The Role of Internal Legitimacy in Shifting a Large Established Company Towards Sustainability. A Case Study of a Sustainable Transition Shift in the Oil and Gas Industry

Abstract

<p>This thesis is motivated by the need to involve sustainability in the oil and gas industry. This thesis focuses on the sustainable transition in Equinor, the Norwegian oil and gas company. It looks, particularly, at a large established oil and gas company undergoing a sustainable change and how it performs its transition into sustainability. However, this transition poses challenges to a large established company like Equinor where, over 40 years, the petroleum activities were crucial for the country’s economic growth and for funding the Norwegian welfare state. In addition, investing in renewable energy as a clean alternative source of energy requires Equinor to enhance its capabilities, knowledge and competencies outside its boundaries. <p>Legitimacy theory has been applied in this thesis and is considered to be an important mechanism for understanding how a large established company under sustainable change manages its new sustainable investments. However, existing research on sustainability is mainly focused on the role that sustainability plays in triggering new innovations, improving a company’s image and enhancing competitive advantages, but does not necessarily involve how a sustainable transition is carried out in practice. Therefore, this thesis focuses mainly on internal legitimacy, in order to understand what is happening in a large established company undergoing a sustainable change. Thus, this motivates me to investigate the following overall research question ‘What is the role internal legitimacy plays in shifting a large established company towards sustainability?’ <p>This thesis pursues two related objectives. From a practical perspective, it aims to shed light on the role of governments, managers and employees in developing a sustainable change in companies. From a theoretical perspective, it adds more theoretically based approaches and enables us to understand the strategic change process of introducing new sustainable activities in a large established company by using internal legitimacy theory. Consequently, this thesis contributes empirically to the literature of legitimacy, strategy and sustainability, and enables us to understand the role internal legitimacy plays in shifting a company’s strategy towards sustainability. <p>These objectives are addressed through a cover essay and three research papers. The cover essay provides an overarching theoretical framework for the thesis, using the Scott and Suchman legitimacy theory which integrate the concepts of sustainability and strategy change. The cover essay consolidates the three individual research papers in a coherent manner and responds to the dissertation’s overall research question. The empirical research is conducted within interpretivism and positivism perspectives research tradition, and follows a mixed methods approach that combines qualitative and quantitative research method designs. First, the qualitative data followed a semi-structured narrative approach collected over a three-year period. In addition, the secondary data were collected through Equinor’s own documentation, such as company webpages, annual reports, sustainability reports, renewable energy reports, energy perspectives’ reports, conferences and presentations. Second, the quantitative data were collected through a survey conducted between 2017-2019, resulting in 91 respondents who fully completed the survey. <p>The first research paper represents a qualitative case study and aims to respond to the lack of literature on the role internal legitimacy plays in developing a new sustainable strategy in a large established company. Thus, this paper synthesises previous literature on internal legitimacy and strategy change, advances our knowledge and forms new ideas about this complex phenomenon in order to understand the important role played by internal legitimacy in creating a shift towards sustainability. It will thereby seek to explain how an oil and gas company strengthens its commitment to the environment and invests in clean alternative sources of energy (renewable energy) in order to develop an all-encompassing energy company. By employing the three types of legitimacy, moral, pragmatic and cognitive, this paper suggests that moral legitimacy plays an essential role in shaping a sustainable strategy shift to the company. This was related to the direct support from the Norwegian government, the board of directors and the top manager. Pragmatic legitimacy shows that most of the company’s stakeholders are engaged in the new transition; however, the translation process of sustainable development will continue within the company until the sustainable transition is complete. Finally, cognitive legitimacy shows us that a majority of employees understand the relevance of this sustainable shift and accept it. <p>The second paper addresses a quantitative case study and aims to fill the gap in the literature concerning measuring sustainability in a large established company. This paper aims to make a methodological contribution to the research of internal legitimacy and strategy change by developing a valid measure of regulative, normative and cognitive pillars. Thus, this paper uses the three mentioned pillars as a lens to understand the factors that legitimise the adoption of new sustainable activities in Equinor. Accordingly, the key findings of this paper reveal that the Equinor case company employs a regulative and normative pillar that play an important role in building Equinor’s internal legitimacy and framing its organisational identity. The regulative pillar is presented as the important carrier of shaping sustainable transition in the company, and the normative pillar plays an essential role in strengthening the sustainability transition. However, cognitive legitimacy was not supported in the study, and this reveals that it would need more time to be achieved so that everybody in the company understands and accepts the sustainable transition that is taking place in the company. <p>The third paper addresses a quantitative case study and aims to fill the lack of quantitative gap in the literature concerning internal legitimacy and sustainable innovation selection. This paper aims to make a methodological contribution by testing and validating a model that enables us to understand how a large established company selects its new sustainable activities. Thus, the three elements of legitimacy (regulative, normative and cognitive) are used as a tool to understand how people in a large established company make their sustainable choices. The key findings of this paper show that the regulative and normative pillars play essential roles in selecting renewable energy activities. However, the normative presents the strongest factor in all pillars. This means that employees play the most essential role in facilitating and implementing new sustainable ideas. Consequently, the results show that sustainability has been embedded in the company where the regulative and normative pillars present the potential carriers of the sustainable selection criteria. <p>Overall, this thesis advances new insights into the literature of organisational studies by understanding how employees in a large established company relate to sustainable challenges. Thus, this thesis advances new insights into the literature of internal legitimacy and strategy change by uncovering the ‘How’ and ‘What’ questions of the meaning of sustainable transition. First, the thesis explores how internal legitimacy is used to understand the introduction of a new strategy in a large established company. Second, it provides empirical evidence and shows what factors that build and manage internal legitimacy during strategy change. Third, it tests the data in a new setting by developing and testing both qualitative (interviews) and quantitative data (survey). Fourth, the thesis develops a conceptual framework that helps researchers understand how a sustainable shift can be implemented in large established companies. Finally, this thesis highlights similarities and disparities among Scott’s and Suchman’s division of legitimacy theory. This is achieved through the three papers, considering that paper 1 aims to explore how internal legitimacy is used in a new setting, and paper 2 and 3 develop and test a survey in a new setting.