Dr Alex Nicholls MBA

1. Dr Alex Nicholls MBA University Lecturer in Social Entrepreneurship Fellow of Harris Manchester College Alex.Nicholls@sbs.ox.ac.uk SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

2. What gives Fair Trade its Right to Operate? Organizational Legitimacy and Strategic Management SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

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4. Context • An implicit assumption at the heart of the Fair Trade movement that its objectives and processes give it a legitimate right to operate as a distinct model of social justice and development • The roots of the movement in trade justice campaigning, advocacy, and faith groups have lent weight to this assumption since they carry a normative moral and political authority consistent with the stated aims and achievements of Fair Trade SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

5. Context • Much scholarly literature on Fair Trade shares this view and builds theory and research on the basis of an untested perspective that it offers a legitimate model for producer empowerment and economic development • Despite some criticisms of specific aspects of the model, Fair Trade continues to enjoy widespread popular support and is a growing and influential consumer-driven market trend in the North SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

6. Context • Internal stresses • IFAT v FLO • Mainstreaming and growth • External scrutiny • Impact • Methodology SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

7. Research Questions • How do actors within the Fair Trade movement define its right to operate, particularly in relation to notions of trust, reputation, and organizational legitimacy? • What are the factors that contribute towards building perceptions of organizational legitimacy in Fair Trade? • How can managerial action best address building and maintaining such perceptions of Fair Trade? SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

8. Methodology • Exploratory • First stage of a three stage research process • Fourteen semi-structured interviews with internal FT actors • Typically the CEO or another senior manager • Qualitative approach • Perceptions of actors engaged with Fair Trade • Specifically the questions addressed different actors’ perceptions of Fair Trade’s right to operate both within and without the movement • Also considered how perceptions of the organizational legitimacy of Fair Trade are configured with reference to subjective constructs such as reputation and trust • Stage two of the research will focus on producers and other dependent external actors • Stage three engaging with customers and other influential stakeholders SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

9. Theoretical Context • Organizational theory • Legitimacy is a function of how well an organization fits into extant, societally endorsed, patterns of action, form, and behaviour • A correlation between accruing a critical mass of positive legitimating judgements and how successfully an organization can access the resources necessary for its survival and growth SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

10. Theoretical Context • Not-for-profit literature • Legitimacy is a function of organizational accountability to its stakeholders in general and its beneficiaries specifically • Representativeness and responsiveness • Legitimacy provides an organization’s moral authority to carry out its work SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

11. Organizational Legitimacy Mandate to Act = Congruence in multiple stakeholder judgements of an organisation’s perceived actions against their expectations of its performance SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

12. Organizational Legitimating Competences Feedback Loop Identify Legitimating Actors Legitimating Actors Legitimating Actors Legitimating Actors Systems of Relationships Perceptions Perceptions Perceptions Perceptions Weight Feedback Loop Organizational Legitimacy Regulatory; Associational; Pragmatic; Normative; Cognitive Model of Organisational Legitimacy SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

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14. Overview Results • General perception that legitimacy was a complex, socially constructed phenomenon that was not central to management thinking • No respondents conceptualized legitimacy as a product of stakeholder perceptions of organizational action or understood it to be largely exogenous • When asked specifically to define organizational legitimacy the notion was typically related to issues of accountability and responsiveness SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

15. Overview Results • Respondents recognised the strategic significance of the more familiar notions of trust, reputation, and credibility to build a ‘mandate’ to operate • Deeply held values and a clear social mission were seen as important in terms of building trust and reputation to demonstrate ‘authenticity’ SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

16. Overview Results • Most respondents appeared to be aware of the need strategically to manage their reputation and some even had formalized procedures and mechanisms for dealing with it. • Using the media and PR • Building relationships with important stakeholders often via CEO/senior manager personally engaging • The focus was largely on internal systems as the drivers for legitimating constructs such as trust, rather than on better understanding external cognitive frames and perceptions. SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

17. Legitimating Competences Interviewees explicitly mentioned: • Expertise and skills • Public support • Individual integrity • Accountability systems • Alignment with principles • Cultural resonance • Longevity • Conversely, there was little evidence of focus on: • Performance impact • Organizational assets SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

18. Systems of Relationships • Recognised key stakeholders • Recognised dynamic change across stakeholders • Understood that stakeholder perceptions varied and were important • Some acknowledgement that different perspectives could be in conflict and that this was a strategic issue • Activists v mainstreamers • Respondents were aware of the difficulties of engaging their key beneficiaries • Did not demonstrate a clear sense of the legitimating structure of their stakeholder landscape SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

19. Legitimacy Typology • All five types were mentioned in the course of the interviews, though no one interviewee cited all of them • Two emerged as of particular significance: associational; normative • In addition, a new category ‘individual legitimacy’ emerged as significant • This new category highlighted the contribution of the personal integrity and reputation of a senior manager/CEO to building trust and reputation in their organization across stakeholders SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

20. Legitimacy Perceptions SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

21. FT Discourses Fair Trade is a trading partnership, based on dialogue, transparency and respect, that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing their rights of, disadvantaged producers and workers – especially in the South. Fair Trade organizations (backed by consumers) are actively engaged in supporting producers in awareness raising and in campaigning for changes in the rules and practices of conventional international trade. Fair Trade's strategic intent is: • Deliberately to work with marginalized producers and workers in order to help them move from a position of vulnerability to security and economic self-sufficiency • To empower producers and workers as stakeholders in their own organizations • Actively to play a wider role in the global arena to achieve greater equity in international trade www.fairtrade.net/about_fairtrade.html SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

22. FT Discourses SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP Table 1: Fair Trade Mission Statement Discourses

23. Discourse Clusters • Process • How? • Political • Why? • Economic • With whom? SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

24. Process • ‘Partnership’ • ‘Equality’ across stakeholders • Importance of communication and openness • Transparency • Stakeholder engagement • Little evidence of ‘respect’ and ‘equity’ SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

25. Process The values we try to adhere to in Fair Trade generally…would be about respect, transparency, dialogue, working as a partnership, and collaboration rather than competition between different power elements (Interviewee 14) We have a whole set of values, one of which is respect, one is integrity, one is about being fair to everybody…And the other value we have…it’s about partnerships and being equal with each other. You know, it’s about listening and hearing rather than just being talkative (Interviewee 13) SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

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27. Political • Largely absent • Campaigners/activists marginalised • No evidence of social justice agenda • Danger of paternalism • Power relations ignored SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

28. Political That’s interesting. That’s a really interesting one. I’ve never felt there was a power relationship…Usually, when I go and meet producers, or they come here…there are usually things they want to tell us about…and the conversations we have are not about power, you know – they’re about this is what’s happening and what can we do and it’s the way you present it as well, it’s really important (Interviewee 14) SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

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30. Economic • Quality control • Producer capacity development • Improving livelihoods • Effective marketing and branding SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

31. Economic I felt that people had a stigma and we were never going to move it unless we started in some respects doing mainstream marketing. So we were using mainstream tools. And the other thing was to move it from a ‘we’ message to a ‘me’ – you’re going to enjoy something out of this rather than you’re just giving money for this good cause. So we tried to get people emotionally attached to the product, so they’re going to get something out of it instead of just paying more (Interviewee 14) SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

32. Research Questions • How do actors within the Fair Trade movement define its right to operate, particularly in relation to notions of trust, reputation, and organizational legitimacy? • Key internal actors within the Fair Trade movement rarely considered issues of organizational legitimacy explicitly and seemed unclear as to how either to conceptualize it effectively or manage it strategically • They commonly referred to the importance of trust and reputation • Variously, respondents articulated each element of the legitimacy model developed here, but none grasped it as a whole • Most significantly, the importance of systems of relationship within the legitimating process – namely the role of the perceptions of external actors – was largely unacknowledged in the data SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

33. Research Questions • How do actors within the Fair Trade movement define its right to operate, particularly in relation to notions of trust, reputation, and organizational legitimacy? • Respondents spoke about the importance of stakeholders (particularly producers) in terms of their opinions and the importance of key relationships, but this was typically viewed with a managerialist perspective as something to be controlled from within the organization • This was underlined by the lack of references to performance impact in discussions of legitimating competences, since to measure performance impact effectively requires active engagement with beneficiaries’ needs and their feedback • Similarly, the importance of the individual legitimacy of senior managers/CEOs within the legitimating process underlined a reliance on internal resources to control, rather than react to, external stakeholder input SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

34. Research Questions • What are the factors that contribute towards building perceptions of organizational legitimacy in Fair Trade? • When compared against the three FT discourse clusters respondents focussed largely on process issues with a lesser concern for economic development • A focus on the political aspect of Fair Trade was almost entirely absent • In terms of key process issues (ie how Fair Trade operates), respondents’ comments matched the public statements closely with transparency, accountability, and good communication often (cast as ‘dialogue’) emerging as particularly significant • Economic factors (ie whom Fair Trade helps) were described by interviewees in terms of how Fair Trade organizations can help producers improve quality control and capacity development – namely as interventions rather than empowerments SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

35. Research Questions • What are the factors that contribute towards building perceptions of organizational legitimacy in Fair Trade? • The absence of any meaningful discussion of the stated political objectives of Fair Trade (aside from quoting mission statements) is striking. This may be explained two factors: • First, the majority of the interviewees worked in customer-facing Fair Trade organizations for whom market development has become the key strategic objective, leaving a bifurcated Fair Trade movement where ‘activists’ are separated from the commercial Fair Trade firms and left to do the political campaigning • Second, and perhaps more significantly, it could be that the social justice roots of the Fair Trade movement are largely being left behind as it becomes established in the mainstream SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

36. Research Questions • What are the factors that contribute towards building perceptions of organizational legitimacy in Fair Trade? • Such concerns are consistent with recent theoretical perspectives on Fair Trade that suggest the mainstreaming of the movement represents a development away from a values-based model of alternative trade towards co-option by the neo-liberal market • The public discourses around Fair Trade then become symbolic devices that obfuscate this change by appealing to normative notions of its impact and performance disconnected from empirical evidence or beneficiary voice • In this light, the key elements in the successful move of Fair Trade into the mainstream – FLO standards and the Fair Trade mark - can be seen as technocratic departures from its original core values of mutuality and partnership, depoliticising the movement’s radical agenda and facilitating its capture by the dominant logic of the corporation • Indeed, the mainstreaming of Fair Trade could also be seen as a legitimation process for the neoliberal market model itself – softening its sharper contours for a more ‘ethical’ public SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

37. Research Questions • How can managerial action best address building and maintaining such perceptions of Fair Trade? • Respondents focussed largely on PR and reputation management as the key tools to build and maintain organizational legitimacy and trust in Fair Trade • In addition, the individual legitimacy of a senior manager/CEO emerged as important in this respect SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

38. Research Questions • The legitimacy model used analytically here demonstrates several significant strategic lacunae in legitimating processes • First, interviewees did not grasp that legitimacy is a social constructed phenomenon based around exogenous perceptions of organizational action • Little attention was paid either to the larger cognitive frames in which Fair Trade sits and upon which it draws (most significantly the social justice movement) or to the challenges presented by conceptualizing differing systems of relationships • Second, and related to this, respondents did not demonstrate an understanding of the strategic significance of identifying and balancing competing legitimacies and legitimating judgement across systems of relationships SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

39. Research Questions • The legitimacy model used analytically here demonstrates several significant strategic lacunae in legitimating processes • Third, interviewees had a predominantly managerialist view of the legitimating process, seeing it largely as a function of marketing, rather than a core strategic issue • Finally, the data showed a disregard for the political dimension of the Fair Trade model that, effectively, marginalized producer voice and representation and gave priority to engagement with the likes of Nestle rather than other NGOs SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

40. Conclusions • Legitimacy is a key organisational asset • FT legitimacy is based on perceptions of its public discourses • Respondents poorly understand how their legitimacy is configured • Respondents appear to ignore political dimension of the FT mission • Forgetting the ‘why?’ question SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP

41. Why? SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP