Clearing the Smoke: Regulations, Moral Legitimacy, and Performance in the U.S. Tobacco Industry

Controversial industries, such as the energy sector are facing increasing regulations and changing evaluations of what is morally acceptable. This is profoundly affecting the performance of companies in this industry. The researchers consider the tobacco industry to be an ideal context for exploring the following question: How do regulations affect moral legitimacy, and in turn influence industry performance?

Clearing the Smoke, Journal of Business Ethics, november 2022

Abstract
Considering recent theoretical discussions about the concept of moral legitimacy, this study advances our understanding of its performance consequences. Specifically, it uncovers the mediating role of moral legitimacy in the relationship between regulations and industry performance. Our analysis of the U.S. state-level data on regulations in a controversial industry between 1994 and 2010 yields four significant findings. The results show that regulations not only decrease performance but also negatively impact moral legitimacy. Moreover, this study provides empirical evidence that moral legitimacy is positively related to industry performance, providing much-needed direct support for this premise. Importantly, the results indicate that moral legitimacy mediates the effect of regulations on performance, but only when regulations are aligned with moral values. Overall, this study extends our understanding of how regulations influence moral legitimacy, and in turn impact industry performance.

Highlighted
"Regulations profoundly impact the moral legitimacy of controversial industries by shaping societal expectations about which practices are deemed morally appropriate or acceptable, and by making the misalignment between an industry’s strategies and collective interests visible and salient."

"We identified media coverage as a relevant measure of moral legitimacy because it reflects moral evaluations of the industry by presenting it as being (mis)aligned with widely held moral values (Giorgi & Weber, 2015). Moreover, media outlets provide extensive coverage of the enactment of regulations, which implicitly recognize these regulations as worthy of attention."

"In short, we show that industry performance is partially determined by the moral assessments of members of society. We, thus, conclude that the enactment of tobacco control regulations has influenced the moral legitimacy of the industry by helping to create a nascent collective identity (Wry et al., 2011) where smokers must accommodate the preferences of non-smokers, thereby negatively affecting TCs’ performance."