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Numerous new organizational forms have been proposed for ensuring the continuous strategic renewal of a firm. In essence, these forms are distinguished by: (1) their emphasis on bottom‐up entrepreneurship, and (2) their reliance on a co‐operative network that allows these entrepreneurial units to share their competencies with one another. One of the key behaviours required for the success of such an organization is employee empowerment. We argue in this paper that the legitimacy of corporate leadership during the restructuring of a traditional bureaucratic organization is crucial to its eventual transformation to one of the new organizational forms. The current wisdom of a two‐stage transformation process, where an authoritarian restructuring precedes the more participative revitalization, is thus challenged. The transformation may get stalled after the restructuring stage because of top management’s inability to …