Which theory suggests firms face social and political pressure to fulfill their social contract?

The theory that suggests firms face social and political pressure to fulfill their social contract is Legitimacy Theory. This theory posits that organizations must operate within a framework of societal norms and values to maintain their legitimacy and support from their stakeholders. It emphasizes the need for firms to align their actions with the expectations of society, ensuring that their operations are viewed as acceptable and justifiable.

Organizations are often scrutinized by various social groups, including consumers, community members, regulatory bodies, and non-governmental organizations, which can influence their legitimacy. If a company fails to meet societal expectations, it risks negative consequences such as loss of reputation, decreased customer loyalty, and potential legal ramifications. Thus, fulfilling their social contract becomes a crucial aspect for companies to sustain their legitimacy and, consequently, their operational success.

The other theories do not focus primarily on social and political pressures in the same way. Stakeholder Theory centers on understanding and managing relationships with those who have a stake in the company, but it does not specifically address the notion of a social contract. Shareholder/agency Theory primarily emphasizes maximizing shareholder value and may not account for broader social obligations. Institutional Theory deals with how organizations conform to pressures from institutional environments, but it is more about the influence of structures rather