The Good Measure of Others: Social Return on Investment and Its Role in Legitimacy-Seeking

Friday, 3 July 2015: 8:30 AM-10:00 AM
TW2.2.04 (Tower Two)
Emily Barman, Boston University, Boston, MA
Matthew Hall, London School of Economics, London, United Kingdom
Yuval Millo, University of Leicester, Leicester, United Kingdom; University of Leicester, Leicester, United Kingdom
Literature on how institutional entrepreneurs obtain legitimacy from stakeholders has focused primarily on the use of two strategic elements: theorization and affiliation.  Using the empirical case of the Social Return On Investment (SROI) methodology, this paper identifies a more fundamental strategic building block in the process of legitimacy-seeking: the development and deployment of measurement devices and methodologies.  

The motivation for our theory-building comes from our identification of a potential weakness in the theoretical framework in the literature. The theorizing strand of explanation about how institutional entrepreneurs seek legitimacy tends to conceptualize the theorizing activity as a communicative act that takes place between two or more concrete actors, (e.g. the institutional entrepreneur and an existing stakeholder), whereby the entrepreneur knows well the content world, accepted manners of communication, and the epistemic values of the stakeholder and uses these to construct a message aimed at persuading the stakeholder about the legitimacy of the proposed entrepreneurial project.

We argue that such conceptual representation tends to over-simplify the actors in the field. In particular, this framework does not offer a theoretical account of the cases where the entrepreneur and the stakeholder do not communicate directly with one another, but instead the relationship is brokered by an intermediary, who connects networks of individuals who are otherwise weakly or not at all connected.  One central task of intermediaries is transferring needed information from one group to another. These intermediaries, such as consultants, fund managers, and funding bodies, may not have exact contextual information that could contribute to developing a ‘tailor-made’ persuasive message. For example, intermediaries may not know the exact identities or epistemic beliefs of all potential stakeholders, but only have a perceived notion of the types of representative discourse towards which such stakeholders may be receptive. Intermediaries will then sacrifice the potentially effective persuasive power of a finely contextualized message and resort instead to a communicative strategy that would generate more general discourse, to compensate for the uncertainty regarding the stakeholder/s’ exact beliefs and preferences. We posit that intermediaries placed in such structural conditions are motivated (in conjunction with other factors) to propose and establish a financial valuation methodology with which a variety of entrepreneurial acts and actors could be depicted and represented.

We study the development of ‘Social Return on Investment’ (SROI), an accounting methodology that measures and reports on the financial and social value created by social purpose organizations.  SROI was developed by proponents as an attempt to convey the value of organizations employing market-based solutions to social problems by generating an accounting and reporting system.  

We identify a number of contributions. First, our theoretical framework necessitates a focal shift regarding the legitimacy-seeking activity from the content of message communicated to the stakeholder to the representative medium – the valuation methodology, so enriching the theoretical approach regarding how nascent organizational forms seek legitimacy. Second, our focus on valuation devices addresses scholarship’s calls for attention to materiality – how artefacts are created and employed in the pursuit of institutional change.