Oscar Elfgren Magdalena Persson
Institutional or not?
Municipally-Owned Enterprises’ Quest for Legitimacy among Stakeholders and
Conflicting Goals
Business Administration Master’s Thesis
30 ECTS
Acknowledgements
We would like to direct a big thank you to all the respondents who choose to make time in their busy schedules to be interviewed by us and contribute to our findings. Without your participation and thoughtful answers, this paper would not have been possible! We would like to direct a special thank you to our supervisor, Per Echeverri who always took time to help us and provided us with guidance when we had lost our ways. Lastly, we would like to thank our classmates who provided advice on improvements and strategies to pursue.
Happy reading!
January 2019, Karlstad.
Oscar Elfgren Magdalena Persson
Abstract
Purpose: While research on state-owned enterprises (SOEs) have been lagging, even less can be found on municipally-owned enterprises (MOEs).
The authors intend to use literature covering SOEs and apply them on MOEs in an analogue fashion. This study aims to uncover similarities and differences between the two aforementioned types of public ownership and contribute to the field of MOEs. This would allow for future researchers of MOEs to know in what way previous findings on SOEs is accurate and where extra caution must be placed. The authors will also consider the implications of institutional theory and how this can be used to understand the reality MOEs find themselves in.
Design/methodology/approach: The authors has employed a qualitative approach where eleven MOEs have been interviewed. All of the eleven enterprises where located in the Swedish province of Värmland. The interviews were conducted in a semi-structured fashion and the analysis was achieved through selective coding.
Findings: Enterprises matched expectations from stakeholders, where higher demands were met with greater social care and lower expectation facilitated a business approach. Furthermore, enterprises viewed their owners as the most important stakeholders and were willing to make decisions that favored them, even if other stakeholder groups disbenefit from this. Furthermore, a combination of actively searching for legitimacy and relying on institutional theory was employed by the MOEs, which could possibly contribute to institutional theory.
Research limitations/implications for future research: Further research into these matters are of interest to build on the understanding of SOEs and apply them to MOEs. It is suggested to conduct a study including MOEs of greater size, as most organizations included in this study were too small to
‘successfully’ implement non-acquiescence matters such as decoupling and mission drift. Furthermore, a case-study of a single organization would perhaps shed some light on this matter, as this study’s focus on eleven enterprises has a bit of a tendency to only scratch the surface.
Keywords: Municipally-owned enterprises (MOEs), Institutional forces, Institutional responses, Legitimacy, Decoupling, Agency, State-owned enterprises (SOEs), Stakeholders, Conflicting goals, Publicly-owned enterprises (POEs)
Table of Contents
1. Introduction ... 6
1.1. Overview ... 6
1.2. Problem Statement ... 7
1.3. Aim ... 7
2. Theory Section ... 9
2.1. Stakeholder Theory ... 9
2.2. Conflicts Between Social and Commercial ... 10
2.3. Legitimacy Theory ... 10
2.4. Institutional Pressure ... 11
2.5. Response to Institutional Pressures ... 12
2.6. Legitimate Institutions ... 13
2.7. Decoupling and Mission Drift ... 13
2.8. Agency and Multiple Principals ... 14
2.9. Conclusion of Theory ... 15
3. Methodology ... 16
3.1. Research Strategy ... 16
3.2. Data Collection ... 17
3.3. Data Analysis ... 18
3.4. Trustworthiness and Authenticity ... 18
4. Findings ... 20
4.1. Institutional Forces and Responses ... 20
4.2. Decoupling ... 25
4.3. Agency ... 26
4.4. Legitimizing Behavior ... 27
5. Discussion ... 29
5.1. Institutional Implications and Responses ... 29
5.2. Stakeholders and the Issues of Multiple Principals ... 30
5.3. Legitimate Institutions and the Roles of MOEs ... 33
5.4. Decoupling ... 35
6. Conclusion ... 36
1. Introduction
1.1. Overview
State-owned enterprises (SOEs) are organizations characterized by being fully, or partly owned by a sovereign state (Regeringskansliet 2016). SOEs are either given a monopoly in the market they operate in or, more commonly, compete with privately-owned enterprises in a given market.
These organization are typically designated to have a business interest and are separated from the state itself but deemed enough national importance to still remain under full, or partial ownership of the state (Regeringskansliet 2016).
SOEs have not necessarily been ignored by scholars but have received disproportionate little focus considering they generate ten percent of the world’s annual GDP (Bruton et al. 2015). The lack of research is explained by Bruton et al. (2015) as academics taking on an US-centric view, where SOEs play a less prominent role. Much of the literature in existence considers SOEs from a perspective that it constitutes a passing trend, ergo a focus on privatization and a role where it will naturally disappear in the face of widespread calls of abolishing state-ownership (Bruton et al. 2015).
However, this was not to be, as the 2008 financial crisis led to buyout and nationalization of certain troubled enterprises coupled with a reconsideration of the previously obsolete view of the state as shareholder. Likewise, China, with their traditional strong government role in the business sector, wield influence in a wide array of SOEs and much of the research in this field has its base in a Chinese context (Bruton et al. 2015). This lack of coverage also carries over to SOEs ‘little sisters’, municipally-owned enterprises (MOEs) (Voorn et al. 2017). This would mean that both these types of publicly-owned enterprises (POEs) suffer from academic disinterest.
POEs, carry a business interest alongside other non-financial undertakings (Grossi et al. 2015). POEs proneness to undertake non-financial tasks can be explained in the logic of public ownership. POEs are expected to care for its stakeholders to a greater degree compared to its privately-owned counterparts and to cater and serve societal needs (Alexius & Grossi 2017). This would force POEs to look to secure stakeholder approval and in turn earn legitimacy, a phenomenon previously observed (Fiss & Zajac 2006).
Fulfilling a wider societal function while also remaining financially viable, however, comes with certain drawbacks. Reaching unison satisfaction with all stakeholders is a near impossible tasks leading to some form of preference establishing itself internally in POEs (Heath & Norman 2004). Furthermore,
if goals are perceived as conflicting in the eyes of managers, this may likewise result in one of the goals being pursued at the expense of the other (Heath & Norman 2004; Alexius & Örnberg 2015). Ultimately, POEs dual nature of adhering to both financial- and non-financial goals while needing to consider a larger amount of stakeholders could lead to adverse effects (Heath & Norman 2004).
1.2. Problem Statement
While past research has indeed highlighted the precarious ways of SOEs, few studies have regarded how this may take effect in MOEs (Voorn et al. 2017).
Conducting a study within Swedish MOEs applying literature of SOEs in an analogue fashion could uncover in what way MOEs experience the same issues as SOEs do and how they choose to resolve these. Likewise, it is also possible to discover how these issues differ from those reported in SOE settings or may be experienced in such a different way meaning the literature on SOEs fails to properly explain and predict the environment MOEs find themselves in. Studies focusing at the risk of hybrids (Cornforth 2014) and SOEs (Alexius & Örnberg 2015) have uncovered the inherent risks in balancing objectives and stakeholder interests. In 2012, the law was changed for MOEs (Sveriges Allmännyttiga Bostadsföretag [SABO] 2012). The revised law emphasized that MOEs were to act and be treated as any other business, unless explicitly stated in the mission statement. This removed the previous law proclaiming that enterprises were to serve the public and were over time expected to break even (SABO 2012).
Employing institutional theory could serve to help explain these biases thus different forces of institutional isomorphism such as mimetic, coercive and normative can show why companies search legitimacy (MacLean & Behnam 2010). Organizational responses to institutional pressures are less likely to be full adoption if the demands are conflicting, the cost of implementation is high and the link between said implementation and organizational performance is weak (Oliver 1991). With this in mind, can help understand why organization’s response to external pressures changes depending on the conditions they face.
1.3. Aim
While research on SOEs have been lagging, even less can be found on MOEs.
The authors intend to use literature covering SOEs and apply them on MOEs in an analogue fashion. This study aims to uncover similarities and differences between the two aforementioned types of POEs and contribute to the field of MOEs. This would allow for future researchers of MOEs to know
find themselves in. More specifically, through this study we aim to answer the following research questions:
- What actions do MOEs take to acquire legitimacy?
- In the face of conflicting demands and various stakeholders, what potential trade-offs are made?
2. Theory Section
In order to build and understand MOEs as a concept, literature on SOEs will be applied in an analogue fashion. Institutional theory (Powell & DiMaggio 1983; Oliver 1991) will also be employed by the authors to explain the pressure from different stakeholders (Heath & Norman 2004) and what responses may be chosen to their demands. Lastly, critical views on institutional theory are highlighted (Christensen 2017).
2.1. Stakeholder Theory
Freeman (1994) states that if interests of all stakeholder groups are considered within the business and operational strategies, the organizational outcome will benefit. Heath and Norman (2004) argue that SOEs usually cooperate with stakeholders that have conflicting interests which are hard to reconcile. According to Wicaksono (2008), the pursuit of satisfying all stakeholder interests, even the conflicting ones, inhibit the performance of SOEs, which is the contrary to the fundamentals of the stakeholder theory.
Heath and Norman (2004) distinguish different types of stakeholder theory, where organizations may choose which approach to incorporate stakeholder interests in decision making. A more traditional approach would be to only consider the most powerful stakeholders, where the organizations identifies the influential ones and caters to their need. This would fall in line with a managerial approach to stakeholder theory. However, firms may find themselves in scenarios where they consider it imperative to consider all stakeholder interests and recognizes all groups as legitimate as would represent a deontic approach (Heath & Norman 2004).
When securing and managing stakeholder relations, the SOE can take on different duties in regard to owner, customer or citizen interests and this can affect which stakeholder groups are deemed important (Olsen et al. 2017).
SOEs are prone to cater more to the needs of non-owner groups than their private counterparts (Fiss & Zajac 2006). By defining and observing SOE behavior, and what values they communicate, one can determine to which stakeholder groups they appeal to. For instance, paying dividends to owners would point to an ownership-oriented focus whereas investing profits back into the organization indicates a focus to improve upon the organization and to serve citizen interests (Olsen et al. 2017). An enterprise can take an owner- role, characterized by producing strong financial results and adhering to the rules presented by the municipality, or a stakeholder approach where the organization works more closely with matters related to corporate social responsibility and supporting the civic activity (Olsen et al. 2017)
2.2. Conflicts Between Social and Commercial
SOEs operate in the middle of a social and commercial approach.
Consequently, they must adapt to the conflicting areas of the public versus the commercial (Radon & Thaler 2005). Several SOEs are pressured to reach financial goals and at the same time they are expected to demonstrate social performance of high standards (Luke 2010). Furthermore, states are constantly expected to justify their corporate portfolios and argue for their ownership of SOEs (Alexius 2014). Alexius and Örnberg (2015) state that economic logic risks being preferenced within the organization when balancing values. Objectives and accountabilities of SOEs are in risk of value conflicts and trade-offs between financial versus non-financial approaches (Luke 2010).
Heath and Norman (2004) also point to the adverse effect of combining social and financial goals as this often means managers prioritize either of them and excuses their failure of not reaching all goals by arguing on their conflicting nature. Conflicting goals may serve as an additional impediment as managers may find it difficult to align the goals and ensure both are fulfilled in a satisfactory manner. This may also function as a scapegoat for managers as a failure in reaching certain goals can be compared to success in reaching other ones. Managers can as such avoid being held accountable for poor results (Heath & Norman 2004).
2.3. Legitimacy Theory
The research around legitimacy concerning SOEs is mostly an unexplored topic where researchers have been more interested to investigate this in a for profit, privately owned setting (Roper & Schoenberger-Orgad 2011). SOEs, per definition, have had their equity funded by the public via taxpayer money, the legitimacy of these corporations needs to be earned in a way not applicable to privately owned enterprises (Roper & Schoenberger-Orgad 2011). The necessity of SOEs is today being challenged, especially by the EU as they call upon the SOEs to justify their existence (Bruton 2015). The counter argument presented is that SOEs can successfully carry out a social goal that a private enterprise would fail, or be unwilling, to perform. As Habermas (1996) argues, the legitimacy of these corporations is not called into question as long as they serve social needs and, by extension, provides the government itself with legitimacy of the owned corporation. However, conflicting goals are presented as these organization often are tasked with achieving financial goals, meaning social undertakings may be jeopardized (Alexius & Örnberg 2015).
2.4. Institutional Pressure
Institutional theory explains how the environment that companies find themselves in expect them to reach certain targets. Inherent pressure from markets and shareholders urges companies to prioritize financial targets whereas a wider public expects the firm to commit to social needs.
Institutional theory suggest however that companies may choose to pursue social targets, in order only to gain legitimacy from stakeholder groups (Powell & DiMaggio 1983; Oliver 1991). Organizations pursuing social targets may choose to do so even if it doesn’t benefit company performance (MacLean & Behnam 2010). This is explained by Powell and DiMaggio (1983) that companies may feel pressured to adopt certain characteristics that doesn’t fall in the line with the most efficient practices. Organizational choices in practises may be based on institutional pressure to adopt and stay true to them in order to secure external legitimacy. Three sources of pressure are presented by Powell and DiMaggio (1983) to explain the process of isomorphism and why organizations tend to be organized fairly similarly.
The first of these are coercive isomorphism. This represents when organizations are forced into following certain standard, for instance a government regulation requiring companies to conduct CSR operations. The second one is mimetic isomorphism, describing that organizations looking for legitimacy adopt and mimic the behavior of leading companies within their field who, through their success, are interpreted as being legitimate by the mimic. As such, in the context of SOEs, they may choose to pursue legitimizing efforts due to strict demands from the state, or directly through requirements of the way they organize or indirectly by regulations in general.
Further, if no direct requirements are demanded, SOEs may choose to adopt these regardless due to the inherent mimetic pressure. Lastly, normative isomorphism, is characterized by pressures emanating from an increased professionalization of a field (Powell & DiMaggio 1983). Trading associations, scholars and governments all work together to ensure that their preferred practises and policies sees implementation. This has the results that methods are chosen more so on the grounds of powerful (non-coercive) institutional actors’ wishes.
These pressures may help explain why organizations choose to adopt and implement certain practises, if these are not directly contributing towards organizational performance. These forces are not black and white, and organizations may receive multiple kinds of coercive pressure from different, or the same stakeholder all at once. Organizations may choose to adopt different kind of measures depending on how strong the forces are, in line with managerial stakeholder theory (Heath & Norman 2004). Alternatively, SOEs may perceive it as being there role as state owned to tend to different
2004). Zhao and Patten (2016) showcase that SOEs in China did not perceive the state as a coercive force, i.e. demanding that CSR operations be conducted, but instead did so largely due to a need to appear legitimate in the eyes of the public. However, coercive pressures were indeed largely present indicating that stakeholder groups wielding influence may coerce organization into certain behavior on a smaller scale, rather than on an organizational level (Zhao & Patten 2016).
2.5. Response to Institutional Pressures
While institutional theory aims to explain why organizations tend to look so similar and adhere to the same logics and practises, it considers these changes and forces to take effect without regarding the agency of the individuals enlisted in managing organizations. Instead, one needs to regard organizational responses to pressure as logical and they may choose several responses to the calls for change (Oliver 1991). Organizational responses to external pressures can be observed based on the self-interest of the organization, where it chooses in an opportunistic manner which logics it adheres to and which ones they reject. The degree of influence of outside forces explains partly why organizations may react in a hostile manner or why unconditional compliance is preferred. For instance, if the government imposes non-negotiable demands these hold higher sway amongst managers than what particular interest groups might request. However, important to note is that legitimacy gain is only measured by the appearance of complying to measures. This means an opportunistic organization may claim to adopt to requested practises by outside parts to gain legitimacy while maintaining an internal business as usual approach (Oliver 1991).
Institutional theory can also help explain how organizations choose to cope with conflicting goals and the principals they are facing, which is an especially prevalent problem within hybrids. Organizational options for responding to issues concerning their duality as suggested by Naveed et al.
(2017) is symbolic compliance (also known as decoupling), combination and compromising. Symbolic compliance is the process of claiming to adhere to certain ideals while implementing a different one (Pache & Santos 2013).
This would allow companies to enjoy legitimacy of adopting certain values and practises while simultaneously working with, perhaps, superior methods in terms of performance. Compromise refers to when corporations do indeed apply the prescribed methods but alter them in such a fashion as they better fit in the organization (Oliver 1991). Acquiescence can be described as organizations responding to the pressure by adopting the called for practises internally in the operational work. Hostile responses such as defiance, refusing to listen to institutional powers, and concealment, hiding non- compliance, are brought forward as responses to pressures.
2.6. Legitimate Institutions
The very appearance of hybrids coupled with balancing of multiple competing objectives are understood in literature as a natural process for organizations to seek and attain legitimacy when institutional pressures are present (Ebrahim et al. 2014). However, this view is contended by Christensen (2017), who argues that role of hybrids is instead defined by rule- makers instructions and in turn the interpretations by the hybrids themselves.
This view is mirrored by Gooneratne and Hoque (2015) who find that competing logics become institutionalized not through external stakeholders pressuring the organization, but more so due to formal requirements submitted by the state. This indicates a reverse cause effect relationship - instead of outside forces, i.e. the public, pressuring for a change in practises it can possibly be traced from higher ups. This may be explained that the creations of the institutions to begin with was done in such a manner as to secure external legitimacy (DiMaggio 1988). This could point to a relationship where legitimacy not necessarily is actively attained by managers and CEOs but exists inherently in organizations and is instead safeguarded by acting in line with the established institutionalized routines on legitimate grounds (DiMaggio 1988).
2.7. Decoupling and Mission Drift
Decoupling is often held as a response to institutional pressures, which can be exacerbated by competing demands and logics the organization are tasked with (DiMaggio & Powell 1983; Oliver 1991). Decoupling are used as a response to competing institutional demands and may be seen in SOEs in response to these pressures (Alexius & Örnberg 2015). Bromley and Powell (2012) argue for two different types of decoupling: means-end-decoupling and policy-practice-decoupling.
Policy-practise-decoupling is understood to be a formal adoption by the organization, while the internal processes remain the same (Bromley &
Powell 2012). This points to a disconnect between what is communicated externally and internally adopted procedures. This behavior by organizations may have some explanations. A decoupled practise may allow organizations to adopt conflicting policies and more easily continue work; the organization may be unable to adopt the standards or believe it may interfere with everyday work. It may also allow organizations to reap the rewards of legitimacy gain, without actual implementation. Similarly, the implementation could be linked to fear of legitimacy loss or being faced with
as Tilcsik (2010) explained, due to organizational preference to prefer one solution over the other.
Means-end-decoupling is, instead of forming a disconnect between actual procedures and communicated ones, when adopted policies instead is shown to have no or little bearing on organizational performance. The practises implemented are often categorized as effective and crucial in the organization’s performing of its operations but can be more tied to matters of legitimacy than actual performance enhancing (Bromley & Powell 2012).
The process of decoupling, compartmentalizing different elements of organizations units lead to risk of a hypocrisy where different parts of the organization contradict each other and pull in different directions (Alexius &
Grossi 2017). Alternatively, compartmentalizing certain organizational functions may lead to these being assigned to a pure communicating and legitimizing task (Alexius & Grossi 2017). This would provide the organization with the opportunity to pursue only financial goals as they are shielded from critique from the decoupling, allowing a disregard of the social goals they were set out to serve (Alexius & Örnberg 2015). As such, when organizations are tasked with objectives of social and financial targets to reach, their response to decouple indicates the problem of attaining both. For example, while Svenska Spel had an outspoken goal of reducing gambling amongst those showcasing signs of addiction, it had no problem encouraging users, who gambled little, to bet more money.
Problems dealing with social matters had been decoupled to a company outside Svenska Spel, as they were here showcasing signs of mission drift (Ebrahim et al. 2014; Alexius & Grossi 2017). Mission drift is characterized by an organization failing to incorporate both social and financial aspects into its organization (Ebrahim 2014; Alexius & Örnberg 2015). This can showcase itself in two ways: a drift away from the social undertakings where the financial focus become the de facto dominating, which means that social matters remain underdeveloped, resulting in an organization which counteract the purpose it was set out to fulfil (Ebrahim et al. 2014). The second one is revenue drift, where an enterprise focuses so heavily on social matters that it fails financially, jeopardizing the organization’s future.
According to Alexius and Örnberg (2015) Swedish SOEs have a certain risk of falling in the trap of mission drift, more specifically ignoring social matters, to a certain degree, in exchange for a financial focus.
2.8. Agency and Multiple Principals
The agency theory highlights issues concerning when a manager (agent) has difficulty determining who his employer is (principal). This can be particularly problematic in SOE settings, where it may remain unclear who
is the employer and to whom the manager(s) is being held accountable. This can create scenarios where the manager actively chooses to ignore one stakeholder group and instead works to fulfil the requirements of another and excuses the failure of appeasing one stakeholder group with satisfying another (Heath & Norman 2004). Leaving room for interpretation in the governance codes of SOE can exacerbate the issue of multiple principals, as it allows the managers to make their own judgements on which stakeholders and goals to pursue (Kankanpää et al. 2014).
2.9. Conclusion of Theory
The theory on SOEs point to general difficulties in aligning stakeholder preferences, where organization are tasked with seemingly conflicting goals.
Few studies take into account what role the owner has in this relationship; it seems unrealistic to bestow upon the enterprise goals that are incompatible with each other and then make no efforts to ensure goal completion.
Furthermore, many studies point to SOEs as inherently social and financial, and an organization may never be encouraged to prioritize one over the other.
This seems curious since SOEs and MOEs operate in a diversity of fields and the owners may have different intent in running these organizations. If managing an SOE is such a complicated and delicate procedure, then few would succeed in goal completion and securing external legitimacy, prompting voters to elect politicians promising to end the reign of failing public ownership. As such, these organizations have most likely learnt how to cope and manage their operations, and in large, earning the approval of owners and public alike.
3. Methodology
3.1. Research Strategy
A qualitative approach with semi-structured interviews was deemed to be the most appropriate research strategy. Semi-structured interviews with CEOs and middle-managers were conducted to provide a deeper understanding on how the interviewees individually experience conflicting logics within MOEs. The qualitative approach focuses on how individuals understand and interpret their social reality (Bryman & Bell 2013). Grossi et al. (2015) mean that even though SOEs and MOEs have many similarities the different government levels do not count as SOEs. This study of MOEs can be useful to provide literature to a field which lacks it (Voorn et al. 2017). Articles and ideas normally applied on SOEs will be used in an analogue fashion to attempt to understand the position and problems MOEs experience. Focusing on MOEs is more advantageous than SOEs as it becomes easier to reach local organizations for interviews due to the geographical distance. Moreover, studies on Swedish SOEs such as Systembolaget (Alexius & Örnberg 2015) and Svenska Spel (Alexius & Grossi 2017) already exist and reinventing the wheel was something the authors wanted to avoid.
When reviewing the research design, earlier articles applied for this study have employed semi-structured interviews, observations, case-studies and/or surveys. The peer-reviewed articles which are used as references include both qualitative and quantitative approaches when investigating POEs. Most of the articles used cover other countries than Sweden, therefore studying MOEs within Sweden shows another point of view. A deductive perspective is categorized by regarding the relationship between theory and research practice in a way that it creates ideas and hypotheses which are derived from theory (Alvesson & Sköldberg 2017). Likewise, this study is built on assumptions from the literature and thereafter some conditions about the study could be established. Thereafter, the theory was rearranged after the interviews because several topics seemed irrelevant as they did not show any evidence from the responses of the interviewees, which is characterized by the inductive perspective. One example of this was resource dependency theory, which provided dissatisfactory responses from the interviewees and were then deemed irrelevant and omitted from the study. The inductive approach is exploratory, it begins with observations or a result and ends with theory. As this study is of deductive approach with some features of the inductive perspective it can be considered as an abductive method (Alvesson
& Sköldberg 2017).
3.2. Data Collection
When considering which respondents should participate in this study, a purposive sample was chosen. Purposive sampling means that the interviewees are chosen in such a way to answer a specific research question the researcher wishes to answer (Bryman & Bell 2013). It was considered which organizations could possibly have conflicting logics and MOEs from different backgrounds were chosen to promote a broader perspective. The sampling must be relevant due to the conceptual frame and research questions of the study (Miles et al. 2014). Nine CEOs and two middle-level managers participated in the interviews. The interviewees of this study have leading positions and good insight in their respective organization. The interviewees are represented from eleven different MOEs within the Swedish province of Värmland. The interviews were conducted between the dates 31st of October and the 26th of November in 2018.
The organizations were asked by e-mail to participate in the study and if they did not answer, they were contacted via phone about a week after the mail was sent. The semi-structured research questions had been constructed as open-ended questions to give the interviewees an opportunity to share what they consider important. The interview guide was tested on one of the author’s relatives with a background in business before implementing the actual interviews. During the first interviews some questions seemed to be more or less relevant, which afterwards lead to some rearrangements in the interview questions. Moreover, the questions for the interview were rearranged for the interview with a holding company, due to their unique standing of not conducting business per se, meant that some questions were moot, and was refocused to reflect an owner-role. The interviews were conducted face to face and took place at the respondents’ respective offices.
Semi-structured interviews appearing face to face is the most advantageous way to interview as all details such as gestures and body language in general are captured including the possibility to ask follow-up questions. To avoid the risk of certain elements of the interview being lost in the moment, the interviews were tape-recorded to eliminate the human factor. In the case of malfunction, two recording apparatuses were used, and notes were taken during the interviews. The notes taken were done to get the most important issues written down (Bryman & Bell 2013). The semi-structured interviews took approximately one hour each to conduct, although one creeped closer to two hours. The interviewees were offered the published copy of this study upon its publication, which they accepted.
3.3. Data Analysis
The interviews were tape-recorded and the following audio files were divided between the authors of the study to be transcribed. The process of transcribing begun after the majority of interviews had taken place. The transcribed interviews presented a great amount of data, which is typical for the qualitative approach, therefore it was necessary to apply coding on the transcribed text. The main purpose of coding is to keep apart different answers and observations from each other (Ekengren & Hinnfors 2012). This study utilized a selective approach of coding as it goes from themes and categories to codes and finally quotations. Selective coding is characterized by choosing a main-category and continuously relating that to certain main- category when selecting other categories (Bryman & Bell 2013).
Both authors read through the transcribed interviews and marked what they considered essential quotes. Certain themes were either decided to be of relevance before going through the material whereas other points of interests were detected during reading through the transcribed material. For example, the authors actively looked for quotes that covered Decoupling and then selected the appropriate responses dealing with these matters. This is an example where the literature served as an inspiration in the coding.
Conversely, Legitimizing Behavior was not derived from literature and was based on patterns in the data which was recognized. The coding itself was divided into three columns. The first column presented a broader categorizing of the data, for example Institutional Responses was placed in the first one.
The middle column narrowed down the findings into more specific categories, such as Normative, Coercive and Mimetic. The last column was where the authors placed the quotes themselves that corresponded with the previous columns. After enough data had been gathered in each theme, the authors reviewed the various themes and considered whether they were relevant and if deemed so, included in the text. The themes that passed the scrutinizing tests by the authors, served as the foundation of the chapters Findings and Discussion.
3.4. Trustworthiness and Authenticity
Validity and reliability can be adjusted to better fit a qualitative approach by discussing it in terms of trustworthiness and authenticity. Trustworthiness can be divided into credibility, transferability, dependability and confirmability (Bryman & Bell 2013). Despite the importance of credibility, the authors of this study have chosen to not give the interviewees the opportunity validate their answers before being published because of the risk of defensive reactions, and the additional time it would take to manage the e- mailing process. Qualitative studies usually include a great amount of data, consequently dependability tends to be less used within a qualitative
approach. Even if research within the social sciences tend to lack objectivity, confirmability argues that the author should try to prevent the study from being affected by personal values and opinions which can cause bias. Some quotations from the coding were considered more valuable to use and then it tends to be a risk that the selection of quotations includes own opinions, even though the authors of this study have tried to minimize this bias. Additionally, these personal opinions affecting the data collection and data analysis can possibly harm the transferability.
If only CEOs or managers are interviewed, it will lack perspectives from other parts of the organization. The fact that nine CEOs and two middle-level managers are interviewed can possibly cause bias as they hold leading positions and may have incentives to provide a polished view of the organizations or calm down conflicts. There could also be a risk that the authors receive a shallow view of the enterprises, as it is hard to believe a single one-hour interview properly could explain all the complexities they face in their day-to-work. However, Miles et al. (2014) mention that qualitative research risks to be too narrow and including several organizations in the study may help understand this phenomenon from the perspective of several enterprises.
The e-mails sent to the MOEs included a paper of approval which all interviewees signed. The informed consent from the interviewees is important (Bryman & Bell 2013). Furthermore, the e-mail included information about the study. The respondents had the opportunity to receive the interview questions before the interview itself occurred. Three out of eleven interviewees asked for the interview question in beforehand.
Providing the interview questions in advance, can possibly cause prepared answers which can be affected by bias (Bryman & Bell 2013), which the authors of this study partly recognized. Conversely, it may also lead to better and thought through answers as respondents had the time to ponder on the interview guide.
All interviewees allowed tape-recording for the interviews and a majority of the interviewees did not require anonymity. Some interviewees wanted to be asked for permission if the authors used a direct quotation which alongside their name, but as all were treated anonymously this was not an issue. The interviewees and their companies were anonymized, despite only one respondent in particular requesting this. We decided for the sake of consistency to mention none by name and use careful wording to protect their integrity.
4. Findings
This section is structured in the way that it is divided into four phenomena which provides the basis for the analysis and the conclusion. The phenomena was largely based on theory: 4:1 owing inspiration from Powell and DiMaggio (1983) and Oliver (1991), 4:2 from Bromley and Powell (2012), 4:3 from Heath and Norman (2004) and Kankaanpää et al. (2014) and 4:4 being inspired by critique from institutional theory, mainly from Christensen (2017). The quotes will be presented in an order deemed relevant by the authors in the given section, and will not be sorted by respondents. The first section is titled Institutional Forces and Responses, followed by Decoupling, Agency and lastly Legitimizing Behavior.
4.1. Institutional Forces and Responses
It would be naive to assume MOEs would only experience pressure from one single institutional force. Instead, the MOEs interviewed revealed they experienced varying degrees from all three forms of institutional pressures, coercive, normative and mimetic.
Enterprises experienced coercive pressures namely from their owners.
Because its commonplace for MOEs to be wholly owned by a single municipal, the owners could exert a great degree of influence over their subsidiary. This became apparent, as many enterprises listened to its owners and sought to satisfy and follow their requirements to the latter:
If municipality X would say “actually, we’d like to build [...]” then I can’t say too much since this is what the owner has decided on. Had we been a private company, then I think the municipality would have had a harder time saying “move over, we’re doing some building [...]. I think as a private entrepreneur one could hold a flag on some barrier, be in the papers and say “look what the municipality is doing to us poor entrepreneurs. I couldn’t do that in a municipally-owned company.
(Transport Company)
The municipality is heavily invested in the pride parade and we are expected - urged I would say - that we, the company, participates, just like other branches of municipality do. These things we join in on if the municipality says so. (Energy Company A)
The pressure from mimetic isomorphism is characterized by organizations experiencing pressure to appear legitimate, for instance mimicking similar companies as a response to uncertain conditions. Many respondents stated
they looked at other organizations for ways how to set up their own social work. As the enterprises were relatively small in size, they lacked resources and knowledge to design something as substantial as a sustainability program.
We have looked at how other housing companies in Värmland work with these matters, too. There are plenty of small housing companies in our approximate size, but many face the same issues to deal with. (Housing Company B)
It’s more about being a role model in the municipality, I think. Similarly, some private enterprises are doing sponsoring and we too do our part as well to support the civic society. (Energy Company B)
Another aspect of mimetic isomorphism is to adopt to perceived requirements by stakeholders. This phenomenon becomes even more prolific when goals and requirements faced is highly abstract and ambiguous (Powell
& DiMaggio 1983). Enterprises participating in this study displayed behavior where they attempted to align themselves with the interests of stakeholder groups. Other times, however, they showcased behavior where respondents may have acted preemptively to attempt to secure legitimacy, for example participating in activities which had not been encouraged by outside parties:
The municipal council have not talked at all about the law of sustainability while we have highlighted that in our business plan. The law of sustainability is something that is only intended for the bigger companies. But I think like this, it usually trickles down to the smaller companies sooner or later, so that’s why we decided to use the law of sustainability in our work, to be used for support. (Housing Company B)
Enterprises queried note that trade associations often play an important role in the establishment of practises and routines, which is an example of normative isomorphism. This can take two main approaches, voluntary adoption, where the enterprises make the choice of adopting policies and listening to advice on their own behalf. For instance, Housing Company B argued they looked for guidance when designing their sustainability program and were inspired by others:
Partly from our other municipally-owned housing companies in Värmland, but further we cooperate within
The other approach is where trade associations wield greater influence, and this is represented by a back-and-forth negotiation between the different parties. One trade association in particular wielding influence was Hyresgästföreningen, who was relevant for housing companies. The negation on rent prices for its occupants often spurred heated debates where the association dismissed the need of increasing the charges for rent:
[Hyresgästföreningen] don’t think we should earn that much money. In reality, we are to be equated with any private enterprise, at least in terms of profits. If we do that, the negotiations come to a dead stop. (Housing Company C)
In line with the argument that SOEs are often tasked with competing demands from multiple stakeholders, MOEs should face the same difficulties. As such, organizations may choose different approaches to demands facing them, ranging from acquiescence, adhering to demands, to actively deceiving constituents, ranging so far as to combat them. Respondents interviewed, however, partly tone down the role of conflicting demands in general, arguing that financial and non-financial goals often can be seamlessly integrated.
We don’t do more than what the law requires and what our owners require, I would say. [...] Then my owners can come and ask me to present how things are going in city Y [one of the municipalities in which the company operates]. (Transport Company)
I wouldn’t call it a risk [financial focus at the cost of social], I would say it’s more of a trade-off. For the social activities we do, I wouldn’t say it comes at the cost [of the other], instead it creates a type of profit on its own. [...] I would argue that they [the social and financial] complement each other. We make profits, but we shall also create social values. They are not mutually exclusive, but function side-by-side in my mind. It lies in the nature of the public service to do so. (Housing Company A)
Many respondents claim that their responses to demands often fall in line with acquiescence when faced with goals originating from their owners, the municipalities. For instance, Housing Company B argues:
The goals that the municipality decides on - we need to break them down so that it trickles down all the way from the municipality’s goals and all way down to the
co-worker conversation. And that we do! If you don’t do what the owner says, then you won’t be very popular!
(Housing Company B)
Some of the MOEs argued that, by extension, the owners represented the citizens and society at large. Following that logic, if the enterprise successfully satisfies its owners it would also lead to favorable public opinions. However, this assumes that the interest of the owner and the public is aligned. When queried if a possible disconnect between the municipality and its population existed regarding sustainable housing, this reply was given:
We have a democratic system, we have voted for the parties that govern the municipality. Through them we can determine how the majority of the citizens in city X want it to be. One needs to respect that we have a democratic system, this is what the majority of citizens in city X want. They want [emphasis] us to consider sustainability as an important matter. (Housing Company A)
Not all responses to institutional pressure fall within the line of acquiescence, however. When MOEs perceive that their mission statement requires the organization to fulfil competing demands they may, instead of prioritizing between the goals, make their case to the owners about the incompatibility of the objectives. When Housing Company A are asked how they handle the situation of being tasked with building affordable and environment friendly housing during an economic boom, they argued for revising their objectives:
One could make sure when we are to build the most. We as a public service company maybe should wait to build until its cooled down a bit on the market. There are different things we should do, one could make it so we build 150 dwellings over the course of three years [as opposed to PER year]. (Housing company A)
Furthermore, some respondents argued that even if the goals they are tasked with to measure and work to achieve, some needs to be adjusted in order to be applicable in the organization. However, this form of response still constitutes acquiescence in the form of compliance:
We have to adjust them a little bit because we are a company. Even if we can get with the “housing for all”
goal, it’s pretty easy to say, “we work towards this, we
you make sure it’s always a chain of objectives, make sure it’s connected. (Housing Company A)
In one of the enterprises, a clear example of conflict between certain wishes existed within the enterprise itself. The organization, a municipally owned airport, is being run to improve the region’s infrastructure, mainly by providing businesses options of transport and secondly to provide citizens with the very same option. When choosing which destinations, the Airport regularly should offer flights to, a decision had been made to favor the clients in the business sector over citizens. It should be noted that this decision was supported and encouraged by the owners as well and served as the raison d'etre of the enterprise. The CEO of the airport argues:
The board has prioritized that it is the business sector which is the most important customer group. It is for their sake, at first hand, we exist to contribute to employment and the economic growth of Värmland. We supply travels and flights that covers the business sector’s [needs]. [...] Yes [we place this group before the other ones], if we need to prioritize, we will do that.
(Airport)
Energy Company B argues that within their mission they are not expected to take into consideration the negative effects for its citizens and its ‘sister company’, a housing company, when setting price levels. Instead, it is heavily emphasized that the price levels should be set in accordance to competitors and what allows them to remain competitive on the market:
When we increase our prices, this effect the municipally owned housing company, they may be forced to charge more for rent. This we can’t take into account, because we run this operation in a businesslike manner and need to have a competitive price so we can retain our customers in competition with different sources of energy. There is pellet heating and, as I mentioned, heat pumps and we must remain vigil, so we do not set our price levels above the competitors. (Energy Company B)
This illustrates a logic where, when faced with competing institutional logics, MOEs are allowed to make trade-offs in the priorities of logics and which stakeholders they should cater to. Furthermore, this is described in the mission statement which serves as the basis when conducting business in the enterprises. This points to an understanding from the owners as they recognize certain points of contention and provides the organization with the blessing of making certain trade-offs.
4.2. Decoupling
Decoupling is divided into two main categories - means-ends and policy- practice, where the former constitutes a facade of adopting certain practises and the latter being the adoption of policies that may serve no purpose or impede the work conducted in the organization. Enterprises interviewed claimed they lacked the resources to set up separate units handling non- operational matters, as the CEO of Energy Company A argues “We are a too small for having our own functions. Instead, we participate in the municipality’s own undertakings”. Further, the CEO of Housing Company B states “We are a small company who lacks this opportunity. It is a joint responsibility [by all branches of the municipality] to bring forward such questions”.
In the matter of policy-practise-decoupling, this was revealed to be playing a bigger role in MOEs’ day-to-day routines than what means-ends did. This can be divided into two subsections - one in which organizations are reviewed on goals they have no realistic chance of having an effect on or goals that may be impossible to implement and measure appropriately:
There are some goals which are better suited for other enterprises. “City X should be a good city for students”
- obviously we provide housing for students, but maybe others should work with these questions more closely.
[...] I often say that Housing Company A perhaps works towards fifteen overarching goals out of twenty-two in our overall activities, but in our management control we actively monitor four or five [goals] to narrow down our reach and improve the organization. (Housing Company A)
It is also interesting that municipality Y wishes to double its number of visitors - how does the Transport Company contribute to that? Our reviews become a bit forced but still, it’s interesting to ask yourself these questions. [...] It is nothing we work with daily, but we ponder on this from time to time. (Transport Company)
The other subsection can be categorized as goals that have a neutral or possibly even a negative impact on organizational performance. These goals have, despite not contributing to the overall success of the enterprise, seen implementation in organizations. The logics of this can be found that these were enforced upon the organization as the result of coercive pressure:
want to get started on and improve upon. Politicians also want to get started on this, they are a clear driving force here. Of course, would it be in a larger scale then it would impact our profitability, before we know what the business model may look like. It’s in such a small scale now, however, and its impact on our profit is small.
(Energy Company A)
Furthermore, policy-practise-decoupling may be initiated by the organization itself, perhaps at an attempt to achieve legitimacy among stakeholders.
I would say the diversity policy is one such which is especially difficult, we have talked much on equality and diversity here. I find diversity to be the hardest, we want to be more diverse, but how does one do that?
(Busing Company)
However, not all enterprises recognized that inefficient practises had indeed been implemented, some even rejecting the idea at face value. Infact, only three out of eleven interviewees claimed to have implemented some form of decoupling. This points to an overarching theme where MOEs lack resources for decoupling specific functions for legitimacy gain and to likewise implement inefficient or non-contributing practises. As such, matters of decoupling in MOEs may be less than that of SOEs.
4.3. Agency
Agency theories in SOEs typically highlight the difficulty in recognizing who the principal is. In SOE settings, this is understood to be difficult due to the fact of the multiple stakeholder groups who may get a say in the decision making of the enterprise. While this may be the view presented in the literature, the findings of this study point in a different direction. Instead of having a complicated process of decision making with multiple stakeholders involved, MOEs tend to consider only the municipal as its principal. When the representative for Housing Company A was asked whether she found any difficulties in recognizing the principal in the principal-agent relationship, she provided a clear answer “We know who our principal is - it is the citizens living in city X. It will be the municipality in the end”. Energy Company A, residing in the very same municipality, mirrored the answer:
The owners are my principal. The owner and the board are my principals, then we must position ourselves towards the public to the degree they represent customers. The public are the owners, by which I mean the citizens of the municipality. It is channelled for my part through the owners, the municipality, or the board.
(Energy Company A)
