

ness. The time from harvest to consumption is

greatly reduced – to a matter of minutes if self-

grown. Preservation of local growing/

harvesting methods also helps maintain land

quality and retention of local varietals.

2. Locally grown food encourages polyculture

(or multiple-cropping) to meet the varied

demand of consumers. Multiple-cropping and

multiuse land (e.g., animals and crops)

improves crop rotation which in turn increases

land fertility and results in more sustainable

farming and land use. Commercial-scale

monoculture, on the other hand, has been crit-

icized as unsustainable and harmful to land.

3. The cost to the consumer of locally grown

food raises several issues. While subject to

debate, the cost of locally grown food can be

more expensive. One reason for the lower

costs of food produced through large-scale

agriculture is that large-scale farms may be

in receipt of subsidies and price supports.

A premium price for local food may make it

less attractive to consumers with less dispos-

able income. Continued growth in the sale and

Locally Grown/Locally Raised 1601 L

L

consumption of local food will ultimately be

driven by the general laws of supply and

demand, with declining price likely in the

longer term (Oberholtzer et al. 2007). Michael

Pollan (2006), in The Omnivores Dilemma,questions whether cost of locally grown food

is in fact the issue. According to Pollan (2006),

US citizens spend on average 10 % of their

income on food compared to 20 % in the

1950s. This shift in expenditure may be

a matter of prioritizing consumer spending

more on goods such as cell phones and other

personal electronics.

4. If more food is grown locally in developed

nations, this may impact growers who export

in developing nations. This may be particu-

larly so in the case of cash crops (i.e., crops

grown solely for sale). The opposing argument

is that developing nations themselves can mar-

ket their produce more locally.

5. An argument in support of locally grown food

is that it has potentially less environmental

impact due to less transportation require-

ments. This can be misleading as any environ-

mental assessment should consider the total

effects of production and distribution on the

environment. The following examples are rep-

resentative of the issues to be considered in

evaluating the environmental impacts.

(a) Fruits grown locally in greenhouses using

artificial heat and light may have a higher

carbon footprint than similar fruits grown

in a warmer climate and transported long

distances to the market. Using renewable

energy to provide artificial light and heat

would nullify any CO2 emissions, thus

making the locally grown option

preferable.

(b) Studies in New Zealand have shown that

the production methods used in dairy and

sheep farms is at least twice as efficient in

terms of CO2 emissions, even if produce is

shipped half way across the globe to

Europe. This is due, in the main, to the

fact that New Zealand producers have nat-

urally clover-rich pastures and thus use

substantially less fertilizers and feed com-

pared to their European counterparts.

(c) A study by engineers at Carnegie Mellon

University has shown that a vegetarian

diet (including nonlocally grown produce)

may contribute a lower carbon footprint

than a standard locally grown diet. Thus

“what” is eaten may be more favorable in

terms of environmental impact.

These brief examples reveal the complexity of

evaluating the environmental impacts of locally

grown food and food systems. If two food prod-

ucts have identical production methods, locally

grown produce will have a lower carbon footprint

as transportation is decreased, but such compar-

atives are relatively uncommon.

Future Directions

DeLind (2010) offers some caution on the direc-

tion of the local food movement. She discusses

three areas of emphasis where the movement may

be distancing itself from its roots and ideals.

First, DeLind (2010) raises some concerns on

locavores. Popular films (e.g., Supersize Me, Fast

Food Nation) and books (e.g., OmnivoresDilemma, In Defense of Food by Michael Pollan

2006) and the media portray individuals as hav-

ing the power to change the monoculture prac-

tices of large-scale agriculture. This, DeLind

(2010) argues, deflects responsibility away from

existing political and power structures whichmay

be more relevant to actual change. She also states

that locavores may have insufficient information

and knowledge to fulfill the role of a locavore.

The popular media just referred to may provide

checklists or instructions on what to eat, which is

orientated toward, and fosters, individuality.

This, in turn, removes the “local” sense for

locally grown/local food, where community is

a vital component.

Next, DeLind (2010) cites what she refers to

as the “Walmart” emphasis – Walmart being

a large US and global retailer. Walmart, Tesco

(a European retailer) and other large retailers sell

what they call locally grown food. Availability of

locally grown food in such stores aligns low price

with the objectives of locavores. Retailers fre-

quently promote local growers in the advertising,

L 1602 Locally Grown/Locally Raised

but the relationship between grower and the com-

pany is likely to be no different than with large

industrial-scale producers. The primary concern

expressed by DeLind (2006, 2010) is that large

business is in danger of taking control over defin-

ing “local.” This removes local people and ecol-

ogy from the meaning of local and replaces it

with a corporate understanding. There is also

a danger that local markets for locally grown

food become subsumed by the very commercial

organizations and structures they set out to

counteract.

A final concern expressed by DeLind (2010) is

the Pollan emphasis, with reference to books of

“super-heros” of the local food movement, such

as Michael Pollan. While Pollan’s work is the

emphasis of Delind’s discussion, it can be taken

as a metaphor for the visibility and accessibility

popular writing has generated in the local food

movement. Writers like Pollan can be

commended for their efforts in acquainting the

public at large with large-scale agriculture and

providing valid links between agriculture and

health. Alternatives to large-scale agriculture

have also been outlined by such writers. An

issue with “following” the particular offerings

of one writer or other may, like the Walmart

emphasis, pose a threat to the “local” in local

food. The introduction to this entry noted how

local food systems are more than the production

of food, they also incorporate ecological, histor-

ical, and political factors of the locality. Increas-

ing popularity of the local food movement and its

superhero writers threatens to dilute these basic

local elements: in the words of Delind (2010) “to

reconnect to context – to the soil, to work, to

history or to place.”

The cautions offered by DeLind (2010) reflect

the effects of growth in popularity of the local

food movement. Such effects are encountered by

any movement as it grows and takes on

a celebrity effect, particularly in the age of ubiq-

uitous internet access and social networking. The

key point raised by DeLind (2010) is that the

local food movement needs to manage or

reinvigorate the sense of local community and

economy into locally grown food.While farmers’

markets and similar outlets for locally grown

food continue to expand, they are a long way

from the scale and resources of large business.

Retailers like Walmart are proposing to use their

distribution systems to transport local foods to

their stores, rather than have trucks driven by

local producers empty. Whether or not this

retains the local in local food to a sufficient

degree is a matter for future debate. Locally

owned and run markets and outlets are likely to

remain for the near future, but the threat of the

increased participation of large multiples in the

local food movement is one of their greatest

challenges.

Cross-References

▶Carbon Emissions

▶Carbon Footprint

▶ Fair Trade

▶Organic

References and Readings

Delind, L. B. (2006). Of bodies, place, and culture: Re-

situating local food. Journal of Agricultural and Envi-ronmental Ethics, 19, 121–146.

Delind, L. B. (2010). Are local food and the local food

movement taking us where we want to go? Or are we

hitching our wagons to the wrong stars? Agricultureand Human Values, 28(2), 273–283.

Feenstra, G. (2002). Creating space for sustainable food

systems: Lessons from the field. Agriculture andHuman Values, 19, 99–106.

Lyson, T. A. (2005). Civic agriculture and community

problem solving. Culture and Agriculture, 27, 92–98.Oberholtzer, L., Dimitri, C., & Greene, C. (2007). Price

premiums hold on as US organic produce market

expands. In A. Wellson (Ed.), Organic agriculture inthe U.S (pp. 71–95). New York: Nova.

Pollan, M. (2006). The omnivores dilemma. London:

Bloomsbury.

Prentice, J. (2006). Full moon feast: Food and the hungerfor connection. Vermont: Chelsea Green.

Schumacher, E. F. (1973). Small is beautiful: A study ofeconomics and if people mattered. New York: Harper

& Row.

Sustainabletable, What is local?, http://www.sustaina-

bletable.org/issues/eatlocal/. Accessed 19 Apr 2010.

WWF, Deliniations of ecoregions, http://www.

worldwildlife.org/science/ecoregions/delineation.html.

Accessed 20 Apr 2010.

Locusts 1603 L

Locally Raised

▶Locally Grown/Locally Raised

Locusts

Gayle C. Avery1 and Harald Bergsteiner2

1Institute for Sustainable Leadership, MGSM,

Macquarie University, Macquarie Park,

NSW, Australia2Institute for Sustainable Leadership, Australian

Catholic University, Pymble, Sydney,

NSW, Australia

Synonyms

Anglo/US capitalism; Neoliberal capitalism;

Private equity firms (pejorative)

L

Definition

In the business context, the term “locust” refers in

a pejorative sense to firms that focus totally on

their own short-term interests at the expense of

other stakeholders, the environment, and future

generations. Locusts do not create value but gen-

erally destroy value, at least in the long run.

Locusts essentially keep the profits and socialize

the losses arising from their activities. In specific

contexts, such as in Germany, this destructive

insect metaphor refers primarily to private equity

groups, hedge funds, investment banks, and even

individuals who acquire control over healthy

enterprises, strip their assets, and make short-

term profits using sophisticated financial

instruments.

Introduction

From biblical times, locusts have symbolized

destruction – rapidly swarming onto green fields

and stripping them bare. According to National

Geographic, these insects are related to grasshop-

pers, but the unique behavior of locusts makes them

feared and hated. Normally loners, locusts eventu-

ally congregate into mobile swarms in their so-

called gregarious phase when environmental con-

ditions are green and lush. These swarms wreak

havoc, devastating crops and agriculture, and ulti-

mately producing famine and starvation. Many

kinds of locusts operate all over the world, but the

desert locust is possibly the most notorious. In

groups of 40–80 million insects per square kilome-

ter, desert locust swarms can cover up to 1,200 km2

(460 square miles), eating about 192 million kilo-

grams (423 million pounds) of plants every day.

How does this metaphor relate to business?

The term “locust” has only recently started to

enter mainstream business language. In 2001,

John Elkington proposed four insect metaphors

to describe the behavior of organizations in his

corporate chrysalis taxonomy: the destructive

caterpillars and locusts and the regenerative but-

terflies and honeybees. In Elkington’s chrysalis

economy, corporate locusts destroy economic,

environmental, and social value as a result of

the unsustainable business model that they fol-

low. These industrial insects are often hard to

recognize as threatening, until after a period of

developing in relative isolation, they “swarm

together” and overwhelm the social or economic

systems in which they operate. The 2007–2008

global financial crisis (GFC) provides an example

of how the short-term greedy behavior of many

banks had coalesced into a systemic threat to the

global economy. Indeed, the actions of these

banks – supported and encouraged by politicians,

investors, and others – almost brought the global

financial system to the point of collapse.

Key Issues

Locusts tend to believe that the “business of busi-

ness is business,” as Charles Handy (2002)

reminds us. This blinds locust managers to the

need to conserve resources for future generations,

protect the environment, or consider social needs

such as people’s health and well-being (think of

the tobacco companies).

L 1604 Locusts

Corporate locusts exploit and destroy all

forms of capital – natural, human, social, and

economic. The amazing thing about corporate

locusts is that they rarely see the damage they

leave in their wake, and even if they did, they are

likely to dismiss it simply as unavoidable

“collateral damage” in pursuing the short-term

interests of managers and investors. With such

a mindset, they cannot learn from mistakes or

heed warning signals.

In 2004, the then Deputy Chancellor of

Germany, Franz M€untefering, heavily criticized

the behavior of certain private investors, private

equity firms, and investment banks in a political

speech he gave. Whether it was a coincidence

or he was following Elkington, in doing

so, M€untefering used the German word

“Heuschrecken” (meaning locust). This unflatter-

ing term formed part of a criticism of neoliberal

market economics and, in particular, of the activ-

ities of specific private equity firms. According to

M€untefering and many others, these firms and

individuals destroy corporate value by focusing

on the short term, reducing the substance of

healthy businesses, and then, they let the compa-

nies die once the locusts have gorged themselves

on their substance. By the next year, the online

news magazine Stern had published an article

outing so-called locust companies.

The term locust has now entered popular dis-

course in Germany despite resistance from

employers and economists. Popular support for

M€untefering’s critical perspective on corporate

locusts lies at 75% in some opinion polls. The

term has been popularized and is widely used

within Germany in discussions critical of

Anglo/US capitalism. The term locust is also

creeping into major economic writing in the

English and American media (e.g., New YorkTimes, Daily Mail, and The Economist) and is

used by some trade unions.

In addition to Elkington’s writings, the term

locust now appears in academic writing. For

example, Avery and Bergsteiner’s (2011) book,

Honeybees and Locusts, contrasts two diametri-

cally opposed approaches to leading a business.

These are more generally known as Anglo/US

capitalism on the locust side and Rhineland

capitalism on the honeybee side. Based on obser-

vations of successful organizations, the wisdom

of management thinkers, and the results of empir-

ical studies, Avery and Bergsteiner show how the

honeybee and locust approaches to business are

diametrically opposed on 23 elements. The ele-

ments work together in the form of a pyramid

built on a base of 14 value-adding foundation

practices that can be introduced at any time that

management decides to do so. Three examples of

the foundation elements include taking a long-

term perspective in decisions, strategy, and cor-

porate actions; considering the interests of a wide

range of stakeholders; and valuing one’s people.

The base of the pyramid is topped by six higher-

level practices that arise only in the presence of

some or all of the foundation practices. Higher-

level practices include high levels of trust,

devolved and consensual decision making,

retaining and sharing the firm’s knowledge,

teamwork at all levels of the organization, and

fostering a corporate culture that allows these

practices to flourish. The third level of the pyra-

mid is comprised of three key performance

drivers that directly affect what the customer

experiences: innovation, staff engagement, and

quality. The 23 elements in turn constitute

a mutually self-reinforcing and self-optimizing

bundle of interdependent practices that beget

five critical performance outcomes necessary

for long-term corporate and stakeholder wealth –

brand and reputation, customer satisfaction,

financial performance, long-term shareholder

returns, and stakeholder value. Like Albert

(1993) and other prominent economists, these

authors conclude that the locust approach,

although well entrenched, delivers inferior out-

comes when compared with honeybee practices

and is not sustainable.

According to John Monks (2008), General

Secretary of the European Trade Union Confed-

eration, locust thinking is embedded in politics

and many businesses and needs to be reined in.

The close involvement of major corporate power

in politics at all levels in many countries includ-

ing in the USA ensures that the locust ideology

influences many decisions. Lobbyists have staved

off environmental laws on the grounds that they

Locusts 1605 L

L

will harm business or jobs. They have attempted

to discredit scientists – classic examples include

the anti-climate change advocates, the pro-

tobacco lobby, or the resistance of banks to

greater regulation following the GFC. Monks is

calling for a sophisticated offensive against the

locusts. He argues that part of the offensive

involves more people understanding what is

really going on; if they were informed, people

would be demanding more ethical practices from

big business. For example, they would not allow

Goldman Sachs and others to hide activities off

their balance sheets from investors, regulators,

and tax authorities.

Among the corporate destructive behaviors

regarded as locust-like are the actions of many

private equity and hedge fund firms. According to

The Economist (2005), private equity groups and

hedge funds emphasize “quick money, short term

results, and the highest possible returns for their

investors,” without consideration for what it

means for their prey. “Buy it, strip it, and flip

it,” is said to be the industry credo. This repre-

sents a shift in value and profit to the present,

disregarding the future. Typically, business

locusts acquire a company and saddle the firm

with the debt from its acquisition that may result

in downgrading the firm’s investment status,

thereby raising its cost of doing business.

Managers need to generate strong cash flow and

to control expenditure tightly so that the debt can

be serviced. Sometimes, this is successful, but in

other cases, the debt destroys the firm one way or

another. Cash flow may be inadequate to service

the debt despite management’s efforts, or the

bank offering the debt may unexpectedly call it

in. Hedge funds are even more short term in their

business horizons and use their access to capital

to “flip” their investments considerably faster

than the 3–5 years typical of private equity firms.

The locust debate about private equity has led to

increased transparency, but in Germany, the indus-

try is still viewed with skepticism and resentment,

thereby creating an ongoing obstacle to making

private equity deals, according to a TowersWatson

(2010) review. When one private equity group

floated the idea of laying off about half of its

workforce, it caused an outcry in Germany.

The locust behavior of many firms is

compounded by the unhelpful behavior of many

stock exchanges and their minions. The value of

erstwhile stock exchanges in facilitating the sup-

ply of capital for investment is being progres-

sively eroded by stock exchanges degenerating

into little more than casinos. The objective of

a gambler is to win a bet. In the case of stock

exchanges, this means betting on whether stock

prices will rise or fall. Huge sums of money now

change hands on the basis of betting intervals that

are measured in microseconds, where the moni-

toring and the decision to buy/sell is no longer

made by humans but by computers. Such gam-

blers are not in the least interested in the long-

term future of an organization or its employees,

suppliers, customers, or other stakeholders. Their

exclusive focus is on their short-term gain. And

yet, as Stern (2006) has observed, we are

extending ownership rights to speculators who

would not hesitate to send a company into obliv-

ion if it suited their short-term interests. Monk

refers to Denmark, which has increased tax rates

on short-term investments in an effort to discour-

age the microsecond, automated, short-term trad-

ing so favored by the financial sector.

In many parts of the world, locust behavior is

admired, propagated, and imitated. Regrettably,

many managers do not know of any alternatives –

such as following honeybee principles. This

reflects poorly on business schools worldwide

that still preach the locust philosophy and tech-

niques. As a result, locust thinking permeates

much of what is taught in leading business

schools – namely, that unfettered short-term

greed is good. This places much of the responsi-

bility for locust behavior on business educators,

as the late Sumantra Ghoshal (2005: 75) from the

London School of Economics wrote:

“Business schools do not need to do a great deal

more to help prevent future Enrons; they need only

to stop doing a lot they currently do. They do not

need to create new courses; they need to simply

stop teaching some old ones. But, before doing any

of this, we – as business school faculty – need to

own up to our own role in creating Enrons. Our

theories and ideas have done much to strengthen

the management practices that we are all now so

loudly condemning.”

L 1606 Long Hours Without Overtime

Similar words could be used to advise business

schools to drop courses extolling locust behavior

from their curricula – and teach locust leadership

as something students need to be able to recog-

nize and be wary of.

Future Directions

Largely as a result of the recent GFC, but also

because of the increasing power of pension funds

and sovereign funds, both of which by their very

nature must think and act long term, pressures are

increasing on corporations to adopt more respon-

sible and sustainable behaviors. One example of

such a driver is the Norwegian government “pen-

sion” fund, Norges Bank Investment Manage-

ment (NBIM). NBIM manages the surplus

wealth from Norway’s large petroleum income,

which has since been turned into the govern-

ment’s pension fund. NBIM is the largest Euro-

pean fund and one of the largest in the world. The

fund receives a very high transparency rating of

10 and invests in line with prescribed ethical

guidelines. Companies that the fund invests in

are closely monitored by an ethics council, and

NBIM may withdraw its funds from companies

operating in conflict with its 2004 guidelines. The

guidelines cover violation of human rights, cor-

ruption, environmental damage, child labor, and

other ethical considerations. The NBIM fund has

withdrawn its investment funds from a wide

range of companies in many countries deemed

to be violating its ethical code. NBIM provides

a possible blueprint for the future.

Cross-References

▶Corporate Social Irresponsibility

▶Corporation as Psychopath

▶Elkington, John

▶ Private Equity Firms (Pejorative)

▶Rhineland Business Model/Rhineland

Leadership

▶ Stakeholder Thinking

References and Readings

Albert, M. (1993). Capitalism vs. Capitalism: HowAmerica’s obsession with individual achievement andshort-term profit has led it to the brink of collapse.New York: Four Walls Eight Windows.

Anonymous. (2005). Locust versus locust: American

investors fight each other over Celanese. http://www.

economist.com/node/4010780. Accessed 14 Jan 2011.

Anonymous. (2010). Germany – can the locusts deliver?

Towers Watson. http://www.towerswatson.com/

research/2170. Accessed 14 Jan 2011.

Avery, G. C., & Bergsteiner, H. (2011). Sustainable lead-ership: Honeybee and locust approaches, Interna-tional version. New York: Routledge.

Elkington, J. (2001). The chrysalis economy: How citizenCEOs and corporations can fuse values and valuecreation. Oxford: Captstone Publishing.

Ghoshal, S. (2005). Bad management theories are

destroying good management practices. Academy ofManagement Learning & Education, 4(1), 75–91. 75.

Handy, C. (2002). What’s a business for? Harvard Busi-ness Review, 80(12), 48–55.

Monks, J. (2008). Locusts versus labor: Handling the new

capitalism, speech given at Harvard, 16 April. http://

www.etuc.org/a/4882. Accessed 14 Jan 2011.

National Geographic. (n. d.). http://animals.national-

geographic.com/animals/bugs/locust.html. Accessed

14 Jan 2011.

Stern, S. (2006). The short-term shareholders changing the

face of capitalism. Financial Times, March 28, 11.

Long Hours Without Overtime

▶ Sweatshops

Longevity

▶ Sustainability (World Commission on Envi-

ronment and Development Definition)

Long-Term Business Vision

▶Corporate Social Responsibility Strategy

Low-Wage Labor 1607 L

Long-Term Strategy

▶Corporate Social Performance

Loop-Closing

▶Waste Valorization

Low-Wage Labor

▶ Sweatshops

L