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State-Owned Enterprises

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State-Owned Enterprises : Issues of Accountability and Legitimacy

Juliet Roper and Michèle Schoenberger-Orgad
Management Communication Quarterly 2011 25: 693
DOI: 10.1177/0893318911415598

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DOI: 10.1177/0893318911415598
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and Legitimacy

Juliet Roper1 and

Michèle Schoenberger-Orgad1

Abstract
This article seeks to broaden the parameters of the research into and dis-
course of CSR, which, by definition, has focused on corporations, but has
neglected the role of governments as corporate owners. Greater awareness
and transparency of corporate ownership should open up discussions of
accountability, especially as citizens are arguably the principal shareholders
of government-owned companies. These are issues of potential concern to
organizational communication scholars. The article first examines the na-
ture and genesis of government-owned corporations, particularly in the New
Zealand context, which very much follows the pattern of similar corpora-
tions around the world. A case study follows, with extant literature of CSR,
legitimacy, and the conventionally regarded relative roles of state and the
economy drawn upon to inform discussion of the broader ramifications of
the case for other organizational contexts.

Keywords
corporate communication, ethics, state-owned enterprises

1
University of Waikato, Hamilton, New Zealand

Corresponding Author:
Juliet Roper, Department of Management Communication, University of Waikato,
Private Bag 3105, Hamilton, New Zealand 3240
Email: jroper@waikato.ac.nz

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694 Management Communication Quarterly 25(4)

Introduction
This article questions the scope of conventional discourses of corporate social
responsibility (CSR) by bringing into the debate the issue of those organiza-
tions that are manifestly corporate by virtue of being commercially driven but
that are, in fact, government owned. Such organizations exist throughout the
world, with the United States being the notable exception. China, for exam-
ple, is home to companies that are not only among the largest in the world but
are also state owned. Other countries have state-owned companies that com-
pete in the open market as corporate entities with motives of profit rather than
of public service. Very often, these are utility companies providing telecom-
munications, transport, water, or electricity. Through these companies, gov-
ernments directly enter the economic sector, blurring the lines between state
and the economy. In such cases, issues of accountability, legitimacy, ethical
corporate governance, and conflicting interest in regulatory policy arise.
Although the CSR literature fundamentally addresses the relationship
between business and society, the issues of the responsibilities and account-
ability of state-owned companies are not addressed. Instead, governments are
typically viewed as operating outside of both the economic sector and the
public sphere.
Can the state objectively serve the public sector when it is simultaneously
competing in economic markets? How is the public interest protected when
publicly owned corporations are expected to return profits rather than a pub-
lic service? Does a government’s financial bailout of a failing company alter
the relationship of that company with the state and society, especially in
terms of accountability and legitimacy? Under “normal” conditions of state
and corporate legitimacy (that is, when public expectations are met), these
issues would not be raised. However, when legitimacy is questioned or,
worse, withdrawn, government-owned companies are very much drawn into
the discussion. This is exactly what happened in a New Zealand case where a
state-owned enterprise (SOE) was accused of putting profit before social
responsibility, thereby causing the death of a woman who could not afford to
pay her power bill.
This article examines the New Zealand case and uses it to bring the often-
invisible and little-discussed role of government-owned business organiza-
tions into the open. By doing so, it also seeks to broaden the parameters of the
discourse of CSR, which, by definition, has focused on corporations, includ-
ing issues of corporate governance, but not on the role of governments as
corporate owners. Greater awareness and transparency of corporate owner-
ship should open up discussions of accountability, especially as citizens are

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Roper and Schoenberger-Orgad 695

arguably the principal shareholders of government-owned companies. These

are issues of potential concern to organizational communication scholars.
The article first examines the nature and genesis of government-owned
corporations, particularly in the New Zealand context, which very much fol-
lows the pattern of similar corporations around the world. Extant literature of
CSR, legitimacy, and the conventionally regarded relative roles of state and
the economy are then explored. The case is then described and discussed in
light of issues raised by the literature.

Government-Owned Corporations
Outside of the United States, corporations that are owned, to varying degrees,
by national governments are common, although the terminology often differs.
For example, they are known as state-owned enterprises (SOEs) in New
Zealand, government business enterprises (GBEs) in Australia, and state-
owned companies (SOCs) in Norway (see Christensen & Lægreid, 2003),
whereas they are termed government-linked companies (GLC) in Malaysia.
Companies can be wholly state owned or structured as joint ventures between
state and private investors, a structure commonly found in China.
Regardless of nomenclature, state-owned companies have been created as
independent corporations, although, as stated, they are at least partially
owned by governments. Many of these corporations had their genesis as non-
commercial state service organizations. Most commonly, their shift in status
involved the transformation of public service organizations into profit-
oriented companies with the ultimate objective of selling the company into
private ownership. In effect, the state was to be “rolled back” in line with the
free-market ideology ushered in by Reagan in the United States and Thatcher
in the United Kingdom in the early 1980s, an ideology that has continued to
dominate Western economic thinking ever since. In the case of New Zealand,
the voting public became alarmed at what was happening and the process was
stopped before all of the SOEs were sold (Roper, 2004). In spite of the fact
that a free market is ideologically premised on little or no state intervention,
the existence of state-owned companies is commonplace. The Organisation
for Economic Co-operation and Development (2005) acknowledges the com-
plex challenges faced by SOEs, especially in finding a balance between own-
ership and refraining from political interference in the orderly business
conduct of the enterprise.
The motivation for establishment of state-owned enterprises and the view
of potential conflicts of interest in their running will vary from nation to
nation. In part, the variance will stem from the different sociopolitical

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696 Management Communication Quarterly 25(4)

histories and the discourses that emerge from them. Regarding New
Zealand, Kelsey (1997) states,

The overriding statutory objective of each SOE was to run a successful

business. Within that, the SOE had to be as profitable and efficient as
a comparable private sector business, be a good employer, and exhibit
a sense of social responsibility to the community in which it operated
“when able to do so.” (p. 118)

The proviso acts as a hedge that allows the expediency of putting aside
social responsibility in favor of economic imperatives. Regarding Norway,
Christensen and Lægreid (2003) state that the main reason for the establish-
ment of SOCs was “to distance the delivery of an activity from politicians
and to secure commercial benefits” and that it was “a reflection also of the
axiom that politics and business should be separated and that private actors
are better market actors than public ones” (p. 805).
In still other countries, most notably developing nations that have received
loans from the International Monetary Fund and the World Bank, corporati-
zation and privatization of state organizations has been enforced by the lend-
ing institutions through the process known as structural adjustment. Structural
adjustment is a condition of the loans being made and demands the opening
of a nation’s economy to a global free market (Rahaman, Lawrence, & Roper,
2004; Stiglitz, 2002). A different context again is that of the opening up of the
economies of former Communist states as they make the transition to market
economies, often with disastrous results. The situation in China is different in
that the transition has been deliberately slowly effected, with the government
carefully controlling the rate and degree of privatization (Stiglitz, 2002).
Indeed, much of the literature on state-owned corporations that does exist
focuses on China, where cultural influences such as Confucianism as well as
the socialist tradition still influence the relationships between business, the
state, and society (Jacobs, Guopei, & Herbig, 1995; Lufrano, 1997; Roper &
Weymes, 2007). Western companies seeking to open in China will normally
do so by way of joint ventures with the Chinese government, creating a dif-
ferent form of partially state-owned corporations (Goetzmann & Koll, 2004).
Today, the issue of government “ownership” of corporations is arguably
somewhat further blurred in the wake of governmental bailouts of companies
during a time of global economic crisis. Even if the government in question
did not actually acquire shares in the rescued company, what is or should be
the consequent change in the relationship between government and company?
Does the bailout result in greater obligation of the company to conform to

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Roper and Schoenberger-Orgad 697

governmental expectations? What are the expectations and, indeed, rights in

such cases of the taxpayers and voters who support the government under-
writer, and how might these expectations be in conflict with those of other
stakeholders?
State-owned companies have the appearance and behavior of private orga-
nizations. They are created to operate competitively in a free market. On that
basis, their legitimacy is commonly derived from their ability to return a
profit to their owners to whom they have primary responsibility. However,
their status under such circumstances raises important questions for organiza-
tional communication scholars. For example, to what extent is the public, the
citizens of the country in which the corporation is based, cognizant of the real
nature of the corporation’s status as state owned? Should such companies be
subject to the same voluntary codes of responsibility as private companies?
Indeed, as stated above, in the case of New Zealand, they have a statutory
obligation to “exhibit a sense of social responsibility,” but how, if at all, is
that perceived by the public? If the public were aware of this written obliga-
tion, would their expectations differ from those they hold of a privately
owned company? How would those expectations be communicated? How
does a state-owned company demonstrate its commitment to social responsi-
bility? How, and under what circumstances, is it held accountable for that
responsibility?
There is currently a push for CSR to be embedded in corporate culture. In
China, enactment of the core principles of Confucianism is mandated for
state-owned corporations by government decree. In effect, these principles
closely echo those of CSR, with particular application to employer–employee
relationships (Roper & Zhao, in press). Central to the Confucian approach is
a collective worldview and the notion of harmony: Employees are seen as
extended family members in a mutually beneficial relationship. If employees
work hard for the firm, the firm does well and vice-versa. Elsewhere, how-
ever, such an approach is rare, with CSR more commonly being external to
core company operations. It is instead frequently relegated to a communica-
tion function aimed at building company reputation and legitimacy. If the
communication effort is not backed by substance, however, companies risk
accusations of “greenwashing” and associated damage to reputation and
legitimacy.

CSR, State-Owned Companies, and Legitimacy

Issues of CSR are intrinsically linked to issues of organizational legitimacy
in that the concept of legitimacy is essentially linked to the normative and

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698 Management Communication Quarterly 25(4)

thus variable notion of “the public good,” be it applied to corporate (Swanson,

1999) or governmental (Habermas, 1996) organizations (Suchman, 1995).
To generate legitimacy any organization’s behavior is expected to conform
to expectations of its broad range of societal (citizen) stakeholders.
Expectations of organizations’ responsibilities to society develop and change
in accordance with their specific social, political, and economic contexts
(Palazzo & Scherer, 2006). Furthermore, the behavior of any organization is
expected to be consistent with its own public communication, or legitimacy
is withdrawn (Metzler, 2001). In an environment in which both corporate
and governmental behavior is increasingly under scrutiny, an organization’s
professed commitment to sustainable development and/or social responsibil-
ity immediately renders the organization vulnerable to questions of organi-
zational legitimacy.
In this article, the term CSR is used as a representative term, acknowledg-
ing that it can be argued that there are indeed subtle nuances of difference in
understandings within the range of terms available. Others may alternatively
refer, for example, to corporate responsibility, corporate citizenship, or sus-
tainability (Cheney, Roper, & May, 2007). Each of these terms broadly
relates to issues of the legitimate relationship between business and society.
Organizational, public relations, and strategy literature almost overwhelm-
ingly examines CSR as an issue or range of issues situated within the private
sector. Thus, we have views of the responsibilities of private corporations, or,
more broadly defined, of businesses, toward the environment, toward the
public sector in the form of citizens, or toward more specific stakeholders
such as employees, customers, shareholders, suppliers, and the like. In many
ways, it can be argued that the separate treatment of governments and corpo-
rations in social responsibility discourse is a reflection of the still dominant
Western ideology of separation of the state from the economic sector.
The nature of the normatively acceptable roles of the state, the economic
sector, and civil society have been widely theorized (see, for example, Cohen
& Arato, 1992; Habermas, 1991, 1992, 1996). Although over time views of
the boundaries of the respective roles of each sector have changed, and indeed
remain contentious, conventionally it has been when these roles have
encroached on each other through unauthorized shifts of power balance to the
detriment of civil society and social well-being that issues of legitimacy
have emerged. As Habermas (1976) puts it, a crisis of legitimacy occurs
when the fundamental needs of civil society, such as health, education, and
shelter, are not met. In some societies (e.g., those of Scandinavian countries),
it is the state that provides the greater proportion of social welfare; in others
(e.g., the United States), the corporate sector is expected to offer subsidies

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Roper and Schoenberger-Orgad 699

often in the form of philanthropy. The more critical economics and globaliza-
tion literature (see, for example, Kuttner, 2000; Stiglitz, 2002) points out the
growing power and influence that corporations can hold over governments
by virtue of their greater economic weight. In these cases, responsibility for
social welfare is often accordingly transferred from governments and laid at
the feet of the corporations. Similarly, corporations are increasingly being
held accountable for environmental damage incurred, especially in the pro-
cess of resource extraction in developing countries. At the time of writing
this, there is global outrage at BP for oil spills in the Gulf of Mexico, although
interestingly there is little public response to the far greater oil spills that
occur annually in Nigeria but are not exposed to global scrutiny (Vidal,
2010). What is the effect of such outrage and who holds responsibility
when governments own corporations?
Although issues of the nature of the roles of business in society are not
new, they have been given new impetus with exposure of corporate misde-
meanors such as those of Enron, Arthur Andersen, WorldCom, and, more
recently, finance companies involved in subprime mortgages. Alongside the
immediate social implications of cases such as these lie increasingly urgent
environmental, social, and economic issues that transcend national borders,
particularly in relation to climate change, which demand reassessment of the
license of business to operate without regard to long-term consequences for
global society. Public opinion has shifted since Friedman (1970) espoused
his view that business has no responsibility other than to return a profit to its
shareholders. Still, however, very little theory examines how CSR discourses
might change when the private and governmental sectors are merged. Will
there be a new discourse of responsibility in the wake of state bailouts of
companies struggling to survive in economic crisis?
Campbell (2007) points out that corporate behavior, especially in relation
to social responsibility, is determined by the various conditions of institu-
tional context such as economic health, levels of competition, levels of state
or industrial self-regulation, and societal expectations. He does not, however,
consider government ownership as one of them. Stakeholder theory (Freeman,
1984; Mitchell & Agle, 1997) is applied in examining the legitimate interests
of a company’s various stakeholders but does not consider overlapping or
blurred interests in cases such as government-owned corporations. Here,
government is both a major external stakeholder and company owner with
potentially conflicting interests between the two positions. Under what con-
ditions will a particular set of interests prevail?
To determine the nature of CSR, attempts are made to distinguish which
responsibilities belong to the corporation (Iyer, 2006). This in turn requires

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700 Management Communication Quarterly 25(4)

an understanding of the nature of the corporation, which is often viewed from

questions of whether a corporation is a person with individual responsibilities
such as those ascribed to citizenship. Given the rise of corporate political
power over states alluded to above, particularly through processes of global-
ization over the past two decades, the concept of the corporate citizen is
indeed problematic (Matten, Crane, & Chapple, 2003). If a corporation
wields political power over governments, to whom is it then accountable in
terms of democracy? As Matten et al. point out, one would think it should be
accountable to the citizens of civil society rather than assume the nature of
citizenship itself.
What is not discussed is that the issue of accountability to citizens is fur-
ther complicated when the corporation and the government are in fact, if
not in practice, the same entities through ownership. To what extent does a
government abdicate control over the organization it owns, and what are the
implications of such abdication for issues of accountability and legitimacy?
Iyer (2006) makes a case for acknowledgement of the political nature of cor-
porate decision making because the historical overlap of corporate and gov-
ernmental interests renders separation of the economic from the political
impossible. He notes that “corporate-social interactions take place in a dynamic,
unpredictable and extremely complex politico-economic environment. . . .
They shape and are shaped by consumer and government forces” (p. 405).
Although this is true, it still does not account for the further complexity of
accountability in the SOE environment or for renewed economic dependency
of corporations on the state.
Issues of layers of accountability are, of course, not peculiar to SOEs. By
their nature, corporations comprise layers of organizations, each with their
own interdependent functions. Beyond the corporation itself, other compa-
nies comprise complex chains of supply and service. As the layers become
progressively removed from citizen consumers, how does that affect the abil-
ity of corporate owners to retain a connection with the communities they
serve—or, indeed, a sense that they need such a connection?
The following case exemplifies how the key issues of organizational legit-
imacy and accountability of government-owned companies are brought to the
fore in a time of crisis. Until the crisis, issues of corporate ownership, and the
relationships between the state, the company, and the public sector, as well as
their relative roles in ensuring social responsibility, had not been raised. Yet,
once questioned, these issues were very much prominent.

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Roper and Schoenberger-Orgad 701

Mighty River Power/Mercury

Energy and the Muliaga family
The case examined here involves two New Zealand SOEs, Mighty River
Power and Mercury Energy. Mighty River Power is a state-owned power
generation company formed in the 1990s. Mercury Energy is a power supply
company which is also an SOE by virtue of being currently owned by
Mighty River Power. At the centre of the case is the disconnection of power
supply to a Samoan family living in Auckland, the Muliaga family, because
they could not afford to pay their power bill.
The political context of the case is first described, followed by the case
itself, which is drawn from publicly made statements and media coverage
relevant to the event. Public statements from all organizations and individu-
als involved in the case were collected. These include speeches and com-
ments made by relevant politicians, the CEOs of Mercury Energy and Mighty
River Power and their spokespersons, press releases issued by both compa-
nies and politicians, and public statements and press releases disseminated by
the Muliaga family and their spokespeople.

The Political Context

New Zealand’s transition to a neoliberal, free-market economy from 1984
and on into the 1990s has been cited as one of the most rapid and extreme in
the world (Kelsey, 1997). The public sector was reformed with many state
services put through the processes first of corporatization and then of priva-
tization described above. Of those that remain in government ownership, the
electricity sector is dominant. As already noted, SOEs were expected to be
as mindful of their social responsibilities as practicable (Kelsey, 1997). It
was not until after a change of government in 1999, however, that issues of
sustainability and CSR came to the fore in New Zealand.
In July 2001, the New Zealand Cabinet agreed that principles of sustain-
able development should underpin all of the government’s economic, social,
and environmental policies. In line with the commonly cited Bruntland
Report definition, sustainable development in this context emphasizes the
need for the long-term compatibility of the economic, social, and environmen-
tal aspects of human well-being while acknowledging their possible competition
in the short-term (Organisation for Economic Co-operation and Development,
2005). Around the same time, and not by coincidence, organizations for
CSR and sustainability grew in popularity in New Zealand, as elsewhere.
Significantly, Mighty River Power is a member of the New Zealand Business
Council for Sustainable Development.

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702 Management Communication Quarterly 25(4)

The Event
On Tuesday, May 29, 2007, a private contractor arrived at the Muliaga
family home in Mangere, South Auckland, to disconnect the electricity
because of nonpayment of an outstanding bill for $NZ168.40. Mrs. Folole
Muliaga was home with two of her sons. They purportedly asked the con-
tractor to leave the electricity on because Mrs. Muliaga needed an oxygen
machine for breathing. The contractor stated that he was only doing his
job.
Two hours after the disconnection, Mrs. Muliaga asked her sons to sing
for her as she was feeling unwell, and half an hour later, she lost conscious-
ness. One of her sons went to the neighbor’s house to call an ambulance,
which arrived 12 min later. The paramedics were unable to revive her.
The following day, Mercury Energy claimed that the contractor was not
told of Mrs. Muliaga’s dependence on electricity for an oxygen machine.
They stated that Mrs. Muliaga had simply discussed possible bill payment
and reconnection time frames with the contractor. Mercury Energy claimed
that it had done nothing wrong but did make a statement of sympathy to the
family. They stated that the correct procedures for electricity disconnection
were followed but suspended further disconnections indefinitely. Power was
restored to the Muliaga home the following morning.
Disconnections generally follow a 6- to 7-week process, and Mercury
Energy claimed that during this time they were not made aware of Mrs.
Muliaga’s dependency on electricity. The power bill, dated May 23, showed
they owed a total of $304.40, but $136 of that was not due until June 13, leav-
ing only $168.40 outstanding. It also showed that the family had made two
payments: $61.90 on May 2 and $45 on May 18. There was no warning on
the account that the power would be cut if they did not pay the entire amount
immediately.
The event and the behavior of Mercury Energy quickly became very pub-
lic with questions of CSR uppermost. Complicating the discussion was the
fact that Mercury Energy is a state-owned enterprise, thus directly implicat-
ing the government. On Thursday, May 31, trade unionists and community
activists picketed the Mercury Energy headquarters in Auckland. Mercury
Energy’s press conference confirmed that the company has a register of cus-
tomers who require electricity to power life-saving equipment. Mrs. Muliaga
was not on the list.
Community leaders in Mangere maintained that many people in the area
struggle to pay bills and that business needs to be aware of the issues that
people in lower socioeconomic areas face. A civil liberties campaigner

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Roper and Schoenberger-Orgad 703

suggested that there had been a fundamental shift in community values with
little consideration of people’s ability to pay. In a statement from the child
care centre in South Auckland where Mrs. Muliaga had worked, the chair of the
board of trustees said that companies should stop putting profits before peo-
ple and that Mercury Energy makes a huge profit and a small unpaid power
bill would not have affected that.
Doug Heffernan, CEO of Mighty River Power, the parent company of
Mercury Energy stated that he believed the company had done nothing wrong.
Political condemnation came from the Prime Minister, Helen Clark, who
described Mercury Energy as “heartless,” and she called on Mercury Energy
to stop making excuses and take responsibility for the situation. She also called
for toughened regulations on the electricity industry, suggesting that volun-
tary guidelines and protocols, based on the “goodwill” of the companies were
not working. She stated that Mercury Energy had “a hard-nosed commercial
attitude and, frankly, I don’t want to be responsible for a SOE that makes
money out of misery” (The Press, June 6, 2007, p. 11). The government min-
ister for state-owned enterprises cautioned people not to jump to conclusions
until the police had completed their investigation. He added that “we expect
corporate behavior at the very top of what is expected in New Zealand” (The
Dominion Post, May 31, 2007, p. 3).
On Friday, June 1, two Samoan elders, or matai, and a Samoan minister
led Mighty River Power Chair Carole Durbin, CEO Doug Heffernan, and
Mercury Energy General Manager James Moulder on a visit to the family.
The group followed traditional Samoa protocols. A traditional gift of fine
mats was presented to the family together with a donation of $10,000 toward
funeral expenses. Heffernan stated, “We are deeply grateful to the family that
we were able to express our feelings to them and the spirit of forgiveness with
which we were received” (Mighty River Power, Media Release, June 1,
2007). The following day, Durbin publicly apologized to the family for
Mercury Energy’s part in the tragedy:

I am here to say sorry publicly to the family and to apologise to the

community for our part in this tragedy. Mrs. Muliaga died so clearly
something went wrong. In the meantime you can be assured that our
management advised me that all disconnections have been suspended
indefinitely from last Wednesday. No one should ever die because
they can’t pay a power bill. (Mighty River Power, Media Release,
June 2, 2007)

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704 Management Communication Quarterly 25(4)

On June 11, the government announced strengthened guidelines for elec-

tricity disconnections, and, on June 12, the police concluded their investiga-
tion into the death. Police ruled out criminal proceedings saying there was no
evidence to justify any charges against Mercury Energy, the contractors, or
their staff. The findings were to be referred to the Auckland Coroner.
Heffernan said that Mrs. Muliaga’s death had raised some important issues
and that Mercury Energy was reviewing its internal processes to better pro-
tect customers with medical dependencies or in financial hardship from dis-
connection: “Mercury Energy is committed to working with government
regulatory and welfare agencies to develop improved procedures so we can
identity and assist more vulnerable customers more effectively” (Mighty
River Power, Media Release, June 11, 2007).
SOE Minister, Trevor Mallard, expressed his concerns over the way that
the power company had handled the case. He said the government has a “no
surprises” policy with crown departments and entities but in this case, this
policy had clearly been broken. Mercury Energy had failed to furnish its par-
ent company, its board, and ministers with good quality information as to
what had actually occurred in the first 2 days after the death. Both Mercury
Energy and Mighty River Power had failed initially to show the required
sensitivity but rather had spent time and energy trying to convince the media
and the public they had done nothing wrong.
Mercury Energy has since introduced improvements and safeguards to
procedures for disconnections. They have also created a specialist team that
works solely with vulnerable and low-income customers. The electricity
industry—comprising all power retailers—put together a public service
advertisement featuring rugby star, Jonah Lomu, who had himself been reli-
ant on support from a kidney dialysis machine, emphasizing the need to let
electricity suppliers know if anyone in your household relies on electricity for
medical reasons.

Discussion
By raising issues of accountability and legitimacy in association with under-
lying concerns for CSR, the above case also points to failures in free-market
discourse. Reporting of such failures is not new, especially in discussions of
CSR. However, this is not so when the corporation in question is state owned.
These are the core issues that require further discussion in connection to the
specific case study as well as for their implications for organizational studies
more broadly.

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Roper and Schoenberger-Orgad 705

Neoliberal, free-market discourse, which calls for an unfettered market

economy, makes a case for minimal government intervention in the running
of society. The argument is, in line with Adam Smith’s (1776/1937) “invisible
hand,” that the market will adjust itself according to societal needs. When
lined up alongside normative discourses of corporate and political legiti-
macy, success of the market discourse is dependent on the needs of society
being catered for just as Smith predicted. As long as they can cater for soci-
etal needs, either by way of direct government provision or indirectly by way
of corporate subsidy, governments are granted legitimacy (Habermas, 1996).
Significantly, societal breakdown is ultimately blamed on governments.
When corporations are state owned, then, accountability rests with govern-
ment from two fronts: as the owner of the offending companies and as the
entity ultimately responsible for societal welfare. In the New Zealand case,
even though the prime minister tried to distance herself and her government
from the company, this could never be feasible. Organizationally, the mandate
for CSR “where practicable” came from government and that hedge proved
itself flawed in practice. By divesting itself of direct governance of the SOE,
the government lost connection with both the company and, indirectly, with
the community it serves.
Typically, the corporate/business sector will resist attempts by govern-
ments to legislate its behavior, preferring to protect its own boundary from
encroachment by government. At the core of issues management theory, for
example, is the (best practice) attempt by businesses to preempt (or shape to
their own interests) government legislation by anticipating and voluntarily
responding to issues that may affect their own legitimacy (Heath, 1997;
Roper, 2005) and to avoid crises. Mercury Energy and Mighty River Power
both clearly failed in their own issues management, inevitably leading to the
crisis they found themselves in. Even in his initial response to the incident,
the CEO of Mighty River Power failed to apply basic principles of crisis
management by denying culpability and, hence, accountability, rather than
express empathy and a desire to tackle the issue. His response immediately
fuelled the crisis. Furthermore, the incident led to tightening of government
policy guidelines regarding electricity disconnections.
In the case of state-owned companies, governments have (ostensibly) sep-
arated themselves organizationally to establish independence for their com-
mercially oriented divisions, according to market principles. When neoliberal
policies were introduced, the concept of separation, both through corporati-
zation and privatization, made sense because a free market was seen to be in
the public interest. At least, there were concerted efforts internationally to

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706 Management Communication Quarterly 25(4)

have it recognized as such (Hall, 1988). As noted earlier, however, the notion
of public interest or “good” is normative and subject to changes in context.
There is no room for market failure in free-market discourse. Once it
became apparent that market failures did in fact occur, the hegemony of the
discourse began to break down. Each instance of market failure represents a
crisis for the dominant discourse and gives more weight to opposing dis-
courses of government intervention and CSR. This is what occurred in the
earlier cited cases of Enron and others.
The Muliaga case represented a crisis for Mercury Energy and for Mighty
River Power specifically and for free-market discourse generally. As the cor-
porations involved are SOEs, it also represented a crisis for their owner, the
New Zealand government. A crisis results in external scrutiny, which eventu-
ally exposes institutional failures or shortcomings, and this case was no
exception. The two SOEs demonstrated that by failing to set mechanisms in
place that protected society from market failures, they had also failed to
keep up with changing social norms. Basically, they had failed to maintain
connection with the community, and this was exacerbated by the layers of
accountability that included subcontractors. Organizationally, the system and
its communication processes were flawed. Furthermore, Mighty River Power
was open to accusations of hypocrisy through having failed to live up to its
professed commitment to principles of sustainability and social responsibil-
ity, made all the more visible through its membership of the New Zealand
Business Council for Sustainable Development. These failures and subse-
quent loss of legitimacy are not new to corporations. They are completely in
accordance with modern iterations of discourses of CSR. However, when a
corporation is state owned, partially or wholly, the ground under the dis-
courses of CSR and also of legitimacy shifts significantly.
The New Zealand government had separated itself from its corporate arm.
The corporations’ activities were seen to be legitimate, and neither the activi-
ties nor the separation were questioned. Once they were questioned, how-
ever, the separation was dissolved in the eyes of the public. In spite of the
government’s attempts to discursively separate itself from the crisis by
denouncing the corporate behavior, corporate responsibility and account-
ability immediately became synonymous with government responsibility and
accountability. The prime minister’s comment that she did not want to be
responsible for such an SOE was pointless. She was responsible, and the gov-
ernment had failed to prioritize CSR over profit as an SOE objective—a fail-
ure noted by people involved in the case. In addition, the government’s own
stated commitment to sustainability in all policy arenas was seen to be

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Roper and Schoenberger-Orgad 707

superficial, all leading to a questioning of economic policy and government

legitimacy.
Although they have been created to separate organizationally the eco-
nomic from governmental roles, in effect what SOEs and other similar orga-
nizations epitomize is the blurred nature of the relationship between the state
and the economy. Ironically, this is perhaps the very thing that is called for in
current challenges to free-market discourses, evident in demands for increased
attention to CSR and reinstatement of government control of the economic
sector.

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research,
authorship, and/or publication of this article.

Funding
The authors received no financial support for the research, authorship, and/or publica-
tion of this article.

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Bios
Juliet Roper (PhD, University of Waikato, Hamilton, New Zealand) is Professor of
Management Communication and President of the Asia Pacific Academy of Business
in Society (APABIS). Her research interests encompass social and environmental
aspects of sustainability, examining issues of cross-sector engagement, public rela-
tions, influences on public policy, and government and corporate discourses on sus-
tainability and social responsibility.

Michèle Schoenberger-Orgad (PhD, University of Waikato) is a senior lecturer in

the Department of Management Communication in Waikato Management School,
University of Waikato, Hamilton, New Zealand. Her research interests in public
relations include issues and crisis management and the communication of corporate
social responsibility.

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