The evolution of business legitimacy

Abstract

It is important to realise that the company is a public institution and not just a private arrangement created by contract; it cannot, therefore, be fully determined by economic factors alone, but, is, importantly, also partly determined by political and social factors. Sometimes these political and social factors can become more deterministic in shaping its destiny than the economic factors. This tends to be the case when the legitimacy of business institutions is called into question. In these circumstances, the normal economic determinants of business practice can be superseded by political events and the environment of business practice can change radically. The purpose of this study is to propose a theory, which can help to explain this change in the company form, that is its legal code of governance. An evolutionary theory is briefly outlined and supported by historical evidence. The possibility of a coming business legitimacy crisis is then speculated upon in the conclusion.

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