Reputation and Political Legitimacy: ITT in Chile, 1927–1972
Description
The literature on multinational corporations argues that a for- eign firm can legitimize its activities, improve its reputation in a host country, and reduce the risk of hostile actions by the host government (including expropriation) by approaching and incorporating influential members of the domestic elite in its business. By using the concept of obsolescing political le- gitimacy, we argue that this legitimating strategy can lead to a loss of reputation and eventual illegitimacy when the host country undergoes significant social and institutional changes. When these changes take place, the domestic society can per- ceive that the multinational benefited from a previous social and institutional order increasingly considered as illegitimate. Under these circumstances, the new order will question the legitimacy of the multinational’s operations, increasing the risk of expropriation. We illustrate our hypothesis with the case of the political strategies of the International Telephone and Telegraph Company (ITT) in Chile in the twentieth century.