Corporate Environmental Strategy And Competitive Advantage (New Perspectives in Research on Corporate Sustainability)

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Stakeholders, the Environment and Society

NEW PERSPECTIVES IN RESEARCH ON CORPORATE SUSTAINABILITY Series Editors: Sanjay Sharma, Professor of Policy and Sustainability, School of Business and Economics, Wilfrid Laurier University, Canada and Mark Starik, Associate Professor of Strategic Management and Public Policy, School of Business and Public Management, The George Washington University, USA The complex interactions between organizations, the natural environment and society within the context of corporate sustainability is the central theme of this unique series. Each volume will focus on a particular issue and will consist of original contributions from leading scholars on the three sectors of interest (business, governments and non-profits). Topics will include corporate sustainability and performance; stakeholders; organizational change; strategy; small businesses and sustainability; government policy; alliances, networks and partnerships; and multi-level sustainability interactions. Research in Corporate Sustainability The Evolving Theory and Practice of Organizations in the Natural Environment Edited by Sanjay Sharma and Mark Starik Stakeholders, the Environment and Society Edited by Sanjay Sharma and Mark Starik

Stakeholders, the Environment and Society Edited by

Sanjay Sharma Wilfred Laurier University, Canada

Mark Starik The George Washington University, USA

NEW PERSPECTIVES IN RESEARCH ON CORPORATE SUSTAINABILITY

Edward Elgar Cheltenham, UK • Northampton, MA, USA

© Sanjay Sharma and Mark Starik, 2004 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited Glensanda House Montpellier Parade Cheltenham Glos GL50 1UA UK Edward Elgar Publishing, Inc. 136 West Street Suite 202 Northampton Massachusetts 01060 USA

A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data Stakeholders, the environment and society/[editors], Sanjay Sharma, Mark Starik. p. cm. — (New perspectives in research on corporate sustainability) Includes bibliographical references and index. 1. Sustainable development. 2. Social responsibility of business. 3. Corporations—Environmental aspects. I. Sharma, Sanjay. II. Starik, Mark, 1951– . III. Series. HC79.E5.S8635 2004 658.4’083—dc22 2004050642

ISBN 1 84376 459 8 Printed and bound in Great Britain by MPG Books Ltd, Bodmin, Cornwall

Contents List of List of List of List of

figures tables appendices contributors

vii viii ix x

1. Stakeholders, the environment and society: multiple perspectives, emerging consensus Sanjay Sharma and Mark Starik

1

2. Stakeholders and the management of freshwater resources in New Zealand: a critical commons perspective P. Ali Memon and John W. Selsky

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3. Influential environmental stakeholders: a grounded model of processes for effecting change Jamie R. Hendry

62

4.

93

Stakeholder influence strategies for smarter growth Duane Windsor

5. Toward stakeholder responsibility and stakeholder motivation: systemic and holistic perspectives on corporate sustainability Nikolay A. Dentchev and Aimé Heene

117

6. Who speaks for the trees? Invoking an ethic of care to give voice to the silent stakeholder Linda M. Sama, Stephanie A. Welcomer and Virginia W. Gerde

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7. Managing organisational project risks of stakeholder demands in industrial investments Rianne de Leeuw and Joram Krozer

166

8. Organizational innovation as an opportunity for sustainable enterprise: standardization as a potential constraint David Wheeler and Michelle Ng

185

v

vi

Stakeholders, the environment and society

9. Contributions of product-oriented environmental management to corporate sustainability Frank G.A. de Bakker

212

10. Institutional pressure and environmental management practices Magali A. Delmas and Michael W. Toffel

230

11. Environmental management systems and sustainability: a framework for understanding stakeholder influence Deborah Rigling Gallagher

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12. The ecological modernization of organizational fields: a framework for analysis Renato J. Orsato

270

Index

307

Figures 3.1 4.1 4.2 4.3 4.4 5.1 8.1

8.2

10.1 11.1 12.1

Process model: issues, industries, tactics and targeted firms Ecological and social destruction scenario Smarter growth scenario Collaboration and implementation network for value creation and performance improvements Influence networks affecting performance improvements Stakeholder motivation process Importance of providing environmental performance data to stakeholders compared with demand: perceptions of environmental managers of ISO 14001 certified companies in Ontario Level of willingness of ISO 14001 certified companies in Ontario to provide basic data or full reports on environmental, social or economic performance in the future A model of institutional pressures moderated by parent company and plant characteristics Effect of stakeholder influence, facility culture and experience on facility EMS design The ecological modernization framework (EMF)

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71 97 97 102 103 128

196

197 234 261 276

Tables 2.1 3.1 3.2 6.1 7.1

7.2 7.3 9.1 9.2 11.1

The Resource Management Act: functions by levels of government Comparison of ENGOs studied Stories told by ENGO representatives Comparing the ethic of care model with the traditional stakeholder model Simulation of the costs of extra risk and delays on repayment of a loan connected with non-compliance with stakeholders’ demands Chance of liability caused by stakeholder demands Main environmental impacts of magnesium production and possible solutions Main stimuli for engaging in POEM Main barriers to engaging in POEM Key influences on facilities designing EMSs

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35 67 69 156

170 176 176 220 221 251

Appendices 2.1 7.1 10.1

Canterbury dairying arena: stakeholder groups and perspectives Overview of the demands of stakeholders Examples of environmental management practices

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52 180 241

Contributors Frank G.A. de Bakker is an Assistant Professor in Strategic Management at the Faculty of Social Sciences of the Vrije Universiteit, Amsterdam, the Netherlands. He obtained his PhD at the University of Twente. His PhD research focused on organizational aspects of product-oriented environmental management. Insights on capability building processes, stakeholder theory and ideas on continuous improvement and total quality management were combined in that research. His work has been published in Business Strategy and the Environment, Journal of Industrial Ecology, and Journal of Cleaner Production, among others. At present, his research is focused on corporate social responsibility, institutional change and social movements. Rianne de Leeuw is a Research Associate at University of Twente, CSTM/Cartesius Institute, the Netherlands. Her research focuses on environmental and social interests in business investment decisions. She is programme manager of the international ‘Master of Environmental Business Administration; Environmental and Energy Management’. This is a joint programme of the Centre for Clean Technology and Environmental Policy (CSTM), the Cartesius Institute and the Technology and Development Group (TDG) of the University of Twente. Magali A. Delmas is an Assistant Professor of Business Strategy at the Donald Bren School of Environmental Science & Management at the University of California Santa Barbara. She received her PhD from HEC Graduate School of Management in Paris and previously studied at the Institut d’Etudes Politiques of Paris. Prior to embarking on an academic career, Magali Delmas worked in Corporate Strategy at Framatome, a nuclear engineering company. She subsequently worked at the European Commission at the Directorate General for Industry where she was the economic advisor of the Director General. She was also a consultant in Public Policy Evaluation and Strategic Management at CM International, Paris. Magali Delmas’ research is on the interaction between regulation and firms’ competitive strategies. She is currently analysing how alternative forms of environmental regulations, such as voluntary agreements and selfregulation, can impact firms’ competitive advantage. Magali Delmas has x

Contributors

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published in academic and business journals such as: California Management Review, Journal of Policy Analysis and Management, Policy Sciences, Industrial and Corporate Change, Duke Environmental Law and Policy Forum, Production and Operation Management, Journal of High Technology and Management Research. Nikolay A. Dentchev is a PhD student at Ghent University, Belgium. His current research interests are the stakeholder responsibilities for sustainable development and the integration of normative sustainability and social responsibility principles in business models. Deborah Rigling Gallagher is Visiting Assistant Professor of Resource and Environmental Policy at the Nicholas School of the Environment and Earth Sciences, Duke University, North Carolina. Previously she served as a policy advisor in the Massachusetts Department of Environmental Protection and as an Environmental Health and Safety manager at Kraft Foods. She holds a PhD in public policy analysis from the University of North Carolina at Chapel Hill. Virginia W. Gerde is an Assistant Professor of Management at Duquesne University in Pittsburgh, Pennsylvania. She received her PhD in Management from Virginia Tech, her Masters in Environmental Engineering from University of Virginia, and her Geological Engineering degree from Princeton University. She has published in Business & Society, The Journal of Corporate Citizenship, and Business Strategy and Environment. Her research interests include corporate performance, organization design, business ethics and environmental management. Aimé Heene is an Associate Professor and the Head of the Department of Management and Organization of the Faculty of Economics and Business Administration of Ghent University in Belgium. He is an Associate Professor at Antwerp University. He is the author of several books and articles on Strategic Management. Jamie R. Hendry is an Assistant Professor of Management at Bucknell University, Pennsylvania. She studies both internal and external factors influencing organizations and the people within them to act responsibly or irresponsibly toward non-humans and the natural environment. She is also interested in normative theories of organizational ethics pertaining to both the natural environment and non-human animals. Professor Hendry received her PhD in Management Strategy and Social Issues with a minor in Environmental Studies from Virginia Tech in 2002; she also holds an

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MBA from The Darden School at the University of Virginia and a BS in Accounting from George Mason University, Virginia. She is the current Secretary of the Social Issues in Management (SIM) Division of the Academy of Management and was the 2003 recipient of the SIM Best Dissertation Award. Joram Krozer is the Research Director at University of Twente, CSTM/Cartesius Institute, the Netherlands. His PhD focused on ‘environment and innovations’. He has been working as a consultant to several industries in the Netherlands and abroad. His focal areas of work are life cycle management, environmentally oriented innovations and industrial development. P. Ali Memon holds a Personal Chair in Environmental Management and Planning at Lincoln University in Christchurch, New Zealand. He has degrees in Geography and Planning. His research interests are broadly based and focus on how Western and non-Western capitalist societies respond to environment and development concerns. He has published widely in New Zealand and international journals. Michelle Ng is a Business Analyst in the Ontario Ministry of the Environment. Michelle graduated from York University, Toronto with a Masters in Environmental Studies in 2002, specializing in Management Approaches for Business and Sustainability. During her graduate studies Michelle conducted research on ISO 14001 certified companies in Ontario and their environmental reporting practices, as well as other research on corporate social and environmental performance measures and the engagement of small and medium-sized enterprises in environmental management practices. Renato J. Orsato is a Marie Curie Research Fellow at the Centre for the Management of Environmental and Social Responsibility (CMER) at INSEAD, Fontainebleau, France. During 1999–2003 he was a Post-Doc and, subsequently, an Assistant Professor at the International Institute for Industrial Environmental Economics (IIIEE), at Lund University, Sweden, where he coordinated the management-related courses within the MSc programme in Environmental Management and Policy. As a doctoral student, he lectured at the Graduate School of Business at University of Technology, Sydney (UTS), Australia. He also holds a Masters (Honours) in Organization Studies and Honours degrees in Civil Engineering and Business Administration. Prior to his doctoral studies, Renato has experience in engineering, management and consulting in Brazil. He has published in Organization Studies, Organization & Environment, and The

Contributors

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International Encyclopedia of Social and Behavioral Sciences. In the autumn of 2004, John Benjamins (Holland) will publish his book entitled The Ecological Modernization of Industry. Linda M. Sama is an Assistant Professor and International Management Program Chair in the Department of Management and Management Science at the Lubin School of Business, Pace University, New York. She received her PhD from the City University of New York (CUNY), and her publications have appeared in Business Ethics Quarterly, Business and Society Review, Journal of Business Ethics, and International Journal of Value-based Management, along with other various journal and book outlets. Her current research primarily addresses issues of ethical decisionmaking, corporate social response strategies and strategic slack, international corporate governance systems and environmental management practices. John W. Selsky works in the Management Department at the University of Melbourne, Australia. His academic interests in the management of natural resources began at the University of Otago, New Zealand in collaborations with co-author Ali Memon. Ali and John have published a number of papers on natural resource management using commons concepts during the past ten years. John also researches on cause-based partnerships between non-profit organizations and corporations, discourse approaches to waterfront industrial disputes and hyperturbulent organizational environments. Sanjay Sharma is a Professor of Policy and Sustainability at Wilfrid Laurier University, Canada. His doctoral dissertation from University of Calgary won the Best Dissertation Award from the Social Issues in Management Division of the Academy of Management in 1996. He has received several research awards including the Jossey Bass/New Lexington Press Award for the Best Academy of Management Paper in Organizations and the Natural Environment (1997), Best Strategy Paper at the Administrative Sciences Association of Canada (2003), the ANBAR Citation of Excellence (1999). He was awarded a Fulbright Fellowship in 2001–02 and has received several research grants from the Social Sciences and Humanities Research Council of Canada (SSHRC). He has served on the Council’s Research Funding Adjudication Committee and his biography has been listed in Who’s Who in Canadian Business for the last few years. His research has been published in the Academy of Management Review, Academy of Management Journal, Academy of Management Executive, Strategic Management Journal, Journal of Applied Behavioral

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Science, Business Strategy and the Environment, Journal of Asian Business, Journal of Strategic Marketing, and Revue Française de Gestion, among others. His books include Research on Corporate Sustainability: The Evolving Theory and Practice of Organizations in the Natural Environment (co-edited with Mark Starik) published in 2003 by Edward Elgar. Before pursuing an academic career, he worked for 16 years as a senior manager with multinational corporations. Sanjay is the past Chair, Program Chair, and PDW Chair of the ONE Interest Group at the Academy of Management. Mark Starik is an Associate Professor of Strategic Management and Public Policy at the George Washington University School of Business and Public Management, Washington DC. His research and teaching interests include strategic environmental management, sustainability stakeholder management and global sustainability policy. Mark has consulted with a number of business, government and non-profit organizations on a wide range of sustainability topics, and is active in promoting sustainability within his profession, local community and campus. Michael W. Toffel is a Doctoral Candidate at the Haas School of Business at the University of California at Berkeley. His research focuses on corporate environmental strategy and environmental policy evaluation. He received an MBA and Masters in Environmental Management from Yale University. His professional experience includes working as an environmental management consultant in the United States and serving as Director of Environment, Health and Safety at Jebsen & Jessen (South East Asia) Group of Companies, a conglomerate spanning many industries with operations throughout Southeast Asia. He has also conducted environmental management projects for Xerox Corporation and Motorola, and has worked on technology management at Hewlett Packard. His work has been published in journals including California Management Review, Journal of Industrial Ecology, and Corporate Environmental Strategy. Stephanie A. Welcomer is an Assistant Professor of Management at the University of Maine Business School. She received her PhD from the Pennsylvania State University and has published in Human Relations, Business & Society, Journal of Environmental Education, Journal of Economic Issues, and other outlets as well. She is currently the Proceedings Editor for the International Association for Business and Society. Her research interests include stakeholder networks, organization and natural environment issues and the use of rhetoric to construct meaning.

Contributors

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David Wheeler is Erivan K. Haub Professor in Business and Sustainability at the Schulich School of Business, York University, Toronto. He is also the Founding Director of the York Institute for Research and Innovation in Sustainability and is Visiting Professor in Sustainable Enterprise at Kingston University Business School (UK). He has been advisor to a wide range of governments and corporations and is a member of a number of foundation boards and corporate advisory councils. He has published more than 60 articles in a wide variety of scientific, medical and management journals, books, professional publications and parliamentary inquiries. He was principal author of The Stakeholder Corporation – the first business text to be endorsed by UK Prime Minister, Tony Blair. Duane Windsor (BA, Rice, 1969; PhD, Harvard, 1978) is the Lynette S. Autrey Professor of Management in Rice University’s Jesse H. Jones Graduate School of Management, Houston, Texas, where he has been on the faculty since 1977. He conducts active research in the areas of corporate governance, corporate social responsibility, and stakeholder management. He has published numerous scholarly works. His books include The Changing Boardroom: Making Policy and Profits in an Age of Corporate Citizenship (co-edited, 1981) and The Rules of the Game in the Global Economy: Policy Regimes for International Business (1997, coauthored).

To my parents, Madam Mohan and Sushma Sharma, my life partner, Pramodita, and my daughter, Smita, for their constant love and support. Sanjay Sharma To Margery Moore, loving wife and sustainability partner. Mark Starik

1. Stakeholders, the environment and society: multiple perspectives, emerging consensus Sanjay Sharma and Mark Starik Scholars substantially agree that the concept of sustainability encompasses at the very least ecological integrity, social equity and economic security (e.g., Gladwin, Kennelly and Krause, 1995; Starik and Rands, 1995). Therefore, corporations that begin their journey toward sustainability need to go beyond the inclusion of economic criteria in their decision-making by examining ecological impacts such as those on the carrying capacity and biodiversity of ecosystems, and social impacts such as those on the culture and quality of life of diverse human social groups and their future generations. Most businesses have traditionally only responded to regulations in their social and ecological performance and have not developed the willingness, knowledge and capabilities for achieving these objectives within their organizations. However, the role of stakeholders and society in general is integral to corporate sustainability from two major perspectives: civil society, as represented by a diversity of stakeholder groups, increasingly demands that corporations play a role in achieving societal and environmental objectives in addition to building shareholder wealth; and, that corporations need to engage stakeholders to generate knowledge for future survival and competitiveness in a global economic system that large segments of society visualize as increasingly unsustainable.

THE SOCIETAL PERSPECTIVE A diversity of stakeholder groups has proliferated for a variety of reasons to represent the concerns of different segments and interests of civil society and to play a role in the governance of corporations for sustainable outcomes.

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Declining Faith in Government and Public Institutions The emergence of over 50 000 NGOs in the short span of a few decades may be a signal of the declining faith of civil society and special interest groups in the ability of governments and public institutions to protect their interests. There are three manifestations of institutional systems failures: deepening poverty (such as deepening inequities in distribution of income and increasing world hunger in poor countries amid subsidized food surpluses in the West); social disintegration (such as refugees, terrorism and alienation); and environmental destruction (such as climate change and depletion of the ozone layer) (Korten, 1995; Paehlke, 2003). A manifestation of institutional inability to provide a secure social environment is exemplified in the fast growth of the security industry, including private security guards, gated communities and security systems. Similarly, NGOs, local communities and citizen groups have little or no representation in the decisions of multilateral institutions such as the World Trade Organization and bilateral trade agreements that are binding on member countries and may require them to roll back their national, regional and/or local policies of ecosystem protection and citizen quality of life enhancement, in order to conform to common-denominator standards (Greider, 1997; Korten, 1995; Paehlke, 2003). The potential for disregard of wider societal concerns and objectives by government is dramatically illustrated by the following advertisement by the government of Philippines in Fortune magazine in 1975, quoted in Krahmer and Meadows (1994: 19): ‘To attract companies like yours . . . we have felled mountains, razed jungles, filled swamps, moved rivers, relocated towns . . . all to make it easier for you and your business to do business here.’ Mander (quoted in Korten, 1995: 17) states that while technology and its utilization by business has brought us higher incomes, greater choice, greater leisure and luxury, we are not any richer in human satisfaction, happiness, security and the ability to sustain life on Earth (Mander, 1991). This is especially true in affluent societies where an increasing number of people are depressed, lonely, unhappy and increasingly resort to private means of protection and security (Greider, 1997). Increasing Power of Corporations The declining faith of civil society in public institutions and government is compounded by the increased size and power of corporations that transcend national boundaries, their ability to circumvent national jurisdictions and regulations, and their increasing concentration of economic power that

Multiple perspectives, emerging consensus

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exceeds the gross national products of most countries (Korten, 1995; Paehlke, 2003). Increasing corporate power has disrupted the balance between and among civil societies, businesses and governments. On the one hand, governments are not able to ensure that corporations meet the social, environmental and even economic needs of their citizens. On the other hand, transnational corporations are able to avoid tax liability and environmental and social regulations by subcontracting or moving operations, finances and profits to jurisdictions where conditions are more favorable for them (Greider, 1997; Korten, 1995; Paehlke, 2003). Exercising Local Control Sustainability is often context-specific, local and regional rather than universal (Hawken, Lovins and Lovins, 1999). The right of local governments to issue corporate charters in the eighteenth and nineteenth centuries has increasingly shifted to provincial, federal, international jurisdictions or even to distant foreign countries that regulate the transnationals that conduct business in developing countries. The granting of rights to corporations as citizens without corresponding responsibilities of citizenship has increasingly pitted the considerable economic power of corporations versus ordinary citizens (Korten, 1995), forcing citizen groups to organize themselves. Stakeholders are increasingly discovering that distant federal governments and bureaucracies are unable to understand or address local community concerns or visualize the preservation of local ecosystems and their nested role in regional, national and global ecology. At the same time, distant owners of transnational corporations in foreign lands have little understanding and concern for local societies and ecosystems. Local entrepreneurs rooted in the community are more likely to address these concerns because they are more likely to share the values of the community (Hawken et al., 1999) and be a part of the local ecosystem. The increasing power of corporations and their dispersed global operations makes it more difficult for even well-meaning governments to protect local communities and ecosystems from negative impacts of business activities. Starting with the ‘Not in my backyard’ movement, local communities have increasingly sought to take control over their quality of life and ecosystems. Externalization of Social and Environmental Costs Current public policies and regulatory regimes allow corporations to externalize the social and environmental costs of their activities and internalize the economic benefits. The internalized economic gains are distributed among only a subset of stakeholders: managers, shareholders, investors,

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suppliers and consumers (only partially because consumers suffer when their environment is damaged and their communities weakened). Other corporate stakeholders such as local communities, future generations, nonhuman species and distant societies and ecosystems (affected by an organization’s supply chain and product life cycle), bear the environmental and social costs externalized by businesses. The imbalance between and among governments, businesses and civil societies has led to the reduced effectiveness of public institutions in mitigating the externalized social and environmental costs of business activities (Korten, 1995; Paehlke, 2003).

THE CORPORATE PERSPECTIVE It is evident from the above discussion that businesses will face increasing involvement and interference from stakeholders that represent the concerns of civil society. In such a business environment, firms have an opportunity not only of enhancing their long-term survival and legitimacy by preempting disruption of operations by stakeholders (Spar and La Mure, 2003) but also of enhancing their future competitiveness by generating knowledge required to operate in an increasingly sustainable world. Avoiding Stakeholder Swarms Modern communication systems such as the Internet have facilitated economic globalization (Paehlke, 2003), and at the same time, have allowed stakeholders in widely dispersed jurisdictions to find common cause with each other and create swarms to attack a corporation (Reingold, 2002). Corporations are unable to isolate each stakeholder group and manage its concerns. Rather, such swarms self-organize on the World Wide Web and even remote stakeholders at the fringe of an organization’s operations of global supply chain are able to find a prominent voice (Hart and Sharma, 2004). ‘The lack of defined structure can make the actions of citizen networks incoherent and difficult to sustain, but it also gives them the ability to surround, infiltrate, and immobilize the most powerful institutions’ (Korten, 1995: 297). Recent examples of corporations whose strategies and core operations have been affected by stakeholder swarms include Monsanto, Royal Dutch/Shell and Nike. Monsanto was forced to withdraw from the business of genetically modified foods under pressure from a swarm of stakeholders in developed and developing countries, including groups as diverse as poor farmers in India and affluent consumers in Europe (Hart and Sharma, 2004). Stakeholder swarms forced companies such as Royal Dutch/Shell


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to change their corporate strategy regarding the disposal of offshore platforms and develop new policies for stakeholder engagement for all new projects (Hart and Sharma, 2004). Nike was forced to change operational practices in its global supply chain, including working conditions and fair wages paid by its subcontractors worldwide (Spar and La Mure, 2003). Attempts by these companies to manage each stakeholder group in isolation were an exercise in futility as the swarm grew in size and intensity and global reach. Some organizations such as Novartis (in its stance on genetically modified organisms) and BP (in its stance on climate change) chose to pre-empt the formation of stakeholder swarms against them by proactively engaging a variety of stakeholder groups. In fact, pre-empting the formation of stakeholder swarms can be a source of differentiation and competitive advantage, especially for companies in industries where reputation and brand protection is very important and intensity of price competition is high (Spar and La Mure, 2003). Knowledge Generation As various segments of society including academic scholars, governments, non-governmental organizations (NGOs), businesses, international agencies (such as the Intergovernmental Panel on Climate Change), citizen groups, etc., debate the meaning of sustainability, an understanding of the concept continues to evolve as a social construction. The concept of a sustainable corporation is a moving target and businesses that seek to journey on this path must participate in this debate with their stakeholders and society at large. Businesses have traditionally focused on enhancing their economic performance to generate higher profits and improved stock returns for their shareholders and better products and services for their customers, while staying within the bounds of government regulations. While corporations engage their customers, investors and suppliers to update their knowledge about ways in which they can improve their economic performance, a great deal of such knowledge has been accumulated and resides within organizational boundaries including policies, manuals, systems, processes, routines and managers’ and employees’ skill sets. However, businesses lack knowledge about the functioning of ecosystems, the diversity of life, the meaning of quality of life in diverse communities, and the impacts of their activities on the economic security and social health of future generations. As society continually constructs a shared understanding about sustainability, organizations need to engage a diversity of social and environmental stakeholders in addition to their

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traditional economic stakeholders (shareholders, investors, customers, suppliers) to identify and absorb this knowledge that transcends organizational boundaries. As mentioned above, knowledge about social equity and ecological integrity is often context-specific and local rather than universal. For example, the desired quality of life or the dynamics of eco-renewal in a remote mountain region in the developing world may be very different from the stakeholder concerns in a decaying inner city core in an affluent society. Further, sustainability may only be understood holistically and integratively, as nested within local, regional, national and global ecosystems. There is inherent danger in breaking up ecological and social impacts into small components and trying to manage each individually (Hawken et al., 1999). This is illustrated by Operation Cat Drop carried out by the British Royal Air Force as described in Cheng (1963), Harrison (1965), and cited in Hawken et al. (1999: 285–6): Consider what happened in Borneo in the 1950s. Many Dayak villagers had malaria, and the World Health Organization had a solution that was simple and direct. Spraying DDT seemed to work: Mosquitoes died, and malaria declined. But then an expanding web of side effects . . . started to appear. The roofs of people’s houses began to collapse, because the DDT killed tiny parasitic wasps that had previously controlled thatch-eating caterpillars. The colonial government issued sheet-metal replacement roofs, but people couldn’t sleep when tropical rains turned the tin roofs into drums. Meanwhile, the DDT-poisoned bugs were being eaten by geckoes, which were eaten by cats. The DDT invisibly built up in the food chain and began to kill the cats. Without the cats, the rats multiplied. The World Health Organization, threatened by potential outbreaks of typhus and sylvatic plague, which it had itself created, was obliged to parachute fourteen thousand live cats into Borneo.

A holistic or panoramic perspective (Starik, 1995a) about an organization’s environment and ecosystem requires an organization to continuously engage a variety of stakeholders from the fringe of a corporation’s networks as well as from its core (Hart and Sharma, 2004).

STAKEHOLDERS AND SUSTAINABILITY Freeman’s (1984) path-breaking book Strategic Management: A Stakeholder Approach catalyzed vibrant research streams in business and society. These included: normative arguments to account for the inherent and equal moral rights of all stakeholders in business strategy (e.g., Donaldson and Preston, 1995; Jones and Wicks, 1999); instrumental arguments that argued for relationships between a firm and all its stakeholders based on trust


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and cooperation that would help a firm reflect a ‘sincere manner’ and reduce the costs of monitoring and controlling opportunism, resulting in competitive advantage (e.g., Jones, 1995); and, descriptive approaches that attempted to explain how managers prioritized and managed stakeholder concerns in their business decisions (e.g., Agle, Mitchell and Sonnenfeld, 1999; Mitchell, Agle and Wood, 1997) or how different stakeholder groups attempted to influence corporate actions based on their resource dependence with the focal firm (Frooman, 1999) or position in a network relative to the focal firm (Rowley, 1997). Research at the interface between business and its stakeholders within the context of sustainability can be categorized into the normative, instrumental and descriptive streams prominent in the general stakeholder literature in business and society. Normatively: Jennings and Zandbergen (1995) have argued for the importance of societal perspectives in examining corporate sustainability; Starik and Rands (1995) have argued for sustainable organizations to examine their interface with society at multiple levels; Starik (1995a) offered moral arguments for the inclusion of nature as a corporate stakeholder; and, Winn (2001) presented a modeling methodology to examine the impacts of multiple stakeholders on corporate environmental strategies. Descriptively: Bansal and Roth (2000) presented case study data to show stakeholder influences on organizational greening; Henriques and Sadorsky (1999) in their survey of Canadian companies found that corporate environmental policies tended to respond to pressures from primary stakeholders with regulators being the most important drivers; and, Buysse and Verbeke (2003) found that firms appeared to respond to non-primary stakeholders only when they adopted internal stances or strategies of environmental leadership. Therefore, firms with proactive environmental strategies tend to engage and respond to a wider range of stakeholders as compared to firms with reactive strategies that tend to respond to pressures mainly from regulators and stakeholders on whom they are resource-dependent. From an instrumental perspective: research drawing from the resourcebased view argues that a capability of integrating knowledge from stakeholders such as suppliers and customers will help firms design products for the environment (Hart, 1995); empirically, it has been shown that a stakeholder integration capability helps a firm generate knowledge from collaborative and adversarial stakeholders for continuous learning and innovation around sustainability (Sharma and Vredenburg, 1998) and for generating competitive imagination and ensuring corporate survival (Hart and Sharma, 2004). The rich potential for knowledge generation at the interface between and among corporate sustainability and stakeholders and society enhances the

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need for cutting-edge current research in this domain and the importance of this volume.

ABOUT THIS VOLUME The chapters in this volume were selected from the submissions based on the diversity of theoretical and methodological perspectives. Each chapter went through a minimum of two rounds of reviews and revisions while some went through three or more reviews and revisions. These chapters not only present pioneering perspectives on the stakeholders, environment and society but also provide directions for future research in this rich domain. The chapters include an examination of: how stakeholders and public policy processes mutually influence each other in the sustainability domain; how stakeholders select companies and sustainability issues to target and the influence strategies that they adopt; why environmental stakeholders target corporate sustainability practices; normative perspectives on how corporations should interact with networks and coalitions of stakeholders for sustainable outcomes; and, descriptions of how some firms are more successful in engaging stakeholders and avoiding stakeholder swarms and generating knowledge within the domain of sustainability. Stakeholder Influences and Public Policy Selsky and Memon’s chapter addresses an under-researched area: how do organizational stakeholders influence public policy processes that ultimately result in regulations on private enterprise? Public policy perspectives enable us to holistically focus on the management of natural resources and ecosystems rather than on isolated impacts of corporate activities, by understanding interactions between key natural resources and environmental systems and the institutions that regulate and manage them. The commons perspective adopted by the authors helps them describe and explain the interdependencies among various users in their historical case study of stakeholder conflicts over the management of freshwater resources in the context of New Zealand’s new environmental management regime. Using concepts of common pool resources and common property institutions, they demonstrate how different user groups and stakeholders of natural resources may benefit or be disadvantaged from any particular distribution of rights and any particular arrangement of local institutions. Property rights are seen to be as much a relation between stakeholders as a relation between people and resources, and the adoption of sustainable


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resource policies and management practices entails fundamental shifts in power relations and institutional alignments. Adopting a commons perspective helps them take an ecocentric (Purser et al., 1995; Shrivastava, 1995) approach as compared to the firm-centered approaches usually adopted by corporate sustainability research. This chapter adopts a much needed holistic, integrative and ecocentric approach to sustainability, rare in the management literature. Stakeholder Influences on Corporations Hendry’s chapter adopts a grounded theory development methodology to examine how environmental non-governmental organizations (ENGOs) choose tactics to influence companies and how they select companies to target for this influence. She conducted interviews with members of five ENGOs: National Resources Defense Council (NRDC), Greenpeace, Environmental Defense (ED), World Resources Institute (WRI), and Union of Concerned Scientists (UCS), and examined their public documents. Her results revealed five stages of ENGO strategy: (1) targeting of issues considered most threatening to human health, biodiversity, and ecosystems; (2) targeting of an industry that has a substantial impact on the targeted issue; (3) selection of tactics such as lobbying, protests and boycotts, litigation, market pressure, letter and fax campaigns, certification and report generation; (4) dialog and cooperative alliances; and, (5) targeting of individual firms using strategies that are either adversarial, cooperative or based on partnering and alliances. Perhaps one of the most important insights of Hendry’s research for managers is that the stance of a firm toward ENGOs and other stakeholders was a primary determinant of ENGOs’ assessments of that firm’s performance. If the firm is open and responsive to stakeholders’ concerns, ENGOs are much more likely to treat it with respect, giving it the benefit of the doubt. On the other hand, if the firm stonewalls by refusing to dialog with stakeholders, ENGOs are much more likely to assess the firm negatively, and subsequently are much more likely to target the firm for confrontational campaign tactics. Indeed, corporate environmental reports were considered only a constructive step by ENGOs but not credible sources of information – assessments of particular firms depend heavily on personal impressions developed over many years of experience, as well as the impressions of other contacts in the ENGO community. An existing relationship between the ENGO and the firm increases the likelihood that the ENGO would choose the firm as an ally or partner. Her study presents three other interesting findings. First, firms are more likely to become adversarial targets or corporate partners when their

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negative impacts on the environment are high. Second, since larger firms are more able to influence competitors and suppliers, ENGOs were more likely to select them as allies, partners, or adversarial targets. Finally, large firms with well-known brands are more likely to be adversarially targeted, reinforcing the findings of Spar and La Mure (2003). All three findings explain why empirical studies that have used firm size as a control variable have found a positive relationship between size and corporate environmental proactiveness (e.g., Russo and Fouts, 1997; Sharma, 2000). Hendry’s research provides a rare stakeholder-focused empirical perspective to complement the current emphasis on corporate-focused research. Windsor’s chapter discusses how stakeholder influence strategies and governance arrangements for stakeholder coalitions and networks can promote sustainable development through effecting smarter growth outcomes (that is, those that advance economic growth with positive social and environmental impacts). He used secondary data from three cases – the Kyoto Protocol at the global level, Amazon forest preservation at a bioregional level, and complex litigation at a local level in Alabama against Monsanto over PCB pollution – to draw the following conclusions: (1) business models that focus on positive environmental and social outcomes help foster win–win collaborations between stakeholders and business while negative outcomes generate irreconcilable conflicts; (2) valid and transparent information is critical for sustainability – neither businesses nor concerned stakeholders can rely on disputable scientific and technical information while discounting the concerns of other stakeholders; and, (3) sustainable business models involve the development of more effective stakeholder coalitions and networks and improved governance arrangements for such coalitions and networks including mobilizing opinion and media attention on specific issues. Both chapters echo the criticality of communications and interactions between business and stakeholders that are constructive, open, sincere and transparent, in order to promote sustainable outcomes that are acceptable to all parties. Corporate Sustainability Responses to Stakeholder Influences Dentchev and Heene propose that firms must pay attention not only to primary stakeholders on whom the firm is resource-dependent (e.g., Frooman, 1999) but also secondary stakeholders and to the dynamic evolution of stakeholder concerns in order to survive in the longer term. They propose a process of stakeholder identification, evaluation and value distribution (in terms of meeting stakeholder objectives) to motivate stakeholders to participate in the evolution of sustainable solutions that involve


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businesses, customers, scientists and policy-makers for more holistic and acceptable solutions. Sama, Welcomer and Gerde offer a normative perspective on how firms can develop cooperative coexistence with their primary and secondary stakeholders in a shared, ecologically sustainable community founded on an ethic of care for the environment. This ethic requires firms to account for the maintenance, continuation and repair of the environment and to treat it with respect. If the environment has to be a common ground between a firm and its stakeholders, the firm must incorporate the environment as a part or extension of itself as its inner voice or conscience. The authors argue that firms no longer sit at the center of a network of stakeholders that they can isolate and manage. Rather the center is mutable and the network co-evolves. This, according to the authors, helps the firm visualize how it can speak for nature as a stakeholder (Starik, 1995a) and is the key to corporate sustainability and the long-term survival of the firm through constructive engagement of stakeholders. Krozer and de Leeuw’s chapter adopts a more micro-perspective to present a normative framework, drawing on theories of risk management, to prescribe how organizations can anticipate and address stakeholder demands during the environmental assessment process for new projects and developments. They apply this framework to a case study of magnesium production in the Netherlands to discuss how firms can assess liabilities and costs (such as project delays) associated with non-compliance with various stakeholder demands, even if such demands do not have any legal basis. The authors acknowledge that their methodology does not explain how firms can anticipate the potential of certain single stakeholder groups, even those that have no legal basis, to trigger strong public actions that can lead to disproportionate costs and liabilities and negative surprises as in the Brent Spar case for Shell (UK). These three chapters present normative perspectives. While all three sets of authors prescribe a process of wider stakeholder engagement and integration, they do not explain how and why some firms may be more predisposed and likely to engage secondary stakeholders in finding sustainable solutions. The following chapters tackle this challenge. Interaction between Stakeholder and Societal Pressures and Corporate Characteristics Wheeler and Ng’s chapter presents a competitive rationale for corporate engagement of stakeholder concerns. They review extant theoretical and empirical literature to explore whether environmental management and certification systems such as ISO 14001 will drive the radical innovations

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and organizational transformation required to meet the challenges of sustainable development. They conclude from their review and an exploratory survey that there is lack of evidence to support that environmental management standards either contribute to, or hinder, corporate sustainability. On the contrary, they cite theoretical literature and empirical evidence to suggest that organizational variables such as leadership, culture and organizational capabilities may be critical for corporate sustainability. They argue that firms with dynamic capabilities for stakeholder engagement (e.g., Sharma and Vredenburg, 1998) are better able to negotiate environmental complexity that characterizes sustainability and thereby generate organizational innovation, learning and transformation to more sustainable business models. De Bakker’s chapter adopts a similar perspective by arguing that corporate response to stakeholder influences requires the development of certain capabilities. He introduces one integrative capability, ‘product-oriented environmental management’ (POEM) as a systematic approach to integrating the constant improvement of the environmental performance of a firm’s products across its product life cycles into its organizational strategy and operations. De Bakker tested his theoretical perspectives in case studies of five companies and found that, in addition to internal environmental policies and concerns about competitiveness and corporate image, stakeholder pressures were important stimuli for adopting a POEM approach. He also identified certain barriers to the development of this capability: costs, resistance to change, organizational structure and legal requirements. In describing POEM as a dynamic capability building process that is influenced by various stakeholders and stimulated by a firm’s desire to achieve a competitive advantage, de Bakker links stakeholder influences to the literature on corporate sustainability and competitive advantage that discusses stakeholder integration, continuous learning and innovation capabilities (Christmann, 2000; Hart, 1995; Sharma and Vredenburg, 1998). Delmas and Toffel’s theoretical research examines the interaction between institutional forces as represented by stakeholder pressures, and organizational characteristics to explain corporate sustainability practices. They argue that different types of stakeholder pressures are exercised at corporate and plant levels, notably, shareholders may be more prominent at the corporate level while local communities may be important at the plant level. Organizational responses to coercive and normative pressures exercised by stakeholders including regulators, customers, activists, local communities, environmental interest groups and industry associations depend on the way in which managers perceive and act upon these pressures. Managerial perceptions of these pressures differ because organizations channel these pressures to different subunits, each of which frames


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these pressures according to their functional focus – the legal department may consider these pressures a legal issue to be decided through litigation, the marketing department may be concerned about lost sales, and the head office may be concerned about preserving corporate reputation. According to Delmas and Toffel, whether organizations will adopt proactive and voluntary practices or merely comply with regulations in response to these pressures will depend on the moderation of managerial perceptions by certain corporate characteristics including the company’s track record of environmental performance (e.g., how seriously were its operations disrupted or reputation damaged when it ignored such pressures in the past), its organizational structure (e.g., whether or not its facilities are organized to interact with and engage stakeholders), and its competitive position (e.g., whether the pressures will affect the firm alone or tarnish the reputation of the entire industry just as Union Carbide’s accident in Bhopal affected the chemical industry worldwide). This chapter argues for the importance of both institutional forces and strategic choice in determining corporate sustainability strategy. Both perspectives have been empirically found to be relevant in explaining corporate sustainability practices. Hoffman’s (1999) work has shown the importance of institutional forces in the US chemical industry. Sharma and Vredenburg (1998) showed the importance of strategic choice in a single industry subject to isomorphic institutional pressures. Managerial perceptions have also been found to be relevant by Sharma’s (2000) study that examined how managerial interpretations of sustainability issues as opportunities versus threats influenced whether corporations adopted proactive or reactive environmental strategies. Moreover, Sharma (2000) also found that the organizational context or certain company characteristics were influential in creating an opportunity frame for managers in proactive companies. Delmas and Toffel’s research enriches these perspectives that show that an interaction between managerial cognitions and corporate characteristics influences corporate responses to pressures from society for adopting sustainability practices. Gallagher’s chapter adopts similar theoretical perspectives to present the empirical findings of her study. She used case study and participant observation to examine how cooperative and coercive institutional influences are manifest via different stakeholder pressures on the adoption of specific types of Environmental Management Systems (EMSs) at 41 US facilities. She found that stakeholder influences interact with facility level characteristics – environmental management experience and culture – to determine EMS design. Facilities that possess significant environmental management experience and open cultures with boundary spanning employees and organizational learning capabilities are more likely to respond to cooperative

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forces to develop more advanced types of EMSs focused on sustainability rather than those focused on compliance and pollution prevention. On the other hand, facilities that possessed less environmental management experience and closed cultures were more likely to respond to coercive stakeholder influences to design compliance and pollution prevention-focused EMSs. Facilities with closed cultures that do not value external interactions were likely to initiate EMS designs that focused on explicitly addressing the nature of the coercion, rather than learning how to create positive external relationships. Due to the limitations of the data size in her study, Gallagher ends with a series of testable propositions generated via a grounded analysis of her data. Gallagher’s model can be potentially combined with Delmas and Toffel’s model to empirically test a more complete theory of how types of stakeholder influences (corporate and facility levels as well as coercive and cooperative), as perceived by managers, interact with company characteristics (past environmental performance and/or past environmental management experience, organizational structure including boundary spanning and openness to external learning, and competitive position) to influence corporate sustainability strategy (ranging from ‘compliance’ and ‘pollution prevention’ to ‘voluntary beyond compliance’ and ‘sustainability focused’ strategies). Finally, Orsato’s chapter presents a more integrative perspective in studying the dynamic process of structuration of organizational fields (representing various stakeholder groups) in the European automobile industry to analyze the factors that foster or hinder ecological modernization of the industry. His research adopts a meso-level of analysis that links organizations to societal phenomena. Corporate sustainability is examined as an integrated dimension of the historical process of modernization undertaken by societies. Within the context of the greening of the European automobile industry, Orsato finds that both radical processes of technological innovation and incremental processes of institutional reformation are important for driving corporate sustainability. He illustrates this by explaining that incremental improvements in internal combustion engines have resulted in significant environmental gains but have constrained the potential for radical powertrain technologies to succeed. The high-energy content of hydrocarbon fuels used in internal combustion powered cars allowed automakers to maintain steel as the main material used in car bodies. Thus, technological incrementalism avoids questioning the principles embedded in specific technological applications and, by extension, does not question the fundamentals of science guiding industrialism. Hence, if ecological modernization is expected to facilitate sustainable industrial development, radical technological innovations are necessary.


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These need to be accompanied by incremental institutional reform that will ease the disruptions in employment and businesses caused by new technologies, materials and production patterns.

FUTURE DIRECTIONS The corporate sustainability and stakeholders theme has been explored by a wide range of scholars over the past decade-and-a-half and is, perhaps, one of the most thoroughly studied areas within the corporate sustainability literature (Starik, 1995b; Starik, 2002). One reason for this development may be that a large number of scholars who have written on organization and natural environment subjects identify with the organization theory, strategic management, and social issues in management fields, all of which also include some consideration of stakeholders. Scholars from these fields, as well as those interested in entrepreneurship, organization behavior, and technology management, have made significant contributions to the topic of sustainability and stakeholders, often following suggestions from their predecessors regarding promising areas of further study (Starik and Marcus, 2000). Many of these scholars and those featured in this volume have developed and addressed research questions related to this volume’s themes as part of their involvement with the Academy of Management’s Organizations in the Natural Environment (ONE) interest group. This section suggests a number of research approaches that readers can consider to continue to seed, cultivate and harvest this fruitful area of exploration.

WHAT/WHO IS A CORPORATE SUSTAINABILITY STAKEHOLDER? Defining corporate sustainability stakeholders is a basic and, perhaps, obvious task of sustainability researchers, and, while a number of answers to this question have been implied by the many studies that include attention to this topic, researchers still have ample opportunity to make these assertions more explicit and to arrive at some consensus regarding when their suggestions are operative (Mitchell, Agle and Wood, 1997). These studies most frequently include a traditional list of contemporaneous human stakeholder groups, such as consumers, suppliers, regulators, competitors and communities and relate these macro-entities to one or more corporate sustainability phenomena (Andriof and Waddock, 2002). However, both within and among these traditional stakeholder groups, significant differences exist, especially when sustainability includes attention

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to various environmental, social and economic quality of life factors (Clair, Milliman and Mitroff, 1995; Turcotte, 1995). Similar to Hendry’s approach in this volume, future research studies can be encouraged to distinguish more clearly among sustainability stakeholders on a number of criteria, including activity, intensity, longevity and capability, as well as on particular stakes. Another way of asking this question is: how does the relevant stakeholder set change, depending on the sustainability issue, including its contexts, content and processes? Different stakeholders care about different sustainability issues (stakes) under different conditions, so how can corporations better predict which will be involved, how this involvement will be manifested, and what effect this involvement will entail regarding corporate responses? Stakeholders, similar to many other organizational phenomena, exist at different organizing levels, so a related question for corporate sustainability researchers (and practitioners) is, what scope should be adopted in considering stakeholders: individuals, subgroups, entire organizations, or whole ‘civil society’ sectors? Hendry’s research helps to advance these same questions from the stakeholders’ perspectives, asking whether sustainability stakeholders should focus on individual firms, their industry associations, or their ‘value chains’ for greatest effectiveness and/or efficiency? Again, context, content and processes may be important in answering these queries, since they likely differ between developed and developing country contexts, among environmental, social and economic sustainability issues, and between formally planned and ad hoc approaches. All of these initial suggested research topics appear appropriate when traditional definitions of sustainability stakeholders, that is, only contemporaneous human organizations, are considered by corporations. The list of potential topics lengthens substantially when a broader view of stakeholders is considered, one that includes past and future human individuals and groups, as well as non-human nature (Starik, 1994). Regarding the first category, numerous human subcultures have adopted and practiced various sustainability-oriented approaches, from preservation to exploitation, so, to what extent do or should corporations (and their stakeholders) adopt these same measures, such as continuing a cherished legacy of respect for natural environment phenomena, and to what extent have these changed or should these change over time? Concerning the second non-traditional category of future human individuals, groups and generations as sustainability stakeholders, which of these potential stakeholders are or should be considered in corporate sustainability approaches? Do relevant trends exist, such as the recent growth in NGOs worldwide, but especially in developing countries, that provide corporations with clues about the development of corporate stakeholder


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sustainability policies and practices in the future? What legacies are today’s corporations and their stakeholders leaving, or should be leaving, as relationship foundations for these future humans? A final sustainability stakeholder issue that has continued to receive both scholarly and practitioner attention is the question of whether or not nonhuman entities in the natural environment are or should be considered corporate sustainability stakeholders (Starik, 1995a). The Sama, Welcomer and Gerde chapter in this volume leans in the direction of answering this question in the affirmative, as they derive an ethic of caring for the natural environment. This perspective advances well beyond ‘caring about’ or ‘knowing about’ the natural environment, both of which might be considered ‘lighter’ versions of the nature-as-stakeholder position. The stream of questions emerging from this discussion include the most obvious, such as: do or should corporations consider at least some non-human aspects of nature as stakeholders; what values, attitudes and beliefs do or should underlie this perspective; and, what are or should be the consequences of this view?

WHAT KINDS OF RELATIONSHIPS DO OR SHOULD CORPORATIONS DEVELOP WITH SUSTAINABILITY STAKEHOLDERS? For many corporate sustainability scholars and practitioners, the most important question about sustainability stakeholders is implementation. What or who sustainability stakeholders are seems clearer than questions about how the stakeholder concept is or should be employed. How and to what extent do or should corporations interact with their sustainability stakeholders? How do or should corporations prioritize their attention and other committed resources to various past, present or future human (or non-human) individuals or groupings? How do or should corporations plan for conserving, preserving and rehabilitating cultural and natural environments? The Hendry chapter in this volume identified a number of tactics that environmental NGOs use in targeting corporations, which prompts questions about what other corporate sustainability stakeholders do in identifying, planning for and interacting with corporations on the full range of sustainability issues. Related questions about the type, level and outcomes of resources used by both sustainability stakeholders and their corporate ‘targets’ in recognizing, strategizing and communicating with one another are also provoked by this study. A number of models, whether explicitly or implicitly incorporating corporate stakeholders, have been forwarded in the management literature

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regarding sustainability. These include Hart’s (1997) external/internal– present/future model, Winn’s (1995) corporate environmental policy factors approach, Bansal and Roth’s (2000) corporate ecological responsiveness model, and this volume’s de Bakker POEM framework and Dentchev/ Heene’s stakeholder identification/evaluation/value-distribution process, among many others. What management models can provide guidance to corporations regarding the wide range of corporate sustainability stakeholder interactions? Which of these schemas best meets a number of taxonomic criteria, such as practical usefulness and comprehensiveness, and does the answer to this question depend on any situational variables, including relevant human cultural and non-human environmental phenomena?

BEYOND THE BASICS: WHAT ARE THE INTRICACIES OF SUSTAINABILITY STAKEHOLDER MANAGEMENT? This volume’s other chapters prompt an intriguing set of more complex questions for further examination of the volume’s theme. Regarding Selsky and Memon’s public policy contribution, a larger number of sustainability public policies with stakeholder aspects could be explored at the multiple levels of human governments, from neighborhood associations through provincial bodies to international regimes (Sharma, 2002). While these authors focused on New Zealand freshwater resources policies, both other natural environment phenomena and other geopolitical contexts could similarly be studied. The Windsor chapter in this volume does develop a multi-level, multienvironmental issue perspective, highlighting relevant stakeholder networks and coalitions. In addition to similar approaches concentrating on other levels and on other environmental issues, researchers might attempt to connect or integrate between and among the various levels and issues (Starik and Rands, 1995). What is the relationship, if any, between macro- and micro-corporate stakeholder approaches to biodiversity, for instance, and between same-level stakeholder strategies on urban sprawl, for another? Or, working from the micro-perspective of the Krozer and de Leeuw chapter in this volume, regarding mining stakeholders and sustainability issues, can this same perspective be related to, say, mining interests and conflicts at the regional level, or to eco-tourism stakeholders and issues at various levels? The four chapters in this volume that address managerial motivations in responding to sustainability stakeholders (Ng and Wheeler, Delmas and Toffel, Gallagher, and Orsato) all address the critical role, perspectives and processes of corporate managers in sustainability, including interactions


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with sustainability stakeholders. Given the dominant decision-making positions of managers within their respective organizations, managerial relationships to sustainability stakeholders appear to be an especially fruitful future research area (Egri and Hermann, 2000; Sharma, 2000). From a systems perspective, researchers can further explore the inputs that managers employ in these relationships, such as their values, attitudes and personal behaviors, the throughputs they use in evolving these relationships, such as formal conferences and informal contacts, and the outputs these relationships generate, such as inter-organizational partnerships and environmental gains (e.g., Hart and Sharma, 2004). Indeed, integrating managerial inputs, throughputs and outputs for one or more sustainability stakeholders, continues to be a potentially enlightening area of study in the organizations and natural environment realm (Ramus and Steger, 2000). While each of the chapters in this volume makes its own significant contribution to research in corporate sustainability stakeholders and society, their impact would be even more valuable, if collectively they inspire future researchers to begin to link the sustainability policies and practices of corporations across the full range of stakeholders, both those that are traditional, as well as those that are non-traditional. Whether these collections of sustainability stakeholders are considered sets, coalitions, networks or swarms, what forms do or should they take, how can their inputs, throughputs and outputs be usefully compared, and how can those that appear to be most related to sustainability be successfully analyzed and advanced? A number of years ago, Ed Freeman, who advanced and single-handedly increased the usage of the term ‘stakeholder’ in management literature and practice (1984), posited that, for all of its value, one potential limitation of the stakeholder concept was that it could promote an ‘us’ (the corporation) vs ‘them’ (the stakeholders) dichotomization. In closing this chapter, one of the broader questions both researchers and practitioners can ask is: would sustainability be better served or more likely be attained, if we all, corporations and their human stakeholders, perceived ourselves as part of the same stakeholder network or swarm, were integrated with our natural environments, and acted accordingly? That is, what would be the implications of corporations and their stakeholders asking themselves: have we met the sustainability stakeholder, and realized it is us?

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Starik, M. (2002), ‘Childhood’s end? Sustaining and developing the evolving field of organizations and the natural environment’, in S. Sharma and M. Starik (eds), Research in Corporate Sustainability: The Evolving Theory and Practice of Organizations in the Natural Environment, Cheltenham, UK and Northampton, MA, US: Edward Elgar, pp. 319–37. Starik, M. and A.A. Marcus (2000), ‘Special research forum on the management of organizations in the natural environment: A field emerging from multiple paths, with many challenges ahead’, Academy of Management Journal, 43(4), 539–47. Starik, M. and G.P. Rands (1995), ‘Weaving and integrated web: Multilevel and multisystem perspective of ecologically sustainable organizations’, Academy of Management Review, 20(4), 908–35. Turcotte, M.F. (1995), ‘Conflict and collaboration: The interfaces between environmental organizations and business firms’, in D. Collins and M. Starik (eds), Research in Corporate Social Performance and Policy – Sustaining the Natural Environment: Empirical Studies on the Interface between Nature and Organizations, Greenwich, CT: JAI Press, pp. 195–230. Winn, M.I. (1995), ‘Corporate leadership and policies for the natural environment’, in D. Collins and M. Starik (eds), Research in Corporate Social Performance and Policy – Sustaining the Natural Environment: Empirical Studies on the Interface between Nature and Organizations, Greenwich, CT: JAI Press, pp. 127–62. Winn, M.I. (2001), ‘Building stakeholder theory with a decision modeling Methodology’, Business & Society, 40(2), 133–66.

2. Stakeholders and the management of freshwater resources in New Zealand: a critical commons perspective1 P. Ali Memon and John W. Selsky INTRODUCTION Many of the major environmental issues that have captured the New Zealand public’s attention during the last decade relate to the management of natural resources such as water, fisheries and forests. Available longitudinal data and public media accounts concerning changes in the state of the New Zealand environment indicate that the country’s terrestrial, air and ocean resources all are under increasing pressure (DoC 1996; MfE 1997). Even compared to the opinions held only ten years ago, most stakeholders in New Zealand would now agree that its ‘clean green’ image is heavily tainted. Issues of environmental decline are, of course, not confined to New Zealand. Globally there is a growing awareness of threats to and degradations of many natural resources and environments. One of the major environmental and development problems in the world today is managing natural resources that have multiple stakeholders, existing or potential conflict among them, and rapid change in resource uses. The challenge in such situations is to design institutions and decision-making processes that are participatory and pluralistic, and that respect the ecological integrity of the resources themselves (Meppem 2000). Discourses of sustainability show considerable promise in recent policy and academic debates over how to meet this challenge. Policy-makers and researchers using sustainability frameworks recognize the need to understand the complex linkages between social and ecological systems, i.e., between key natural resources and environmental systems on the one hand, and the local and national institutions that regulate and manage them on the other (e.g., Berkes and Folke 1998; Gunderson and Holling 2002). They recognize that the linkages need to be understood and managed both at

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a point in time and over time, at multiple system levels, and across traditional policy and academic disciplines. However, continuing ideological, conceptual and methodological disputes over the meaning and application of sustainability have compromised its utility somewhat (Memon 2002). For example, contention exists over whether and how to include intergenerational equity, and over how to balance among the social, ecological and economic aspects of sustainability. On the other hand, as the use of sustainability frameworks and discourses broadens, a set of precedents will develop based on how such contentions are worked out in real-world settings. Such contentions may serve to strengthen and/or institutionalize the concept over time. Research using the commons as a vehicle for understanding these social–ecological linkages has been especially productive in several disciplines and in multidisciplinary studies, but is rare in organizational research. A growing literature on the commons examines resources, their uses, users and institutions as holistic, self-regulating systems (Ostrom 1990; Bromley 1992; Burger et al. 2001). In the commons literature, resources such as water, fisheries and wildlife have been analyzed as common pool resources (CPRs), and various regimes for their management, one of which is common property, are examined. These two concepts provide potentially powerful ways to understand the social–ecological interface. Instead of assuming that all natural resources are discrete units whose use can be contained, accurately distinguishing the nature of resources as individually secured or as common pool helps us to see the interdependencies among users. Similarly, instead of assuming that natural resources must be managed/regulated as private or state-owned property, common property and co-management mechanisms open up new possibilities. In organization studies, research on the mutual influence of environmental public policy and organizational stakeholders is infrequent. The relevant organizational studies tend to focus narrowly on the pros and cons of governmental regulation of corporate activities, as noted below. All of the articles in the special issue of the Academy of Management Journal (2000) on the management of organizations in the natural environment employ a ‘focal-organization’ perspective, although two articles (King and Lenox 2000; Bansal and Roth 2000) have embedded public policy implications. Public policy perspectives are holistic in that they focus on the management of the resources themselves in the relevant social and natural environments, and not on how they are or should be appropriated to serve corporate objectives. More organizational research using holistic frameworks is needed, and the authors help to redress that need in this chapter. New Zealand is an appropriate site for examining the complex and dynamic linkages between ecological and social systems because its

Management of freshwater resources in New Zealand

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Resource Management Act (RMA) 1991 revamped and refocused the way natural resources are managed. The RMA and other environmental reforms have been considered innovative by international standards (e.g., Buhrs and Bartlett 1993; Memon 1993; Burton and Cocklin 1996), and multidisciplinary interest in the implications of these reforms has generated a wealth of literature by social scientists in New Zealand and elsewhere. However, common pool and common property perspectives on the Act’s capacity to manage natural resources effectively have eluded significant comment. The objective here is to examine stakeholder conflicts over the management of freshwater resources in New Zealand in the context of the RMA. The analysis highlights a gap in the application of the Act to freshwater resources, resulting from the de facto treatment of water by landowners and local regulators as an individually secured resource rather than a common pool resource as provided for under the Act. This has led to the regulation of that resource as private rather than common property, which has compromised the Act’s objective of sustainable resource management. Surfacing these latent property rights assumptions shows how concepts of the commons can assist in understanding resource management issues and responses that have emerged recently in New Zealand and elsewhere. The authors employ case study method. The case is based on the management of freshwater resources in New Zealand’s Canterbury region, and the focus is the impact of dairy farming. The authors rely on three devices. A historical analysis provides societal context and the identification of stakeholders and their interests. A structural analysis of the formal provisions of the RMA indicates policy design and intentions. A contextual policy analysis of the case indicates how the design and intentions have played out on the ground as the RMA has been applied to the local situation, with stakeholders mobilizing their various interests. The data were obtained from two main sources: (1) Interviews with representatives of seven major stakeholders in Canterbury were conducted in 2001.2 Each interview lasted approximately 60 minutes, and most were followed up with phone calls and emails for clarification and elaborations. By agreement the identities of the respondents remain confidential, so they are referred to as Respondent A–G. (2) Public documents (e.g., local and central government reports, newspaper articles), semi-public documents (e.g., company and association reports) and information from websites were assembled and interpreted to construct a composite picture of the case. This was aided by professional observation of the case by one of the authors, resident in the Canterbury region. The time period of the study is 1991–2001. The case continued to unfold after 2001, but for this chapter the authors limit the case to that 11-year period.

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ORGANIZATIONAL AND COMMONS PERSPECTIVES ON THE SOCIAL–ECOLOGICAL INTERFACE The literature on the management of the natural environment and natural resources is fragmented in disciplinary specialties. In organization studies a growing literature on these topics has drawn from several disciplines, including natural ecology, geography and economics. However, the interdisciplinary research on the commons is poorly represented in organizational studies on the natural environment. In this section the authors provide some building blocks for linking the organizational and the commons literatures. Organizational Perspectives The organization studies literature on the natural environment tends to be ‘egocentric’, that is, focused on the single organization (Morgan 1997). The emphasis is on how environmental issues affect the corporation, how they should be managed, what rights the corporation has or can extract to utilize the environment for corporate ends, and what responsibilities it holds in view of its utilization (Shrivastava 1995a). This is in contrast to an ‘ecocentric’ orientation, with an emphasis on ecological sustainability (Purser, Park and Montouri 1995), on nature as the prime stakeholder, and derivatively, on human health (Shrivastava 1995a). ‘Focal-organization’ frameworks tend to channel organizationalenvironmental research in a normative direction, in which desirable corporate environmental strategies and practices are explored. A set of important studies during the 1990s identified the following such strategies and practices: use of ‘real’ or ‘clean’ technology; pollution prevention; engaging in collective strategic efforts with stakeholders and industry associations; fostering an environmentalist organizational culture; total quality environmental management; ecologically sustainable competitive strategies; technology transfer through technology-for-nature swaps; and reducing the impact of populations on ecosystems (Throop, Starik and Rands 1993; Shrivastava 1995b; Hart 1997). Moreover, in a highly regarded treatise on ‘natural capitalism’, Lovins, Lovins and Hawken (1999) argued that business practices need to shift in order for capitalism to properly value the ‘natural capital of ecosystem services’, for example, by dramatically increasing the productivity of natural resources, shifting to biologically inspired production models, moving to a solutions-based business model (e.g., providing illumination rather than selling lightbulbs), and reinvesting in natural capital.


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An important implication of using normative focal-organization frameworks is that it tends to set up a bilateral relationship between a corporation and each of its stakeholders (Frooman 1999). Such frameworks privilege corporate goals and strategies, in the sense that managers are enjoined to maneuver the stakeholders into an alignment with the corporation’s interests. Consequently, public policy perspectives and implications are downplayed in these studies. Throop et al. (1993) do mention the need to pre-empt regulation, and Porter and Van der Linde (1995) discuss the role of public environmental policy as a stimulus for industry competition. Some researchers have initiated a critique of this focal-normative orientation by demonstrating how organizational research on the natural environment supports traditional power bases, conserving the power of profit-minded corporate elites (e.g., Levy 1997; Newton 2002). Levy (1997, p. 127) argues that corporate environmental management serves the symbolic function of ‘legitimiz[ing] corporate management as the primary societal agent responsible for addressing environmental issues’. In addition, Beck (1997) argues that local politics and knowledge increasingly replace command and control planning and the hegemony of expert knowledge in environmental debates in the ‘risk society’. In a similar vein, Shrivastava (1995a, p. 123) argues that it is no longer ‘sufficient to manage corporations to optimize production variables . . . Corporations must manage risk variables, such as . . . pollution, waste, resources . . .’ and they presently are poorly equipped to do so. Some organizational researchers abandon the focal-organization as the unit of analysis and instead use holistic fields of shared interests, such as policy sectors, communities and interorganizational domain, and the stakeholders that constitute those fields. The growing body of organizational research on stakeholder collaboration discusses design principles and structural conditions (e.g., Gray 1989; Hardy 1994), discourse (e.g., Lawrence, Phillips and Hardy 1999), power and contestation (Hardy and Phillips 1998; Levy and Egan 2003) and other factors that can affect stakeholder behavior in shared fields. The potential for holistic publicpolicy-oriented frameworks on the natural environment and natural resources lies in field- rather than focal-based research, but this has been applied only infrequently to the social–ecological interface (see Gray 1989; Selsky and Memon 1995; Swinth and Raymond 1995; Levy and Egan 2003). Commons Perspectives The commons literature on the natural environment proceeds from the premise that natural resources have inherent characteristics that affect

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how they are and should be managed. Certain natural resources have the character of a ‘common pool’. These kinds of resources move (e.g., rivers flow) or are ‘fugitive’ (e.g., fish migrate), making it difficult to fix their boundaries. In addition, the use of such resources is ‘subtractible’ (one user’s use diminishes other users’ ability to use them), it is difficult to exclude anyone from appropriating them, and effects of their use are dispersed (water pollution moves downstream) (Bromley 1992; Grima and Berkes 1989). Termed common pool resources (CPRs), fisheries and freshwater resources such as rivers and lakes are examples. Other natural resources, such as pastureland and forests, are what may be called individually secured: they have more clearly identified effects of use and more clearly demarcated boundaries, making exclusion from appropriation easier and more certain. The focus in this chapter is on the management of CPRs. The uses and user groups of a CPR tend to overlap (the resource is subject to ‘multiple use’) and thus potentially conflict. The resource is often used (or ‘appropriated’) jointly, and users often negotiate mechanisms for maintaining the boundary between legitimate and non-legitimate appropriators, for ensuring participation in rule-making, and for enforcing those rules. There may be various kinds of resource appropriators, such as direct appropriators and groups with indirect interests in the resource or the way it is appropriated (see Selsky and Creahan 1996). Direct and indirect appropriators are part of what organizational researchers would identify as the stakeholder set associated with the resource. Other stakeholders may include the usual pluralistic array of interests (e.g., ecological, recreational, aesthetic, future-oriented). Collaborations and conflicts may occur among the heterogeneous users (Ostrom 1990; Selsky and Memon 1995). CPRs and other natural resources may be managed through various institutional arrangements, summarized in terms of three property rights regimes – private, state and common (Bromley 1989; Ostrom 1990) – and hybrid co-management forms (Pinkerton 1994; Memon and Selsky 1998). Failures and inadequacies in managing natural resources through an established property regime cause a de facto open access situation, in which resource appropriation is not managed and overexploitation is likely. The relationship between CPRs and the common property management regime is not determinate; CPRs may be managed under any of the regimes, or a hybrid (Bromley 1992). Property rights in natural resource management may be understood in terms of diverse bundles of rights held by the various stakeholders of a resource system, including but not limited to direct users. According to Schlager and Ostrom (1993, pp. 14–15) a property right is ‘the authority to


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undertake particular actions related to a specific [resource system]’, and five classes of property rights exist: ● ● ● ● ●

access – the right to enter a defined physical property; withdrawal – the right to obtain the ‘products’ of a resource, e.g., catch fish, extract water; management – the right to regulate internal use patterns and transform the resource by making improvements; exclusion – the right to determine who will have an access right, and how that right may be transferred; and alienation – the right to sell or lease either or both a management and exclusion right.

Holders of any of these property rights may be individuals, collectivities or the state, thus making this framework of rights applicable to private, state, or common property management regimes. Such rights are specified in law (de jure) and/or in custom (de facto) and may change over time. Although property rights in Western societies are often viewed as fixed in law and certain in application, ambiguities in rights to resources are not unusual in practice (Bromley 1989). When the uses of a CPR are multiple and in flux, the distribution of rights to the resource is likely to be contested, with some claimants asserting customary or new rights/entitlements, and other claimants denying, affirming or contesting them. The rights that matter are those that are able to be asserted and defended over time, regardless of the de jure distribution of rights. How sustainable a CPR system (i.e., a CPR and its management regime) is depends on the emergent patterns in the use and management of the resource (Selsky and Memon 1995). Much research on the commons has been devoted to identifying institutional arrangements and design principles for managing natural resources sustainably using common property mechanisms. Changes in rights assertions by stakeholders may strongly affect sustainability. New institutional arrangements may struggle for expression to satisfy (or suppress) emergent, de facto rights to certain resources. Broad participation of stakeholders in negotiating emergent property rights may increase the legitimacy of a resource management regime (Hanna 1995), and thereby enhance the sustainability of the CPR. This may entail co-management, that is, ‘a process of shared decision making between decision-makers and resident stakeholders who learn to optimize their mutual good and plan cooperatively with long-term time horizons’ (Pinkerton 1989, p. 5). Organizational and commons perspectives are not inherently incompatible, but represent two ends of a telescope trained on natural resource

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management. Focal-normative perspectives have been valuable in initiating the inquiry into corporate use and misuse of the natural environment. That literature has also set the contours of the debate by identifying stakeholders, their structural positions and their interests, and showing how they contribute to or oppose corporate goals with respect to natural resources and the environment. However, some researchers in organizational studies recognized at least as far back as 1995 that this did not go far or deep enough (see Shrivastava 1995a; Purser et al. 1995; Selsky and Memon 1995). A reversal of figure and ground was needed to bring ecosystems and their appropriation by corporations into focus. A commons perspective on the social–ecological interface is one way to do so. Such perspectives are rare in organization studies (but see King 1995; Selsky and Memon 1995), and the authors help to redress that gap in this chapter by examining a case of conflict over the management of freshwater resources through the commons end of the telescope.

THE CHALLENGE OF MANAGING COMMON POOL RESOURCES IN NEW ZEALAND The discourse of property rights has proved extremely powerful in shaping public policy in New Zealand since the mid-1980s. This discourse has been associated with an underlying neoliberal ideology. Wide-ranging policy reforms grounded in the neoliberal discourse have been carried out during the last two decades in the form of corporatization and privatization of publicly owned assets such as the state-owned railway, telephone service and seaports, among many others (see Duncan and Bollard 1992). These reforms have also transferred ownership of a number of formerly publicly owned natural resources, such as forests and fisheries, to private ownership. This continues to have important implications for the sustainable management of these resources, due to changing governance structures, objectives and stakeholder relationships and pressures. In combination, the property rights and neoliberal discourses have enabled and also encouraged private property owners to assert the dominance of individual private property rights over collective (community, common property or public) rights. For example, property owning groups such as farmers and corporations have claimed de facto proprietary rights to publicly owned resources and to resources to which rights are not clearly defined. These claims have often been contested by other users. Two recent examples in the Canterbury region are the establishment of private marine farms along the coastline, and the conversion of sheep grazing properties to dairy farms.


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If the resources in these examples are viewed as CPRs then the assertions of private property rights may be interpreted as attempts at enclosure of a commons. That is, in the first example the public coastal marine space is enclosed through its occupation by marine farming applicants. In the second example the farm conversions for dairying stimulate competition for water for stock and to dilute waste, thereby appropriating more public water. Like the enclosures of common land in the UK in the early 19th century, these modern day enclosures have unsettled norms regarding access, withdrawal and management rights to those resources that had existed undisturbed for several generations, even as far back as European colonization of New Zealand in the mid-19th century. These appropriations have led other stakeholder groups in non-dominant positions to respond by asserting de facto rights to some of the enclosed resources, spurring conflict between different stakeholder groups and dragging the state into a mediation role. These conflicts are not isolated instances but stem from a systematic application of a neoliberal ideology to environmental management in New Zealand. Comparable examples are readily available in all regions of the country. The New Zealand government is finding it difficult to adjudicate these kinds of stakeholder conflicts, despite new conflict resolution provisions written into the RMA. Effective use of the Act for managing CPRs sustainably appears to be constrained by a hegemonic ethos of private property sustained and supported by dominant societal institutions. The authors demonstrate this neo-Gramscian thesis in the case below, first providing a broad historical and social context.

HISTORICAL ANTECEDENTS AND CONTEMPORARY LAND ETHIC Values that sanctify private property with regard to natural resources are strong in New Zealand culture. As members of a post-colonial, property owning capitalist society, the majority of Pakeha New Zealanders3 have historically been vigilant about private property rights and their legal protection. The ethic of private ownership with management and exclusion rights over one’s land is deeply embedded, particularly in the rural society. In the distinctive bicultural New Zealand context, that ethic manifested historically in the Land Wars during the mid 19th century, which led to confiscation of Maori-owned land and other natural resources by the state. The traditional pre-colonial Maori economy and society, built primarily on kinship and communal foundations, was marginalized as a consequence of being dispossessed of land and resources. Present-day attitudes can be traced back to such

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figural events in New Zealand’s short (170-year) European history as a colonized society (Memon 1993; Flannery 1994; McCullum and Memon 2002). The state played a pivotal role after the Land Wars in opening up the acquired land for European settlement and farm development. Fundamental to this process was assigning private property rights on a freehold or leasehold basis on the condition that land was cleared and brought into production (Memon 1993). This strategy of embedding private property was coupled with provision of subsidized infrastructure services such as transportation and agricultural extension and research. Park (1995) has described the early colonial period of settlement as a systematic campaign against nature as well as against the Maori. Despite the importance accorded to the institution of the family farm as the basis of the country’s economic prosperity, political stability and social wellbeing during most of the 20th century, the state was the largest landowner and developer in New Zealand until the 1980s. Widespread state intervention was accepted as imperative by most of the populace and the major political parties in order to promote land settlement and development of an agricultural export economy. The large central government development bureaucracies such as the Forest Service and the Lands & Survey Department played a dominant role in New Zealand society until their demise in 1984. Moreover, widespread state intervention in almost all facets of New Zealand society and economy was not perceived to be in conflict with the ethic of private property ownership. This is understandable in the context of the political economy of a European settler society in the South Pacific based on a dependency relationship with the ‘core’ economy of Great Britain. The changes associated with the process of land settlement and development have had wide-ranging impacts on the health of common pool resources. Examples are the destruction of wetlands through drainage, loss of biodiversity including native fish habitats, water pollution, proliferation of foreign pests and weeds, pesticide poisoning of the countryside and soil erosion. A number of these environmental changes began to become visible as early as the 1930s. The natural capital of CPRs was commodified and progressively depleted to produce primary products for overseas export markets and to accumulate financial capital. Farmers, foresters, fishers and miners were often given economic incentives by the state to harness the resources of the environment beyond its carrying capacity. That is, while title to Pakeha-owned land was clearly defined de jure,4 New Zealand’s rich bounty of CPRs such as water, wetlands and fisheries were frequently treated as de facto open access resources because rights to these either were not clearly defined or were not effectively enforced by the state. This illustrates the standard belief in limitless natural abundance amongst settlers in the ‘new worlds’ of the Americas


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and Australasia (Flannery 1994). The geographical consequences of such attitudes are most visible today in the nearly total and deliberate extermination of natural landscapes from New Zealand’s lowland areas (Adams cited in Park 1995). In contrast to the seemingly callous attitudes of early mainstream society, a minority of Pakeha people also recognized that the country had a distinctive and rich natural heritage that needed nurturing and protection. Since the early days, the solace and the beauty of the mountainous countryside and forests were valued, if not taken for granted, by many (Wearing 1996a). Such iconic images have become an important part of the New Zealand psyche, and are reflected in its art, culture and lifestyles (Wearing 1996b). In recent years these images have been packaged in a promotional image for internal and overseas consumption: the country and its products are ‘clean and green’. Only now and almost reluctantly are New Zealanders being forced to come to terms with the dissonance between their clean green mental images of the country’s environment and the progressive depletion of the natural capital of common pool resources. As Park (1995) has commented, New Zealanders have had neither the sense of place nor ecological consciousness to ask such questions or to explain what has happened. Arguably, a majority of the inhabitants have been able to hold onto the clean green myth for several reasons: the small population of 4 million dispersed over a large land area at relatively low densities in cities and in rural locations; relatively slow cumulative impacts of many environmental changes resulting from human activities; the absence of a significant urban industrial economic sector; acceptance that grassland monoculture on the plains was imperative for economic well-being; and relatively easy access to a still relatively uninhabited forested mountainous countryside for outdoor recreational pursuits. During the mid-1980s, a series of unprecedented changes in the trajectory of New Zealand’s development took place, which have exposed the once highly protected economy to deregulated market forces and external competition. Under the aegis of the fourth Labour government (1984–90), these changes in policy direction – sourced in a neoliberal ideology – were conceived and executed by an elite group of politicians, business people and government officials intent on increasing the competitiveness of the economy in the global economic order through more efficient use of resources. The reforms have been comprehensive in scope, including the deregulation of the agricultural, manufacturing and financial sectors of the economy, and a radical restructuring of central and local government administration, environmental management, education, health and social services. The Resource Management Act was a key part of the neoliberal reforms and came into being after several years of delicate, complex negotiation and

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compromise among various stakeholders, including an unlikely coalition of green and conservative interests (Memon 1993; Selsky and Memon 1995). In historical terms, the RMA may be seen as a product of the two currents described above: firstly, New Zealanders’ attempts to reconcile tensions in their relationships with their environment, arising from the progressive degradation of CPRs; and secondly, the belief that more robust, neoliberally influenced institutions and policy mechanisms were needed to manage the environment and its resources. The traditional ethic of private property was mobilized to serve the new order signaled by the substantial changes in how land and other natural resources were to be managed, as discussed below.

A DEVOLVED ENVIRONMENTAL MANDATE: THE RESOURCE MANAGEMENT ACT 1991 A new public bureaucracy responsible for environmental management at the national and subnational levels came into being between 1986 and 1991. The RMA provides a statutory framework for a relatively integrated approach to environmental planning and management, including management of water resources. It replaced a large number of separate and partially inconsistent and overlapping statutes concerned with land, air, water and geothermal resources. The central purpose of the Act and how it is defined are noteworthy: 5. Purpose – (1) The purpose of this Act is to promote the sustainable management of natural and physical resources. (2) In this Act, ‘sustainable management’ means managing the use, development, and protection of natural and physical resources in a way, or at a rate, which enables people and communities to provide for their social, economic, and cultural wellbeing and for their health and safety while – (a) Sustaining the potential of natural and physical resources (excluding minerals) to meet the reasonably foreseeable needs of future generations; and (b) Safeguarding the life-supporting capacity of air, water, soil and ecosystems; and (c) Avoiding, remedying, or mitigating any adverse effects of activities on the environment. (Resource Management Act, Section 5 (Part II))

The RMA’s central purpose of sustainable management significantly broadened the ecological values that needed to be taken into account in decision-making. It also provided the state with wider and stronger enabling powers to manage environmental impacts. One of the Act’s most compelling features is that, compared with many OECD countries,


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Table 2.1 The Resource Management Act: functions by levels of government CENTRAL GOVERNMENT Overview role Develop national policy statements and national environmental standards National aspects of coastal management REGIONAL COUNCILS Integrated management of regional resources Water and soil management Regional aspects of coastal management Manage geothermal resources Natural hazards mitigation Regional aspects of hazardous substances use* Air pollution control TERRITORIAL LOCAL AUTHORITIES Control effects of land use and subdivision Noise control Controls for natural hazards avoidance and mitigation* Local control of hazardous substances use Note: *Allocation of responsibilities between regional councils and territorial authorities for these functions is decided on a regional basis.

environmental management responsibilities are substantially devolved away from central government (Memon 2003). They are exercised within a hierarchical two-tier system of directly elected multi-purpose regional councils and territorial local authorities (city and district councils);5 see Table 2.1. The 12 regional councils, whose boundaries are defined on the basis of major water catchments, are assigned direct management and planning responsibilities for identifying water management issues, developing policy responses and implementing and monitoring those responses. Central government exercises key oversight and monitoring roles. The intent of this devolution was to encourage local accountability and participation, based on the assumption that decisions should be made as close as possible to the appropriate level of community of interest where the effects and benefits occur. Operationally, the Act is best described as an effects-based environmental statute. It seeks to manage the undesirable environmental effects of

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activities by avoiding, remedying or mitigating these on the basis of a ‘polluter pays’ principle. That is, developers, farmers and other resource users are supposed to account for full environmental costs. The Act enables this by refocusing withdrawal and management property rights on predictable effects and by providing a clear system of enforcement, with specified penalties for breaches of the law. The Act also reflects government determination for a deregulated land market as part of a more open and competitive economy; a move away from state involvement in promoting economic growth and towards a decentralized administration of regulatory controls; and the use of economic instruments rather than regulation to achieve good environmental outcomes. All regulatory controls must be justified in terms of benefit–cost analysis. The Act makes a fundamental distinction between how land is managed and how water and air are managed. It stipulates that a landowner can undertake any activity on his/her land unless there are restrictions prescribed in a plan approved under the Act. In contrast, no one is permitted to use water and air resources for a particular activity unless that use is authorized by a provision in a plan approved under the Act. This distinction embodies the high value that most New Zealanders accord to private land ownership, and also creates certain difficulties in managing CPRs sustainably, as noted in the case study and analysis in the next two sections.

WATER RESOURCE MANAGEMENT MEETS DAIRY EXPANSION IN CANTERBURY In this section, the authors describe the recent rapid expansion of dairy farming in the Canterbury region, located on the east coast of the South Island, during the 1990s. They also examine the stakeholder conflicts over its impacts on the environment, and more generally, controversies over the management of freshwater resources associated with that expansion. The progress of European settlement in Canterbury since the 1840s has seen many of the province’s indigenous ecosystems, particularly lowland forest areas, replaced by pastoral farming landscapes. As the largest landuse activity in New Zealand, pastoral agriculture has a significant potential for environmental damage. Water use by pastoral farming is three times greater than the consumption by all households and urban industrial/commercial uses combined. One dairy cow produces 40 times more organic waste than one human (MAF 2001a). The province’s scarce water resources provide different values for a varied range of people, organizations and communities. These resources have


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multiple economic uses: supplying potable water, energy generation, industrial processing, assimilating wastes, producing harvestable products and supporting a variety of tourism businesses. More than 80 per cent of Canterbury’s domestic water is drawn from groundwater, most of it untreated (CRC 1999). The cumulative environmental impacts of accelerated agricultural expansion in the region has led various stakeholder groups to raise a number of ecological concerns, as detailed below (Burch et al. 1999; Menzies 1999). The Canterbury Regional Council (CRC), with the devolved mandate to manage the region’s water resources, has found it difficult to use the RMA’s provisions to resolve conflicts over the allocation of water resources. The New Zealand Dairy Industry Excluding intra-EU trade, New Zealand is the world’s largest exporter of butter and the second largest exporter of skim milk powder, cheese and whole milk powder. The New Zealand dairy industry exports 95 per cent of its production; its main markets are the UK, EU countries, Asia and Latin America. The industry operates without production or market subsidies in one of the most ‘liberalized’, free-market environments in the world.6 Trade barriers and protective subsidies enjoyed by overseas competitors are concerns, as these are seen to artificially depress milk product prices, and the New Zealand industry continues to lobby world bodies for their removal. The dairy company Fonterra was formed in 2001 as a cooperative group from a merger of two large competitors. With group assets of $NZ11 billion (at 1 October 2001), it is the country’s largest company and earns about 7 per cent of its GDP. Fonterra enjoys near monopoly control of New Zealand’s dairy processing industry; i.e., 90 per cent of the country’s dairy farmers are members, and members are required to sell their milk to the cooperative in exchange for monthly payouts (GlobalCo 2001). Although payouts received by farmers have halved in real terms since 1951, dairying is still considered a financially rewarding enterprise. This is evidenced in increasing conversions from sheep/beef and arable farming to dairying despite high set up costs and the need to purchase shares in the national dairy cooperative. While real milksolid prices have trended downwards since 1978/79 due to lower international dairy prices and a poor exchange rate, increased production and increases in milksolid payouts since 1990 has seen a significant lift in dairy farm profitability (Rauniyar and Parker 1999). In 2000/01, gross revenue on most farms was up 40–50 per cent on the previous season and returns are expected to remain fairly high (MAF 2001b).

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Dairying in Canterbury The Canterbury region has experienced a major expansion of dairy farming since the early 1990s, as part of the national trend. Between 1990–2000, hectarage devoted to dairying increased by 480 per cent (23 200 hectares to 134 500 hectares) and there were 750 dairy farms in the region (MAF 2001a). Large farming properties that had grazed sheep and produced cash crops have been subdivided into smaller allotments and converted into more intensive dairying use. The main factors stimulating the more rapid conversion to dairying in Canterbury have been the availability of relatively cheaper, irrigated land, and falling returns on sheep farming properties coupled with removal of government subsidies. These factors have combined to encourage smaller-scale dairy farmers to purchase larger blocks and run bigger herds. Increased stocking rates on dairy farms has led to increased production. The average Canterbury dairy farmer has enjoyed lifts in payouts for milk solids and strong stock prices since the mid-1990s. Farmers indicated that they expected to further increase production in the 2001/02 season by increasing herd sizes as they had done for the last three years. As a result of this healthy cash position, farmers anticipated more development expenditure and looked set to continue increasing production and profitability (MAF 2001b). A profile of the key stakeholders in the Canterbury dairying arena is in Appendix 2.1. Conflicting Perspectives on Dairying’s Environmental Impacts While dairying brings measurable economic benefits to urban and rural communities in Canterbury, the industry’s intensive productivity can have adverse impacts on the quality and quantity of water resources within local catchments and on the socio-economic fabric. Different stakeholder groups contest the significance of these impacts and appropriate management responses, as discussed below and summarized in Appendix 2.1. Water quality Pastoral grazing is a source of contaminants that degrade water quality in the region through added nutrients and micro-organisms (Respondent A). There are two main issues associated with dairying: (1) degradation of lowland rivers, streams and riparian margins caused by stock access and non-point source discharges (Allen 2000; Respondent B); and (2) contamination of groundwater in lighter soils on the upper Canterbury Plains from non-point source discharges.7


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While there is little doubt that water quality in rural New Zealand continues to degrade, the causes are ambiguous. Conventional pastoral farming practices are widely believed to degrade water quality. The Ministry of Agriculture and Forestry (MAF) has also found that most of the degraded lowland water bodies are adjacent to areas of increasingly intensified rural-residential subdivisions and horticultural farming. Those activities are known to produce high levels of nitrogen and phosphorus run-off. District and regional plans have required most dairy farms in lowland areas to cease discharging directly into waterways (Respondents C and D). Many large Canterbury dairy farmers have installed large-scale, up-to-date technology for effluent sprays to minimize run-off. Contention between industry representatives and environmental groups is high and recent ‘slanging matches’ have been highlighted in the media. While not denying that dairying increases nutrient outputs, the industry has argued against making simple comparisons of nutrient leaching between farming systems, stating that the effects of the current expansion of dairying onto irrigated, shallow, free-draining soils in the South Island are still largely unknown (Dairy Exporter 2000). However, environmental groups have singled out ‘dirty dairying’ as a significant cause of degradation, particularly of lowland rivers and streams. They argue that pastoral farming requires significant water resources for irrigation, which has contributed to a number of rivers and streams drying up. Stock access to waterways is seen to cause increased sedimentation and nutrient leaching, causing eutrophication and affecting plant and fish life. Thus, despite a number of studies into the sources of nutrients and micro-organisms in freshwater (Sinner 1992; Smith et al. 1993; Vant 1999; Parkyn et al. 2002), to date there is no conclusive evidence that dairying is causing greater contamination than other intensive land uses. This uncertainty stems from the particular attributes of water as a CPR. Water quantity The right to access water is a significant issue for Canterbury, as the region’s naturally clean water resources are highly valued for domestic, agricultural and industrial purposes. Agriculture in the region depends heavily on assisted water schemes with 350 000 hectares under irrigation (Dearnaley 2001). Agricultural activities require three times the amount of water as domestic uses. Dairy farming requires larger amounts of water than other agricultural activities to maintain the quality and quantity of pasture. Environmental and recreational water user groups have identified the dairy sector as a high water user and have pushed for firmer water extraction restrictions on key rivers. However, the region’s agricultural industry

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maintains that additional water resources are available and believes an additional 500 000 hectares could be brought into production through new irrigation schemes (ibid.). Several studies, funded jointly by central and local government and private funders, have identified opportunities to develop irrigation schemes for Canterbury. Preliminary indications are that new irrigation could provide water at a cheaper cost than the current trend for individual deep wells on farms. Environmentalists strongly oppose such schemes, arguing that many of the region’s surface waterways are currently over-extracted and regularly cease flowing during drier months (Respondent C). Socio-economic concerns The increased conversions to dairying have also been criticized for causing increased social conflict and constant change in rural communities. A number of non-local dairy farmers have moved into rural communities. The industry’s high economic returns have also brought accusations of ‘grab-and-run’ behavior; e.g., one-third of all dairy farms change hands each year. Sharemilkers often do not know when or where their next employment will be up to two months hence. Schools and communities can experience a sudden influx or exodus of families, which can disrupt small communities. Due to milking demands, dairy farmers have different daily time schedules to sheep, beef and arable farming activities, limiting dairy farmers’ availability to attend after-school functions and other social events. Social welfare agencies have raised concerns that increased export prices for milk products have pushed up domestic milk prices, thus limiting the ability of lower socio-economic families to access milk’s health benefits. On the other hand, it is recognized that the increased conversions and economic activity have increased economic development within Canterbury’s declining rural communities. Employment opportunities and turnover within agri-businesses have increased and school rolls are up. The recent upturn in dairying returns and the influx of new people have been credited for saving some rural businesses and schools from closure (Respondent D). Potential Solutions and Contestation Major stakeholders have proffered solutions or approaches to the intensely contested issue of dairying’s contribution to the degradation of Canterbury’s lowland water bodies and the contamination of groundwater on its upper plains. Some stakeholders (e.g., the mainstream research community, CRC staff and Landcare Trust) have identified key farming practices


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to mitigate dairying’s nitrogen–nitrate loss and phosphorous and microbial pollution: 1.

2.

3.

4.

Efficient use of inputs: environmental and agricultural management agencies stress the importance of efficient use of on-farm inputs in reducing nitrogen–nitrate loss. Recommendations focus on fertilizer application rates and timing to ensure they are matched to pasture, soil and climate conditions (Ritchie 1999; CRC 2001b; NZDRI 2001). Riparian areas management: fencing along water bodies is widely recognized as reducing nitrate and microbial contamination by avoiding direct effluent deposition. Riparian margins act to remove nitrate from the soil and release it back to the atmosphere (denitrification). Riparian plantings, bridges and culverts limit stock access, reducing soil compaction and run-off and preventing animal feces from reaching waterways (Ritchie 1999; CRC 2001b). Drain management: drains can be designed to speed water away from the farm system. However, evidence exists that small open drains can act as wetlands to increase denitrification, plant uptake and sediment trapping (ibid.). Land irrigation of effluent, rather than oxidation pond discharge, appears to have significant effects on fecal bacteria in streams, although little effect on nitrogen levels (Aniwaniwa 1999). Agricultural production management: reducing stocking levels to reduce nutrient throughput is a contentious option because of its intrusiveness on farming productivity and the unclear correlation between increased stocking rates and nutrient loss (Respondent E). Alternative breeding and feed programs are being investigated that aim to reduce leaching with no drop in production (Respondent A).

Farming interests contest the necessity for such measures on scientific grounds. More importantly they argue that forced adoption of these measures through changed farm practices would diminish their property (management) rights. In contravention of the polluter pays principle they expect society to compensate them for the cost of implementing measures to avoid, remedy or mitigate pollution of freshwater resources. Likewise they fail to understand why anyone should question the historically privileged position of farmers to use water for purposes of producing wealth that benefits everyone. Other stakeholders have taken very different approaches to solutions. Some believe that CRC has failed to use the regulatory powers available to it under the RMA to manage the environmental impacts of dairying. Recreational fishing and environmental interest groups have raised the awareness of the urban public in Canterbury and elsewhere in New Zealand

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through a campaign called ‘dirty dairying’. This has put some pressure on the corporate farming interests to improve land management practices. Environmental and recreational groups have also campaigned for changes to farm practices by seeking to influence the regulatory agencies’ controls, such as regional and district plans. The local agencies, however, have been reluctant to regulate farm management practices through statutory controls, partly due to opposition from farming interests. This is discussed later in the chapter. The giant dairy company Fonterra, keen to maintain New Zealand’s clean green image for its international marketing purposes, has offered its own solution. In 2001 it initiated an Environmental Management System called ‘Market Focused’ for dairy farmers for managing animal health, soil and water resources, waste and farming inputs (NZDRI 2001). Its guidelines recognize the need for the industry to respond to consumer concerns and pressure from its European clients. Many interviewees (Respondents B, C, D, E and F) believed the EMS would create considerable pressure on dairy farmers to improve environmental and animal health practices, because the company can compel its farm milk suppliers to change their land management practices.8 Finally, the Landcare Trust has undertaken efforts to promote voluntary and collaborative initiatives. It facilitates a Working Group for Dairy Farming in Canterbury, which includes a wide range of the identifiable stakeholders, and it has helped to develop a water monitoring kit to help local groups collect reliable information about the health of local waterways. The evidence above illustrates that proposed solutions to the dairy industry’s impact on Canterbury’s water resources have been dominated by concerns regarding water quality and, to a lesser extent, water quantity. Socio-economic concerns have been marginalized. At the time of writing, the local Maori tribe (Ngai Tahu) has not taken an active interest in this issue.

DISCUSSION How has the expansion of the dairying industry in Canterbury shaped stakeholder perspectives on water resource management in the region? In this section the case material is used to show that CRC, as the pivotal regulatory body for natural resource management, has been hampered by two common failures of public agencies: weak functional planning capacity and institutional constraints. The authors then suggest that these failures mask a more fundamental problem concerning property rights assumptions, which leads to a gap in the effective implementation of the RMA.


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Finally, the discussion is broadened in terms of risk society and neoGramscian concepts. Stakeholder Tensions First, the two common failures are examined. There is weak functional planning capacity. Events during the decade under study show that regional and local government agencies failed to anticipate the dairying boom in Canterbury and to prepare for it by putting in place appropriate policies to manage its environmental effects. Expansion of the dairying industry in Canterbury during the 1990s followed the same trajectory as experienced in North Island regions (e.g., Taranaki and Waikato) during earlier decades. Dairy farming has had major environmental impacts there, yet decision-makers in Canterbury and other South Island regions appear not to have learned from those experiences. It may seem surprising that such planning failures could occur in such an important sector of the nation’s economy. However, the strategic planning functions of central government agencies (e.g., MAF and MfE) have been hollowed out through downsizing, restructuring and loss of institutional memory. Those functions have been left to regional and local government to pick up, but with little technical or institutional support to develop that capacity at subnational levels. Institutional constraints amplify weak planning capacity. The CRC was only established in the 1989 nationwide reorganization of local government. Like the other new regional councils, it has received limited political and financial support from central government to carry out its functions effectively. CRC has found it difficult to establish its legitimacy with other stakeholders. Territorial local bodies such as Christchurch City have withheld cooperation with CRC to protect vested interests. For example, territorial local authorities prevented the allocation of shares in the Lyttelton Port Company to CRC, as had occurred in most other regions in the country during local government restructuring in 1989. This maneuver has starved CRC of a major revenue stream and forced it to rely on property taxes and user charges. In turn, this has constrained the range and effectiveness of activities it can undertake to promote sustainable management of water and other resources. A more fundamental issue lurks beneath both weak capacity and institutional constraints: an assumption of unambiguous private property rights to natural resources. Dominant stakeholders – such as Federated Farmers, the Business Roundtable, the Treasury ministry and parts of the nationallevel environmental bureaucracy – ascribe strongly to this assumption. Through the influence of these stakeholders the private property rights

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assumption found its way into the RMA. As noted above, the RMA makes a basic distinction between how land is managed and how water and air are managed in terms of property rights. The source of this distinction lies in horsetrading in the late 1980s over the contents of the new environmental statute. Neoliberal business and farming stakeholders, with the support of Treasury ministry officials and politicians traditionally solicitous of the rights of private landowners, were able to assure that a relatively laissez-faire approach to management rights to land was firmly embedded in the RMA. Those same Treasury officials, coupled with some MfE staff, also advocated that CPRs such as freshwater could be managed most efficiently if they were privatized. This view did not prevail in the RMA as enacted nor in subsequent amendments to date. The RMA’s prior-authorization provisions pertaining to water essentially mean that property rights to water are defined on a collective basis. The RMA tacitly acknowledges the common pool attributes of freshwater resources (e.g., its trans-boundary flows and diffused effects of pollution) and the need to account for these attributes in granting access and withdrawal rights. But the practical reality in Canterbury is rather different. The RMA empowers regional councils to regulate access and withdrawal rights to water resources, and to regulate pollution from non-point sources. However, CRC does not rigorously exercise these powers, but instead adopts a weak regulatory stance. For example, CRC has made only limited progress in setting minimum flows for Canterbury waterways, partly on grounds of lack of appropriate information. But even in cases where minimum flows have been prescribed, recreational groups have alleged that CRC has often granted water extraction rights for irrigation significantly in excess of stream flows. CRC has found it even more difficult to regulate non-point source pollution associated with dairying (Memon 2003). A major reason is the ambivalent attitudes of farmers towards water resources. On the one hand, they oppose privatization of this resource because they believe everyone should have access to it. Farmers traditionally have enjoyed free access to the waste assimilation capacity of waterways. On the other hand, they treat water extraction permits as if they were private property and resent governmental intrusions. Traditional rural attitudes in New Zealand regard water as a free gift of nature available for ‘beneficial’ use for farming. Hence, farmers appear to regard property rights over water bodies as an implicit extension of their private property rights over land, and regard the polluter pays principle with much skepticism. Proposals to regulate farming activities to manage non-point source pollution, such as fencing waterways or monitoring fertilizer inputs, are dismissed by leading farming spokespersons as ‘command and control’ land use planning directives (Respondent D). Regional councils such as


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CRC therefore find it politically more palatable to adopt the rhetorics of industry self-regulation and voluntary compliance. These have found expression in a recent multi-party Dairying and Clean Streams Accord at a national level (Memon 2003) and a Living Streams program at the regional level (Henzell 2003). The purpose of these initiatives is to raise farmer awareness to address the problem of diffuse pollution. Essentially, CRC finds itself in a dilemma: how to be responsive to a major constituency while also fulfilling its statutory obligations of sustainable management of water resources. An Implementation Gap CRC should be able to use the RMA to address the above dilemma. The Act provides for more democratic environmental governance by devolving substantial responsibility for resource management to district and regional councils and by providing for consultation and participation in planmaking and in resource consent processes. Moreover, the Act provides for environmental mediation as an alternative dispute resolution technique, in order to encourage deliberative and communicative approaches to conflict resolution (Healey 1992; Young 1995; Dryzek 2000). It also requires that planning policies and regulations have a multidisciplinary knowledge base, e.g., scientific, social and economic analytical knowledge and skills are required inputs into policy development, implementation, monitoring and evaluation. Finally, the Act clearly acknowledges cross-boundary issues by providing for coordination among different agencies and different governmental tiers. Thus, as an institution for managing natural resources, the RMA has created favorable conditions for handling new assertions of rights. Its increased consultation provisions allow de facto rights that lie in the community to be expressed and enable those rights to be brought into the formal institutional arena for consideration. For example, the local community in Canterbury would not have been able to be so assertive in voicing its concerns about dairying under the previous institutional regime because the relevant platforms and forums did not exist. However, the playing field under the RMA has proved to be uneven. Landowners and developers have strong incentives to marshal professional expertise to support their applications at planning hearings before councils and the Environment Court. They stand to make significant financial gains if the outcomes are favorable in this risky game. By contrast, average citizens, local communities and NGOs must depend on their own limited resources.9 A related concern is the commodification of resource consents (Gleeson 2000). In attempts to speed up consent decisions, developers put pressure on

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councils not to ‘notify’ (i.e., publicize a formal invitation for public input on) applications. The developers then attempt to obtain the consent of opposing parties outside the formal channels through financial inducements. In addition, an adversarial mindset has been carried over from the previous planning regime and reinforced by the new competitive neoliberal ethos. Environmental conflicts are often resolved through adversarial contests among bureaucrats influenced by lobby groups, either behind closed doors or in the courts, despite the availability of mediation as noted above. Finally, some contend the Maori have been disempowered by the RMA (see Matunga 2000) despite its provisions for formal consultation with them. In sum, the gap between the RMA as designed and as implemented is essentially a product of property rights assumptions and traditional values and manifests as weak planning capacity and institutional constraints. The stakeholder tensions in the Canterbury dairying arena are reflections of struggles over property rights, with public and common property rights pitted against private property rights. Ecological Modernization Beck (1992, 1997) and others have discussed stakeholder tensions and policy implementation gaps in terms of the broad conceptual scheme of the ‘risk society’. The central thesis is that in our era, big business, big government and big agriculture produce goods and services and generate wealth, but unintentionlly produce uncontainable risks as well. ‘[E]xcessive production of hazards and ecologically unsustainable consumption of natural resources are the root sources of modern risks’ (Shrivastava 1995a, p. 120), and this production of risks has important consequences for the content and conduct of politics. Beck (1997) refers to the politicization of the natural environment as ecological modernization. In New Zealand and elsewhere this ‘modernization’ of the environmental debate takes form in more stakeholder groups clamoring for more participative modes of management and decision-making. The earlier style of closed-door deals among business and agricultural heavyweights in alliance with a paternalistic government has been rendered less workable. Similarly, expert scientific research findings and advice are no longer uncontested as a legitimate basis for environmental decision-making (Shrivastava 1995a; Tsoukas 1999). The public is increasingly skeptical of pronouncements by dominant institutions; popular beliefs, often whipped up by the mass media, become politically powerful, regardless of their scientific validity or political viability. These features of the risk society are evident in the inherent difficulties in managing non-point source pollution associated with the expansion of the Canterbury dairying industry.


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The RMA may be seen as an attempted local solution to the ecological modernization problematic. As the successor to the previous fragmented environmental planning regime, the RMA is ‘enlightened’ by its focus on sustainable management and in its provision of new platforms for voicing alternatives. However, it has been demonstrated in the Canterbury dairying case that the Act’s regional implementors are hamstrung in managing CPRs sustainably by the conventional assumption of the primacy of private property rights over common property rights and by the neoliberal ideology of minimalist government. The viability of the private property ethos rests on secure and unambiguous property rights. However, the property rights to CPRs may not be secure and unambiguous, but instead may be intensely contended at the local level due to their fugitive and diffuse qualities (e.g., water extraction conflicts; non-point source pollution uncertainties). Hence, the authors believe it is heuristic to apply common property concepts to the RMA. In sum, the RMA is an example of the not uncommon situation in environmental policy in capitalist societies in which the state secures private property rights under the guise of regulating the use of natural resources (see Gorg and Brand 2000). This is essentially a co-management system, but not of the type envisioned in the commons literature. Implicit in the regulating function is that the resources are common pool in an aggregate sense, but the fulfillment of that function is compromised by the securing function in each specific instance. Recognizing that a neoliberal ideology underpins the Act helps to make sense of how coalitions of stakeholders come together and advance their interests in the Canterbury dairying case, and more generally, how the contours of contestation over the Act’s sustainable management purpose take shape and evolve (Selsky and Memon 1995; Cocklin and Blunden 1998; Levy and Egan 2003). The stakeholder dynamics in the Canterbury dairying case, operating within the wider context of the risk society, combine to produce an unexpected result in New Zealand. This is discussed below. Business as Usual? Three events of concern in this chapter occurred during the 1990s in New Zealand: the rollout of the RMA, the creation and maturation of the regional councils (including CRC), and the rapid expansion of dairy farming in Canterbury. By the early 2000s, the trajectories of these three events intertwined in the Canterbury dairying arena to create a neoGramscian condition of business as usual makes politics as usual. Business as usual means that despite these key events the dairying industry in Canterbury continues to pursue its interests relatively unimpeded, as before.

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As one example, Fonterra responds to its international markets and global industry pressures by creating its EMS ‘Market Focused’. Those global stakeholders of Fonterra are more potent than CRC and the pressures it can exert on the mega-company and its farmer-owners. As another example, individual dairy farmers respond to the monthly payout incentives offered by Fonterra and keep expanding production, and others are lured into the industry by these incentives. Fonterra and individual farmers pursue selfdefined and self-executed objectives (profitability, quality, environmental responsibility etc.) based on corporate property rights. Moreover, they are largely able to ‘align’ the regulatory body to their interests (e.g., CRC adopts the rhetoric of industry self-management). Their ethos is ‘egocentric’ (Purser et al. 1995; Morgan 1997). Politics as usual means the ‘rules-based struggle between parties for privileges and levers of power’ (Beck 1997, p. 53). In the case study CRC as the key regulatory actor struggles to manage the region’s water resources sustainably in a contentious, politicized context. This is partly due to an overhang of past practices and attitudes (see Memon and Selsky 1998). The CRC’s weak planning capacity and institutional constraints mean that it is forced to adopt ‘voluntary compliance’ rather than strong regulatory enforcement. Various stakeholders are arrayed in the field with various interests and positions, some aligned with CRC, some opposed, some shifting. The general public, as stakeholding actors in a risk society, are concerned about water degradation but are also skeptical of claims mounted by any of the powerful stakeholders. The condition of business as usual makes politics as usual in Canterbury’s freshwater resource domain is the local manifestation of ecological modernization. The result at the time of writing is that the margin for change in managing freshwater resources, which opened when the three big events of the 1990s intertwined, is remarkably small. This is not to suggest a strong cause–effect relationship between business as usual and politics as usual. Instead, a neo-Gramscian analysis is used to highlight a general pattern in the observed decisions and activities of stakeholders in the Canterbury freshwater arena. It is this emergent pattern that co-produces these linked conditions and constitutes the local solution to date to the problem of sustainable management of a crucial CPR. Alternative solutions would proceed from the premise of business as unusual and politics as unusual. What would this look like in the Canterbury dairying case? Commons concepts and the risk society thesis are drawn upon to outline its contours. Years of empirical research on common property institutions has shown that ‘arrangements worked out by participants, intimately knowledgeable about details of their activities, are likely to be more workable than blueprints developed by policy analysts and imposed


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by politicians and bureaucrats. Flexibility and a willingness to permit differently designed arrangements to develop on different issues’ is crucial in complex and evolving situations (Keohane and Ostrom 1995, p. 22), because ‘unanticipated reactions of involved parties’ can frustrate the intentions of central policy-makers and planners (Snidal 1995, p. 68; see also Berkes and Folke 2002; Berge 2002). The risk society literature supports moves to strengthen local democratic process. Beck (1997, pp. 64–65) states that societies should strive to ‘develop . . . new institutional arrangements that can better cope with the risks we are presently facing . . . with the idea in mind that we have to find ways to deal democratically with the ambivalences of modern life and decide democratically which risks we want to take’. Thus, it is important to create a national framework for environmental management that allows for varied expressions of local stakeholders and their assertions of de facto rights to local resources (Meppem 2000). This is, of course, much easier said than done. In the case study, business as unusual would mean corporate and farming interests taking a more ecocentric and a less egocentric stance toward natural resources. Politics as unusual would mean the regional council exploring more deliberative processes and using more co-management arrangements. Operationalizing these ideas might entail designing institutional arrangements for the negotiation of the property rights of different extractive and in-stream user groups through a collective choice process that also respects the ecological integrity of the resources. At the regional level the method for protecting aquatic biodiversity and providing for needs of other water users is by prescribing minimum water flows. The Canterbury case study revealed that this has proved difficult in practice for a number of reasons, but largely stemming from the continuing ideological pressure of dominant stakeholders to commodify access and withdrawal rights to water. Multi-party negotiation has fared better. In the recent Accord, encouraging industry self-regulation may ‘deflect the hostility of rural landowners to RMA based intervention’ (Memon 2003, pp. 4–5) away from CRC. This is tacitly a co-management solution and is very fragile at the time of writing. Similarly, it is too early to tell if some incipient co-management initiatives, such as the Landcare-sponsored Working Group and the CRC’s Living Streams program, are fleeting, piecemeal efforts or harbingers of a new way of operating. The alternative solution path of business as unusual and politics as unusual essentially means transformative change in the relationships among the private sector, the public sector and civil society. The RMA has transformative potential ‘as an institutional anchor for comanagement of the commons [but this] is yet to be fully appreciated by those responsible for administering this legislation . . . ’ (Memon and Selsky 1998, p. 600). The sustainability of water resources in Canterbury cannot be achieved by

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assuming that a satisfactory solution will emerge from the workings of individual market transactions; the desirable solution must be constructed (Bromley 1989) and all the stakeholders need to take part. The alternative solution path also means transformative change in each stakeholder’s and each sector’s relationship to natural resources. The management of natural resources in the early 21st century is complex, imprecise, political and messy. In such situations ‘emphasis must be placed on learning and consensus building’ (McCool and Guthrie 2001: 310). However, this is a tall order in politicized, risk society conditions.

CONCLUSION: STAKEHOLDERS AND SUSTAINABILITY IN SOCIETAL CONTEXT The commons was used as the underlying metaphor for natural resource management in Our Common Future (WCED 1987), which pushed the concept of sustainable development into the mainstream discourses of international development, environmental economics and environmental management. But the commons has been used in those discourses only in the most general terms, not as specific policy guidance. Moreover, while the rhetoric of sustainability has been adopted by many international, national and local government agencies, its definition has proven to be problematic (Peet 1989), and the meaning of sustainable development has been intensely contended. This is because national and local government agencies often confront deep-seated obstacles to promoting environmental conservation and sustainable development (Dryzek 1990; Johnston 1996). The RMA attempts to find a way through these contentions and obstacles within the New Zealand context but the commons ethos has been lost along the way. Viewing the freshwater resources covered by the RMA as CPRs, and viewing the RMA as a common property institution for sustaining the ecological health of such resources, helps to reclaim some latent commons values in the Act. From this perspective, property rights are seen to be as much a relation between stakeholders as a relation between people and resources. As illustrated in the case study, the adoption of sustainable resource policies and management practices entails fundamental shifts in power relations and institutional alignments. Thus, the analysis leads towards a more ‘commons’ perspective on natural resource policy and management, and towards a more political perspective on the commons (Goldman 1998; Selsky and Memon 2000) and sustainability (Levy 1997). The implications of this study lie in two main areas: environmental policy and the management of natural resources; and future directions in research on the natural environment. First, the authors’ perspective on natural


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resources used concepts of common pool resources and common property institutions. This enabled them to demonstrate, in ways that organizational stakeholder perspectives may find difficult, how different user groups and stakeholders of natural resources may benefit or be disadvantaged from any particular distribution of rights and any particular arrangement of local institutions. Moreover, their attempt to uncover the property rights assumptions embedded in the RMA is consistent with Bromley’s (1998) advocacy of a rights-based approach to sustainability. These power-related implications may give rise to assertions and denials of rights and to various resistances, co-optations and manipulations as various stakeholder groups strive to fulfill their interests. Interpreting these sorts of interactions as commons processes may yield practical guidance for policy-makers concerned with sustainable resource management in New Zealand and other countries. Second, for organizational researchers, using commons concepts to examine the management of complex natural resources has helped to contribute to a more ecocentric analytical framework for research on natural resources and the environment (Purser et al. 1995; see also Shrivastava 1995b). Arguably, this study’s framework, drawing on organizational and commons perspectives, is holistic in recognizing inherent ecological values and interdependencies in resource use and effects. This more holistic research perspective enabled the authors to unravel some of the dynamic and complex interrelationships between ecological and social systems in the Canterbury dairying arena. Misuse and scarcity of freshwater pose a serious and growing threat to sustainable development and protection of the environment. Human health and welfare, food security, industrial development, and the ecosystems on which they depend, are all at risk at a global level unless water and land resources can be managed more effectively (Young, Dooge and Rodda 1994). Sustainable development of water resources has been defined as a set of actions to secure the present functions of water without jeopardizing the interests of future generations (Golubev 1993). What does that mean in the context of crafting institutional arrangements for sustainable water resource planning and management? Recent literature in the field highlights how holistic and participatory ideologies – based in scientific, conservation, political and religious institutions – might shape our understanding of what this objective means. These ideologies encourage us to re-examine our understandings about the social–ecological interface, which may help to improve practices at the interface for the betterment of both humankind and nature (Boehmer, Memon and Mitchell 2000). The challenge for the state in property owning democracies is how to incorporate these new ideas with the needs, concerns and priorities of different stakeholders in the politicized context of the risk society.

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The people, the resource management institutions and the various stakeholders in New Zealand are part of a global struggle to come to terms with environmental models and practices that are increasingly seen to be unsustainable. The tensions in policy development that have been shown to characterize the RMA reflect broader tensions in the evolving relationship between the natural environment and the institutions constructed to manage them (Holling, Gunderson and Ludwig 2002; Berkes and Folke 2002). Bromley (1998, p. 239) believes the concept of sustainability encapsulates these tensions: ‘Sustainability is at once a fine idea and a hopeless concept. It is good because it reminds us of the fate of future persons; it is hopeless because it begs for operational content.’ The RMA strives to give operational content to the sustainable management of a nation’s entire set of natural resources, but it has been challenged in fulfilling that ambition by prevailing political and ideological realities. Like the discourse of sustainable development at the global level, the discourse and operation of sustainable resource management in New Zealand is in danger of losing the connection with the ethos of the commons that implicitly underlies it.

APPENDIX 2.1 CANTERBURY DAIRYING ARENA: STAKEHOLDER GROUPS AND PERSPECTIVES ●

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Ministry of Agriculture and Forestry (MAF) – key central government agricultural policy agency. Favors voluntary individual, communitybased and industry responses; sees regulatory land use controls as inflexible and unadaptive to varied on-farm conditions. Sees consumer-driven environmental concerns as key driver of industry-led change. Perceives current media and environmentalist concerns over increased dairying conversions and water degradation as emotive, based on inconclusive evidence. Believes increased conflict likely over water allocation rights. Funds many initiatives regarding improving dairy farm practices; works with dairy industry to develop activitybased EMSs (Jarman et al. 2001). New Zealand Fish and Game Council – statutory NGO established under Conservation Act 1987. Responsible for maintaining and restoring habitat of trout and salmon for sustainable recreational fishing. Funds restoration projects, provides educational material to raise awareness of its objectives, works with relevant private and public management agencies. Concerned about ongoing degradation and over-abstraction for irrigation purposes of Canterbury’s lowland rivers and streams; indicts recent increase in dairy conversions and resulting stock access to waterways; voiced concerns via 2001 media campaign


●

●

●

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‘dirty dairying’. Believes regional councils are not adequately enforcing RMA Part II, which mandates specific protection of trout and salmon habitat. Recently took legal action against farmers and regional councils to test this, to enforce improvements to waterways. Participates in Dairying Working Group (see Landcare Trust below) (F&G 2001; Johnson 2001). Canterbury Regional Council (CRC); also known as Environment Canterbury (EC) – elected regional council for Canterbury province. Pivotal role in integrated management of fresh water resources through various regulatory instruments and voluntary incentives that influence dairying, including approvals of water take and discharge permits required for dairy farms under the RMA. Uses information exchange (e.g., through Landcare groups) to create peer pressure on farmers to manage farms adequately; believes industry pressure may be most effective means of changing on-farm dairying practices. Collects range of data on dairying and water use trends through resource and compliance monitoring, which enables relevant agencies to better manage resources. Until recently dairying was not a high priority issue. Established a Dairy Unit in 2001, a planning group that works with industry, within communities and Landcare groups to identify water resource issues and pressures and provide technical assistance for initiatives. Released proposed regional water plan under RMA in June 2002, is now drafting a riparian management strategy for lowland waterways to be released for comment within two years (CRC 2001a). In July 2003 launched Living Streams program to improve water quality through community action (Henzell 2003). Research institutions – include AgResearch and Lincoln University’s Centre for Soil and Environmental Quality. Responsible for analyzing issues identified as significant by industry stakeholders. Considerable funds have been available for dairying research to promote sustainable agricultural practices. Many institutes’ research objectives closely aligned to industry to ensure research relevant to farming practice and findings readily fed back to local farmers. Increased dairying activity has heightened institutes’ awareness of need for improved information and technology. Some within the research community appear reluctant to accept recent rapid growth in dairying as major cause of worsening water quality in region and have identified other causal intensive land uses, e.g., rural-residential subdivisions, horticulture. Dairy industry – representatives work closely with research institutes and enjoy open relationship with many regulatory bodies. But regulatory bodies lack credibility with many farmers, who see councils as

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●

●

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mismanaged and overly bureaucratic. Industry has been critical of RMA’s resource consent processes, seen as overly costly and timeconsuming. The Fonterra Co-operative Group dominates the industry. In recognition of consumer concerns, it has advocated changes to on-farm practices through industry EMS, ‘Market Focused’, a set of quality assurance guidelines trialed and released in July 2001. Farmers have expressed guarded support for EMS, given adequate scientific evidence and technical support. In 2003 the company negotiated the Dairying and Clean Streams Accord with central and local government to require milk producers to comply with legally nonbinding environmental performance targets. Despite a generous time frame for achieving these targets, Accord has been rejected by dairy farmers as akin to heavy-handed intervention at a national level. Environmental groups are also cynical about its value. Landcare Trust – government-funded NGO established in 1996. Operates as a trust governed by representatives from agricultural, outdoor recreation and environmental interests. Aims to empower community groups to find local solutions to land management issues by helping to establish action plans, providing facilitation services and helping to access funding and information resources. Valued by many stakeholders for ‘agenda free’ independence regarding sustainable land management issues and biodiversity enhancement. Facilitates Working Group for Dairy Farming in Canterbury, which includes a wide range of identifiable stakeholders. Assisted in developing a water monitoring kit to help local groups collect reliable information about health of local waterways. Federated Farmers – non-profit lobbying organization representing approximately 15000 farming members. Strongly denies recreational and environmental stakeholders’ claims of ‘dirty dairying’; argues those groups are misinformed, that other factors degrade water quality. Reluctant to see tighter land use controls on dairying, such as Regional Plan rules, but supports industry EMS (Stirling 2001; Sutton 2001). Participates in Landcare’s dairy Working Group. Ngai Tahu – largest Maori tribe in the South Island, based in Christchurch. The indigenous Maori people are accorded a special status for environmental management under RMA, requiring their statutory input into local government decision-making. Any effluent discharge into water is deemed culturally unacceptable to Maori. Issues of ownership and management of natural resources have been at the heart of long-standing Maori grievances regarding Crown obligations under the Treaty of Waitangi (see Note 4). In guaranteeing Maori ownership of all New Zealand’s natural resources, the Treaty by


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implication gives Maori a major voice in resource management. Maori began to assert these rights claims in the 1980s, and from the 1990s claims are addressed through Treaty settlement process on a tribal basis. (The significant exception is the pan-tribal Treaty settlement of fishery claims.) Ngai Tahu are politically savvy; have recently concluded a settlement of Treaty claims, making them one of the largest corporate land owners in the South Island.

NOTES 1. The authors contributed equally to this chapter; the order of authorship is alphabetic. The authors wish to thank Robyn Eckersley for comments on an earlier draft, and acknowledge the assistance of Angela Cameron in collecting the data for the Canterbury case study. Financial assistance from Lincoln University, Canterbury, New Zealand to do the case study is acknowledged. The authors are grateful to the stakeholders who agreed to be interviewed; the authors are solely responsible for the conclusions drawn about the case study. 2. These stakeholders are: AgResearch, Environment Canterbury (Canterbury Regional Council), Federated Farmers, Lincoln University, Ministry of Agriculture and Forestry; New Zealand Fish and Game Council; and New Zealand Landcare Trust. 3. A Maori term in common parlance denoting New Zealanders of European heritage. 4. These titles have been hotly contested by Maori on the strength of rights under the Treaty of Waitangi. The Treaty, negotiated between the British Crown and several Maori tribes in 1840, guarantees Maori ownership of New Zealand’s natural resources. See Buhrs and Bartlett (1993); Memon (1993); Matunga (2000). 5. The exception to this is four ‘unitary authorities’, which combine the functions of regional councils and territorial local authorities. 6. Until 1984, up to 40 per cent of dairy farmers’ income was derived from producer and exporter subsidies and incentive payments. The economic reforms of the 1980s meant the removal of almost all these subsidies. Most consumer subsidies were also removed. Attempts were made to balance the impacts of economic restructuring by eliminating import licensing systems and import quotas and heavily reducing tariff protection (Federated Farmers 2001). 7. The term ‘non-point source discharges’ to water refers to ‘pollutants which are dispersed over a catchment, emanating from no single identifiable point, yet having a cumulative impact on water quality . . . [Such] discharges may enter waterways through surface flow and direct deposition of animal waste to water and through subsurface movement . . . ’ Subsurface flows may in turn contaminate surface waters and groundwater aquifers (Ritchie 1999, p. 3). 8. In May 2003 Fonterra finalized negotiations on a Dairying and Clean Streams Accord with Local Government New Zealand, Ministry for the Environment and Ministry of Agriculture and Forestry (see New Zealand Environment (2002) for background). 9. In response to persistent concerns voiced about this imbalance, the government in 2001 set up a legal assistance fund to empower community groups with technical capabilities to help overcome barriers to participation under the Act.

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3. Influential environmental stakeholders: a grounded model of processes for effecting change Jamie R. Hendry INTRODUCTION On 30 June 1999, Procter & Gamble announced that it would ‘end the use of animal tests . . . except where required by law’. On 27 August 1999, Home Depot announced that it would ‘phase out sales of so-called “old growth” wood in 2002’. On 1 February 2000, Frito-Lay, Inc. announced that it would ‘stop using genetically altered corn’. These cases evidence just three of the many instances in which environmental non-governmental organizations (ENGOs) have succeeded in influencing the operations of business firms. With the rise of both external and internal pressure on firms to be more environmentally responsible, many business managers have attempted to reduce their firms’ negative environmental impacts and report environmental activity and performance data to the public. Researchers, aware that corporate impacts on the natural environment have increasingly attracted the public’s attention in the last 30 years, have focused on three related areas of study: (1) the actions corporate managers take that jeopardize or harm the natural environment (creating negative consequences) and the motivations for those actions, (2) the actions corporate managers take that conserve resources and protect the natural environment (creating positive consequences) and the motivations for those actions, and (3) specification of appropriate metrics to capture corporate environmental performance. However, few researchers or business people have endeavored to understand the process used by ENGOs to effect change in business behavior and consequent impacts on the natural environment. For example, what put Home Depot on the Rainforest Action Network’s radar screen? Why did ENGOs decide to focus on getting FritoLay to change rather than Kraft? And what tactics were ultimately successful in persuading Procter and Gamble to alter their behavior? 62

Influential environmental stakeholders

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Originally, the author’s research questions comprised: ● ●

How do ENGOs choose tactics to influence companies? How do ENGOs select companies to target for this influence?

Because the underlying process implied by these questions had not received a great deal of attention, grounded theory was selected as the method of study. In grounded theory, existing literature is reviewed in order to inform the research (Strauss and Corbin, 1998), aiding the researcher in determining areas to investigate, questions to answer, instances when existing theories might not have predictive value, and so forth (Glaser, 1992: 25). The author therefore began with a review of the extant literature, which gave her ample reason to believe that her research questions were solid. Although the model yielded by the research is largely supportive of previous targeting theory, ultimately it also addresses issue and industry targeting, revealed as precursors to firm targeting. Further, the model indicates that a significantly more complex set of factors affects the selection of ENGO influence strategies than prior literature suggested. In addition, firm targeting turns out to be multifaceted, with three types of ‘targets’ being identified. Lastly, the model provides additional insights into how and why stakeholders assess industry and corporate environmental performance.

THEORETICAL BACKGROUND Resource dependence theory (Pfeffer and Salancik, 1978) suggests that the dynamics of dyadic relationships are largely governed by the extent to which the parties control resources valued by one another. Frooman (1999) used this notion to develop a model of stakeholder–firm resource relationships which suggests that stakeholder organizations rationally select strategies to influence particular firms based on their resource relationships with those firms. If the firm is more dependent on the stakeholder than the stakeholder is on the firm, this is a case of stakeholder power; when the stakeholder is more dependent on the firm than the firm is on the stakeholder, this is a case of firm power; when both are dependent on each other to a significant extent, it is a case of high interdependence; and when neither is dependent on the other to a significant extent, it is a case of low interdependence. In the case of stakeholder power, the theory (Frooman, 1999) suggests that the rational stakeholder uses a direct withholding strategy: the

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stakeholder withholds the resources it possesses (which the firm wants), issuing an ultimatum to the firm: change or else. In the case of high interdependence, the stakeholder uses a direct usage strategy, taking a kinder, gentler approach by negotiating with the firm regarding its access to valued resource rather than issuing ultimatums. In the case of firm power or low interdependence, the stakeholder attempts to achieve its objectives through an ally – an individual or organization (e.g., customer, supplier) on which the firm is dependent. A preferred ally will be one whose relationship with the firm is one of stakeholder power, as this is more likely to lead to substantive changes by the firm, although the stakeholder may consider teaming with an ally that has a high interdependence relationship with the focal firm. Even as much as this typology of stakeholder influence strategies provides a reasonable starting point for understanding how stakeholders select tactics for effecting changes in firm behavior, it does not address the selection of firms to which to apply the tactics. For that one might turn to the corporate social performance (CSP) literature (e.g., Carroll, 1979; Sethi, 1975; Sonnenfeld, 1982; Swanson, 1995, 1997; Waddock and Graves, 1997a, 1997b; Waddock and Mahon, 1991; Wartick and Cochran, 1985; Wokutch and McKinney, 1991; Wood, 1991). One implication of this literature is that corporate stakeholders – such as investors or customers – could make better informed decisions if they had available a set of metrics (qualitative and quantitative) for measuring CSP and comparing it across firms. For example, investors could divest their shares in a particular company, consequently driving down its stock price, if they learned that the company was behaving irresponsibly in some way; or customers could purchase goods only from those firms that met their CSP hurdles. Theoretical models of stakeholder assessment of corporate social or environmental performance have been created based on this implication (e.g., Hendry, 1999). However, the mere assessment of performance is clearly not the only driving force behind targeting of firms. Rowley and Berman (2000) drew on existing theoretical literature to suggest a number of additional factors that likely would prompt a stakeholder to target a company for some sort of action. Building on Rowley’s (1997) discussion of network theory, Rowley and Berman hypothesized that the density of the relationships in the firm’s network allows for better monitoring and information sharing among stakeholders and therefore is more likely to lead to those stakeholders targeting the firm collectively. Further, they proposed that the number of previous interactions between the firm and the stakeholder made additional interactions and therefore targeting, more likely. In addition, Rowley and Berman suggested that the size of the firm, the firm’s


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proximity to consumers in the value chain, and the degree to which its brands are known are factors positively related to the likelihood that stakeholders will target that particular firm. Miles (1987) noted that media coverage or other exposure of a particular industry to public scrutiny could also lead to stakeholder targeting. Jones’ (1995) concept of the moral intensity of the issue – most often reconceived as the magnitude of the consequences of the firm’s action – may also affect the extent to which stakeholders would target a firm, as well as the extent to which allies, such as the government and the media, might get involved. As is always true in grounded theory research, relevant literature supplied assistance throughout both the data gathering and analysis portions of this study. The resultant model seeks to provide theoretical contributions to scholarship concerning stakeholder influence strategies, corporate social and environmental performance and stakeholder targeting.

RESEARCH METHODS Methodological Background Grounded theory (Dey, 1999; Eisenhardt, 1989; Glaser, 1992; Glaser and Strauss, 1967; Strauss and Corbin, 1998) is a particularly useful way to approach an area of study that has not received much attention in the past; thus, it is an ideal method to use to study the questions of ENGOs’ assessing, targeting and influencing businesses. Grounded theory development enables the researcher to investigate the subject without predetermined notions of what he or she is likely to find or preconceived explanations for the causes behind observed situations or behaviors. The author employed case study methods (Eisenhardt, 1989; Harper, 1992; Lieberson, 1992; Vaughn, 1992; Walton, 1992; Yin, 1981, 1984, 1994) and qualitative data analysis (Miles and Huberman, 1994), carefully recording primary information and data, organizing it, considering possible alternative ways to categorize it, determining potential meanings for it, and comparing it with data gleaned from other sources both within and across cases. Thus the theory arose from the data, a result of scrupulous data analysis, rather than the data being manipulated to fit an already existing theory (Glaser, 1992: 25). Following grounded theory methodology, existing theories were used to inform the research (Strauss and Corbin, 1998) by helping to determine areas of interest to investigate, questions to answer, circumstances under which existing theories might not predict well, and so forth.

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Selecting ENGOs and Interviewees The primary unit of analysis for this study was the ENGO. The most important criterion for selection of the ENGOs to study was that each must have had formal or informal interaction with particular businesses for the purpose of changing that firm’s or other firms’ behaviors regarding the natural environment. The author gained access to five ENGOs: National Resources Defense Council (NRDC), Greenpeace, Environmental Defense (ED), World Resources Institute (WRI), and Union of Concerned Scientists (UCS). Table 3.1 provides a summary of each ENGO, including its role in this research, year founded, annual budget, funding sources, number of staff members, number of members, geographic focus, headquarters location and other office locations. Although enough interviews were conducted at NRDC, ED and Greenpeace to qualify them as cases to be used in drawing inferences and developing theory, insufficient interviews were conducted at WRI and UCS for similar designation. Nevertheless, data from WRI and UCS were incorporated inasmuch as they provided further support for the inferences drawn from the three case studies. Seven staff members from NRDC were interviewed, nine from Greenpeace, eight from ED, five from WRI, and four from UCS. Toward the end of these 33 interviews, few additional insights were surfacing from new interviewees, indicating the theoretical categories were reaching saturation (Glaser and Strauss, 1967) – an appropriate time for grounded theory sampling to cease. In addition to conducting interviews, the author reviewed documents when provided by interviewees and examined those portions of ENGO websites that helped to better understand the organization and the interviewee’s experiences. Document and website review also enabled the author to confirm and augment the information and impressions gleaned from interviews, and it provided follow-up questions for some of the interviews as well as a good starting point for others. Table 3.2 provides very brief overviews of the stories interviewees told about their interactions with or attempts to influence particular businesses to change practices that had adverse impacts on the natural environment. Quotes from the interviews will be used to help establish the model presented in the next section.

FINDINGS AND MODEL DEVELOPMENT A grounded theory can be thought of as a story that describes how the common, recurring phenomena of interest come to occur. Although the

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200

500 000

Membership

$34 million

Annual budget

Staff members

1970

Year founded

62% membership 24% foundations 14% other

mostly US

Geographic focus

Funding sources

case study

Natural Resources Defense Council (NRDC)

2.5 million (in 100 countries)

approximately 1,000

94% individuals 6% other

$97 million

1973

international

case study

Greenpeace

Comparison of ENGOs studied

Role in this research

Table 3.1

300 000

215

59% membership 31% foundations 10% other

$40 million

1967

mostly US

case study

Environmental Defense (ED)

not membershipbased

125

80% foundations and governments 20% corporate sponsors, international agencies and individuals

$20 million

1982

international

supporting study

World Resources Institute (WRI)

50 000

60

35% membership and individuals 56% foundations and other grants 9% other

$7 million

1969

mostly US

supporting study

Union of Concerned Scientists (UCS)

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New York City

Washington, DC San Francisco, CA Los Angeles, CA

Headquarters

Other office locations

Natural Resources Defense Council (NRDC)

Table 3.1 (continued)

European Unit: Brussels 41 National Offices

Amsterdam

Greenpeace

Regional Offices: Austin, TX Boulder, CO Oakland, CA Raleigh, NC Washington, DC Project Offices: Boston, MA Los Angeles, CA

New York City

Environmental Defense (ED)

none

Washington, DC

World Resources Institute (WRI)

Washington, DC Berkeley, CA

Boston, MA

Union of Concerned Scientists (UCS)


Table 3.2

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Stories told by ENGO representatives

Natural Resources Defense Council Lobbying legislators for regulation of the electric utility industry, often involving the use of alliances with companies in the industry Producing the ‘Benchmarking Air Emissions’ report, ranking the 50 largest electricity producers in order of emissions of greenhouse gases Sponsoring, with a coalition of governmental and non-profit entities, litigation against the electric utility company AEP for violations of the Clean Air Act Creating the Energy Star labeling program with a coalition of appliance producers, governmental entities and non-profits Greenpeace Forming a coalition with other NGOs to save the Clayoquot Sound rainforest (British Columbia) by organizing protests and getting companies in the UK, Germany and elsewhere to stop or threaten to stop purchasing wood products from Macmillan Bloedel, the largest logging company in the area Campaigning to save the Great Bear rainforest (British Columbia) by similarly mobilizing European and Japanese corporate customers of WFP (the largest logging company in the area) Using markets pressure to stop WTK (a multinational logging company) from large-scale logging in the Amazon rainforest and consultation to the Deni Indians to assist them in establishing legal ownership of their land Championing the Forest Stewardship Council as the predominant worldwide sustainable forestry certification body Organizing blockades, public protests, and information campaigns aimed at informing European consumers of the arrival of genetically-engineered foods in Europe so that consumers could pressure supermarkets to stop purchasing these products Negotiating face-to-face with oil companies and lobbying for legislation to force them to devote financial resources to the development of alternative fuels Environmental Defense (ED) Partnering with UPS to develop environmentally preferable packaging Partnering with FedEx to replace diesel trucks with hybrid vehicles Partnering with Norm Thompson Outfitters (a catalog company) to print substantially all their catalogs on recycled paper Organizing a multi-stakeholder dialog targeted to reduce the environmental impact of the printing industry in the Great Lakes region (‘The Great Printers Project’) Publishing ‘Facilities Rankings’ and ‘Community Guides’ aimed at providing consumers with data and information about each oil refinery in the US Producing a benchmarking survey of automobile models, precipitating the Clean Car Campaign, a coalition of ENGOs trying to encourage manufacturers to design cleaner vehicles

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Table 3.2

(continued)

Participating in the Partnership for Climate Action, a project designed to help companies develop emissions trading schemes World Resources Institute (WRI) Working with other ENGOs to help an international company determine ways of measuring and mitigating its environmental impacts Participating in an international coalition of ENGOs, governmental entities and corporate representatives endeavoring to determine reasonable and useful ways of evaluating corporate environmental performance Union of Concerned Scientists (UCS) Developing the ‘Pollution Lineup: An Environmental Ranking of Automakers’ Working with Ford Motor Company to determine economically and technically viable ways of raising fuel efficiency in the Ford Explorer Working with a legislative coalition comprising NGOs, governmental entities and corporations lobbying for tax credits for clean vehicles purchasers Securing funding for sustainable agriculture Organizing boycotts against companies whose practices jeopardize the safety of the food supply (e.g., Bayer, Tyson Foods, Inc., Perdue Farms)

processes of targeting and strategizing to influence business activities differed somewhat across the five ENGOs studied in this research, commonalities were far more common than discrepancies, and the author was able to develop the grounded model depicted in Figure 3.1. ENGOs in this study followed a four-stage process in attempting to change firms’ actions toward the natural environment and their resultant impacts. Below, the model is described, providing quotes from interviewees illustrative of relevant concepts and examples. Stage One: Issue Targeting ENGOs gather data and information on the numerous environmental issues on which they could focus. They then analyze the information and assess each issue, subsequently choosing a set of well-defined issue areas in which to work. Selected issues are usually those perceived as being most threatening to human health, biodiversity, and the continued existence of ecosystems: We would want to be working . . . on projects that are significant environmentally, where we think that we can really have a real environmental impact from the project itself. Logging is only one threat to the global forests, even though it’s arguably one of the biggest. In the tropics, it [logging] has a very important door-opening effect on other destructive forces.

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Figure 3.1

Partners

Stage Four: Firm Targeting Targets

Other Tactics

Corporate Partner ENGO helps this company change in a cooperative manner Choice of partner affected by its: • Impact on environment • Posture toward natural environment, ENGOs • Influence on competitors, suppliers • Congruent goals, interests • Existing contacts, relationships • Creativity, inventiveness

Allies

Lobbying

Stage Three: Tactic Selection

Industry-specific Goals

Process model: issues, industries, tactics and targeted firms

Corporate Ally This organization, group of individuals, or group of organizations will help ENGO to get others to change. Choice of allies affected by their: • Existing contacts, relationship to ENGO • Expertise • Influence • Goals, interests congruent with those of ENGO • Creativity, inventiveness

Lobbying Likelihood is affected by: • Desire for greater permanence of change • Previous lobbying experience, expertise • Inability to glean economic benefits for firms without governmental involvement • Potential multilateral alliances – especially ‘heavy hitter’ companies – numerous allies • Greater ‘bang for the buck’ than tactical alternatives

Industries

Industry Assessment: Impact on issue

Issue-specific Goals

Stage One: Issue Targeting

Stage Two: Industry Targeting

Issues

Issue Selection: Impact on human health, biodiversity and ecosystem preservation

Assessment of impact: • Quantitative and qualitative measurements Assessment of posture: • Information about culture (values, beliefs)

Adversarial Target ENGO seeks to force this company to change Choice of target affected by its: • Impact on the environment • Posture toward natural environment, ENGOs • Consistency of words and actions • Influence on competitors, suppliers • Production of branded products

Non-lobbying Tactics Choices depend on: • Image ENGO wants in the public eye • Previous experience, expertise with various alternative tactics • Opportunities to employ specific tactics • ‘Bang for the buck’ of various alternative tactics • Economic benefits for firms in the target industry may be gleaned without government involvement • Ability to communicate effectively with potential allies, partners – via media – direct • Potential alliances – types of allies – number of allies – strengths of allies’ influence

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Stakeholders, the environment and society [Genetically engineered foods] is a completely new technology which interferes with DNA. . . . It’s not like chemical contamination that has a half-lifetime: it has doubling rates. So the potential environmental impact is so enormous. We have to make the case that the emissions . . . of methane or NOx or SOx or carbon are prominent global warming gases; that those are harmful . . . and that it’s harming human health, it’s harming the environment, etc.

The targeted issues discussed by the interviewees in this study were energy (energy efficiency; fossil fuels; alternative fuels); climate change (can be related to fossil fuels; may include air pollution); biodiversity; deforestation (related to both climate change and biodiversity); toxics/public health; and genetic engineering/protection of the food supply. Giving thoughtful consideration to its limited resources, the ENGO may then develop some broad objectives regarding the changes the ENGO will generate with respect to these issues. Stage Two: Industry Targeting For some issues the ENGO may readily determine that no particular industries or businesses are responsible for a significant enough percentage of the damage to justify the effort required to target them. In this situation, the ENGO moves on to tactic identification and does not assess the environmental performance and impacts of industries or firms. However, for many issues the ENGO can promptly identify one or more industries likely to have substantial impacts on the issue: The electric industry is responsible for two-thirds of the SO2, that’s acid rain. So if you address the air pollution from electric generation, you’ve addressed acid rain, that’s two-thirds of the problem. I mean, these coal-fired power plants, one of the reasons we target them is they’re responsible for a disproportionate amount of pollution. We decided that diesel trucks is an area where we want to do a project . . . because we know that diesel emissions are a significant environmental impact. We took some time to pick the industrial sector that we would use to demonstrate the importance of this. . . . One typical print shop is 11 employees. . . . But in the aggregate, it was the number three industrial employer in the region.

At this point the ENGO begins the process of assessment: the ENGO gathers information about the industries, commonly including both quantitative and qualitative data about the effects of the industry on the environment. The ENGO uses this information to assess those industries


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environmentally and then selects one or more industries to target based on those assessments. Lastly, the ENGO may set broad objectives regarding the changes the ENGO hopes to generate in the targeted industries. Stage Three: Tactic Selection Because of its ubiquity throughout the interviews, an important observation should be highlighted regarding ENGO tactics: the limited resources of ENGOs force them to place an extremely high priority on efficient, effective management, which requires pursuing carefully considered strategies and exploiting alliances whenever possible: So from an environmental perspective, you want to get the biggest bang for your hour of time invested. Because we have limited resources, we can’t spend the time doing similar projects with every single company.

Often ENGOs will elect to lobby regardless of whether they choose to pursue other tactics simultaneously or not. According to interviewees, ENGOs choose to lobby regulators when (1) the ENGO wishes to ensure that changes are relatively permanent; (2) the ENGO has previous lobbying experience; (3) the ENGO is unable to identify ways to glean economic benefits for firms without governmental involvement; (4) the ENGO is able to identify potential corporate allies or believes it can build a powerful and influential multilateral coalition; and (5) lobbying provides greater ‘bang for the buck’ than tactical alternatives. The fourth point above indicates the importance of coalition formation for the purpose of lobbying. Interviewees provided examples: Midwest . . . competitors [of PSE&G] can undersell them because they don’t have to meet the same standards that New Jersey does. . . . So [New Jersey electric utility companies] are very interested in having federal legislation with strong environmental provisions, because New Jersey [regulation] is already stronger than . . . the Midwest or a lot of the rest of the country – so that’s how you start getting this broad-based coalition together. We’ve been working with the natural gas industry, who would stand to gain from incentive money, to buy natural gas school buses; we’ve been working with them to push that through. On the automotive side, for the first time ever, we sat down with three companies – Ford, Toyota and Honda – and wrote legislation that would create tax credits for consumers who bought a hybrid vehicle – something like the Toyota Prius or the Honda Insight, these newer cars coming out – or battery cars or alternative fuel vehicles.

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Lobbying is more likely to be selected as an exclusive tactic (not paired with other tactics) for addressing a particular industry/issue combination when tactical alternatives are not as efficient and/or when the ENGO is unable to determine ways of gleaning economic benefits for firm partners or allies without governmental involvement. In addition to lobbying, ENGOs generally have expertise in applying a variety of other influence tactics. A mixture of tactics enables the ENGO to offer both ‘carrot and stick’ – praise to firms whose behavior is praiseworthy and punishment to firms whose behavior is objectionable: Our strength is to expose scandals, to expose inaction, to expose forest destruction. And we are maybe in that respect a bit more radical. We also know that you need both: you need the carrot and you need the stick to get people to change.

Interviewees described the non-lobbying activities, such as: (1) cooperative partnerships, for example, those ED cultivated with UPS, FedEx and Norm Thompson Outfitters; (2) multi-stakeholder dialogs, such as ED’s Great Printers Project; (3) standard development or certification schemes, such as NRDC’s participation in Energy Star and Greenpeace’s support of FSC; (4) report production, such as NRDC’s ‘Benchmarking Air Emissions’, UCS’s ‘Pollution Lineup’, and ED’s ‘Facilities Rankings’; (5) litigation, such as that NRDC is pursuing against AEP; (6) blockading, such as Greenpeace did when a ship filled with Monsanto’s Roundup Ready soybeans tried to enter a European port; (7) protests, such as those organized by Greenpeace and other coalition members in the Clayoquot Sound rainforest; (8) boycotts, such as those organized by UCS against Bayer, Tyson Foods, and Perdue Farms and those organized by Greenpeace against Esso (Exxon) in the UK; (9) markets pressure campaigns, such as those organized by Greenpeace’s Global Forests campaign in order to influence logging companies to stop clear-cutting and other environmentally unsustainable practices; and (10) email, fax, and mail campaigns, such as the ‘fax attacks’ organized by ED’s Action Network. ENGOs’ choices among non-lobbying tactics depend on (1) the image the ENGO wants to cultivate (e.g., the UCS interviewee noted that the ENGO was hesitant about participating in boycotts as it could change the organization’s image); (2) opportunities to employ specific tactics; (3) the ENGO’s previous experience with potential tactics; (4) the ‘bang for the buck’ of the potential tactics; (5) the ability to glean economic benefits for potential adversarial targets, corporate allies, or corporate partners without needing governmental intervention; (6) the ENGO’s ability to communicate effectively with potential allies; and (7) the types, number and influential abilities of various potential allies. As indicated in the last two points, locating


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potential allies (including other ENGOs, governmental entities and others) and forming coalitions can be crucial for the success of many non-lobbying activities. Such coalitions must be carefully coordinated: We didn’t have a formal coalition of groups. We had five different groups. . . . So the coalition began working together . . . with a very strong understanding that each of us would be playing different roles and that we had to play off each other’s strengths.

Stage Four: Firm Targeting In some cases target firms are identified prior to selection of influence tactics; more commonly, firm identification follows tactic selection. There are actually three types of targets when it comes to targeting individual firms: adversarial targets, corporate partners and corporate allies. Adversarial targets The term ‘targeting’ engenders visions of coercive activity; in the context of actions taken by mainstream ENGOs, adversarial targeting means attempting to force a company to change without enlisting its cooperation. ENGOs select adversarial targets when using adversarial tactics, such as protests, boycotts and litigation. Interviewee comments indicated that adversarial targeting largely depends on five characteristics of potential target firms: 1.

The firm has a significantly adverse impact on the natural environment: Mostly [we targeted this company] as the worst violator, which is related to the fact that they’re large; so they have lots of opportunities to violate. We also campaigned against Dupont because of CFCs. In that case, the reason was pretty obvious: they were the single biggest manufacturer of CFCs for most of the history of CFCs.

2. The firm does not express a caring attitude toward the natural environment or toward stakeholders’ concerns (including those of ENGOs): [The example company] was more intransigent. . . . [We] felt we needed to concentrate our efforts on the worst of the worst. [The example company were the worst] because they were definitely not open to any dialog. . . . So it was a mix of ecological concerns, along with the perceived intransigence of the company. MacBloe [Macmillan Bloedel] was more intransigent than Interfor and had more tenure in some of the more critical rainforest valleys. . . . At that point, with the capacity we had, [we] felt we needed to concentrate our efforts on the worst.

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Stakeholders, the environment and society General Electric, from an environmental standpoint, is one of the worst companies in the country. . . . If I saw a case against GE, I might be a little bit more inclined to bring it, because I think that as a corporation they have shown utter disdain for the environment.

3. The firm’s actions (including lobbying) contradict its declarations (i.e., the firm doesn’t ‘walk its talk’): [We also consider] their political contributions, where they put their political money. (Lobbying activity is mostly done via trade associations.) But [we consider] their memberships and how active they are in various trade associations. Lobbying is another thing that a corporate campaign has to look at. A lot of times, a company will talk about how they are in favor of this environmental improvement or that environmental improvement, but when you actually look at what they’re doing, it turns out they’re out there lobbying against laws to do the things they claim they’re in favor of.

4. Influencing the firm to change will likely result in influencing the firm’s competitors and suppliers to change as well (which often, but not always, is proportional to the size of the firm): In British Columbia, you probably have one of the biggest and most powerful export-oriented forest industry in the world. . . . And so we felt that if it would be possible with markets pressure to . . . create a conservation plan for that region – which really can save a lot of its biodiversity – with such big and powerful and influential companies on the other side, that could really set a global precedent for all the other important regions which still contain ancient forests. You know, it’s a big case, and . . . certainly the consequences of winning a case like this would be, besides making precedent, we’re talking about thousands and thousands and thousands of tons of pollution. And this is a company that runs a big sector of the market, and [it could] just have more impact on the industry.

5. The firm produces branded products (which increases the likelihood that the ENGO can involve consumers in the efforts to influence the firm): In the case of Scott, the biggest brand product in the UK at that point was something called Andrex. . . . They’ve got a little Labrador puppy running around the house with a piece of toilet roll. . . . And it’s obviously very soft and cuddly and cute and adorable. So the brand name recognition . . . is significant. . . . We actually produced some mock-ups for an ad campaign against that product. In the end, we sent copies through to Scott, and within a day, they came back to us and said they were going to cancel that contract [with Macmillan Bloedel]. The Fed Ex truck is an icon. It’s recognizable to everybody everywhere in the world.


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All of these factors require that the ENGO conduct an investigation of the firm; the first two specifically call for an assessment of the firm’s environmental performance. The primary inputs to the assessment will consist of (1) quantitative and qualitative measurements of environmental performance, and (2) information about the firm’s culture, as reflected by its actions. Many interviewees commented that their personal experiences and interactions with companies, their expertise in the industry, and continual perusal of data on companies in the industry enabled them to assess environmental performance for a particular company almost instantly, without having to gather additional information specifically for that purpose. Other interviewees noted that, in the event they needed to assess a particular firm, they would read articles on the industry and companies in the industry, consider publicly available data and information, request additional information from the particular companies in question, and depend on hearsay or anecdotal information from others in the ENGO community. I wouldn’t call it an investigation, because . . . it’s simply things that come across your email and things that you’ve heard about, that your colleagues tell you about, that you might then go one or two steps further, send out a couple of emails, do a quick web search, read a couple articles. [The research] . . . involved actually understanding [Macmillan Bloedel]: what they were saying to the public; what they were saying to other companies; what they said on their website; what they said in publications; how they actually buy the product itself, via shipments from Canada; assessing where it had actually been – what end-product it was being used in. . . . Sometimes, companies give leads to information in what they say publicly or on their websites or in their historic literature.

A few interviewees (especially those from Greenpeace) reported relying on information derived from informants and from reconnaissance activity:1 [To collect information about what a company is doing], you watch them. You watch them from the field to the consumer. You watch where their products go. You might watch where their vans go. You might watch where their stuff goes in the port. . . . We have friends in different places who give us information. We have, for example, a website called CyberSleuth, where we publicize. . . . And then we get stuff sent to us.

Regarding the twin issues of responsiveness and willingness to dialog, ENGO interviewees noted that stonewalling is not typically a practical tactic for firms to adopt: there are always companies that will not stonewall,

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and those companies will work with stakeholders to gain benefits for themselves to the detriment of stonewalling firms: Whirlpool and Maytag are both willing to be progressive about energy efficiency; General Electric [GE] is far more likely to fight progressive moves. So [Energy Star] basically ignores GE, because it can’t do anything about [GE] anyway. [Instead, Energy Star] focuses on working with Whirlpool and Maytag. If those two start reaping the benefits, GE almost has to follow just in order to be competitive.

Nevertheless, ENGOs maintain contact with even the most intransigent companies because (1) intransigent companies may modify their positions some day; and (2) intransigent companies may collaborate on less important issues, which could help build a more trusting relationship and lead to more significant collaborations in the future: And then there are . . . a lot of electric utilities . . . that have a lot of nuclear power plants that are horrible for the environment, but they’re some of my greatest allies, because there are things in the policy arena that they are convinced are really good for them or could possibly result in a competitive advantage for them down the road, that they’re willing to put some political capital on the table to move an environmental agenda.

Depending on the goals of the influence project, assessments may be conducted for the company in its entirety, a particular facility or geographic location, a particular product, or a particular process. As one interviewee observed: I normally deal with individual facilities; I don’t normally deal companywide. . . . I didn’t really care about what Texaco was doing compared to the industry or compared to anything. All I cared about was what was happening at this [particular] plant. The reason to focus on the products, not the production, is because that’s where the biggest environmental impact takes place when it comes to the automotive sector.

Corporate partners The other two forms of targeting are much more cooperative in nature. Partnerships are typically formed when the ENGO has decided to employ tactics such as cooperative partnerships and multi-stakeholder dialogs (Clair, Milliman and Mitroff, 1995; Driscoll, 1996; Pasquero, 1991; Pellow, 1999; Turcotte, 1995, 2000). Partnerships are formed for the purpose of effecting cooperative change in the partner companies. For example, an ENGO might form a partnership with UPS to help them design more environmentally


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responsible packaging; or an ENGO might form a partnership with firms in the printing industry in order to identify and/or develop environmentally sound printing practices. In choosing partners, ENGOs look for: 1. Firms with a significant impact on the natural environment, so that changes are likely to yield meaningful improvements in environmental quality: Fed Ex is a major buyer of this particular size truck. That’s what we were looking for: major buyers of a certain class of truck. . . . If all that happened is that Fed Ex changed their trucks, it would be big, it would be significant, and that’s one of our criteria.

2. Firms that express a caring and proactive posture toward the natural environment and ENGOs: Just after the catalog report came out, they [Norm Thompson Outfitters] made the decision internally to switch one of their very small catalogs to some recycled content paper. They did without testing it and in the course of a complete catalog redesign, which was also geared towards having more of an environmental brand for that particular catalog. But they were really interested in wanting to do more.

3. Firms that, upon changing their own practices, are likely to influence their competitors and suppliers to change as well (which often, but not always, is proportional to the size of the firm): The extent to which that company is known as an innovator – which Fed Ex is – as a first mover, as a setter of best practices, is recognizable, is symbolic – which Fed Ex is all of those things – it makes it that much easier to replicate the results with other companies and to get other companies to pay attention to what’s happened and really consider replication. Norm Thompson wasn’t as big as typically we would want for a partner. They had other things going for them, though, that have been really useful. Their president is very influential on the board of the Direct Marketing Association, and therefore has access to the rest of the catalog industry and influence with the rest of the catalog industry. . . . And they were also very committed to not just investigating and making changes in their organization, but to having the scope of the project be changing the rest of the industry.

4.

Congruency among ENGO and the firm goals and interests: They [UPS] saw that we not only understood this issue area, but we understood how important it is for something like this, in other words a voluntary

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Stakeholders, the environment and society environmental initiative, to make business sense, to be good for their business – whether that was cost savings or what. And a lot of it, too, is you end up talking to the companies and seeing whether there’s a fit. Because with a voluntary partnership, it’s like a marriage: Both partners have to be invested in it and committed to it, and you have to be willing to work.

5. Existing contacts or an existing relationship between the ENGO and the firm: If you meet somebody at a company who has a vision or has an interest [in] and a curiosity [about] how this stuff works and is really willing to have a conversation with you about it, that’s a good place to start. It’s also great if you have some personal contacts with a company to exploit.

6.

Creativity and openness to innovative ideas: [The target company] wasn’t a big player [in this market], . . . but they were willing to be proactive. . . . So you do [work with smaller companies], but only if you’re going to do something that’s really progressive.

As was true for adversarial targeting, the first two considerations require that the ENGO conduct some assessment of the potential target firm, typically restricted to the portion of the firm in which the ENGO wants to generate change but encompassing the entire firm on those occasions when the ENGO is looking for a myriad of potential ways to foster environmental performance improvements. Again the primary inputs to the assessment will consist of (1) quantitative and qualitative measurements of environmental performance, and (2) information about the firm’s culture, as reflected by its actions. Corporate allies In the third type of targeting, alliances are formed with companies for the purpose of effecting change in other firms.2 For example, an ENGO might form an alliance with Honda, Toyota and Ford (generally viewed as being more environmentally proactive than GM and DaimlerChrysler) for the purpose of pursuing legislation regarding emissions standards; or it might form an alliance with Maytag and Whirlpool for the purpose of designing standards for more efficient home appliances. As is true of partnerships, interviewees’ comments indicated that corporate allies are typically chosen after the influence tactics are determined. ENGOs select corporate allies when employing tactics such as lobbying, standard development or certification schemes and markets pressure campaigns.


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In contrast to the ways ENGOs choose adversarial targets and partners, ENGOs do not typically consider the potential ally’s impact on the natural environment. Depending on the influence tactics selected and the corresponding strategic requirements, ENGOs select corporate allies based on the potential ally’s possession of one or more of the following characteristics: 1.

Pursuing goals and interests congruent with those of the ENGO: It’s like any kind of a good partnership: both parties need to be interested and agree that this is something they want to do. Auto companies have an interest in testing out these new hybrid vehicles. . . . They’d like to have a government handout to help them test out this new technology. . . . The environment has a real interest in having these initial vehicles be a huge success. . . . So [the auto companies] needed environmental cover. . . . And the environmental community . . . didn’t have a winning political strategy without a major industry interest. [Industry representatives] would not be there if they thought they could get everything they need without coming; and [ENGO representatives] wouldn’t come if we didn’t think there was something in it for us.

2.

Having existing contacts or a relationship with the ENGO: When we started to smooth this relationship with Ford – talking about SUVs and fuel economy – one of the places that I really urged us to think about is areas in the policy world where we could find easy common ground.

3.

Possessing necessary expertise: Once we have a clear policy objective that we’re trying to achieve, we try to build relationships with those that are going to help us achieve our policy goals.

4. Being able to influence legislators or other firms in their organizational field: I negotiate more with companies than with regulators or legislators, because there’s no point in me going to regulators and legislators unless I have a coalition . . . that’s broad enough that [the regulators] are going to do something. So we go to the corporate consumer, who may be catalog producers, publishers, DIY [do-it-yourself] markets, building industry and the traders. . . . And they want to use their purchasing power to achieve change. . . . So at the end of the day, through the markets, through this consumer choice, as long as the public is with you, and the public is outraged about what is going on, you get that pressure through the public consumers and through the corporate consumers.

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Stakeholders, the environment and society In the case of the UK market, the . . . News International contract [with Macmillan Bloedel] was worth US$9 million a year. And the two contracts between Kimberly-Clark and Scott were in the region of [US$]5 or [US$]6 [million] together. So if you look at the value of that contract in relation to the company’s profit itself . . . it is a fairly large dent. . . . So that’s why market pressure often works. If you can effectively knock off a couple of contracts on a company’s books, you can effectively start to negotiate with these companies . . .

5.

Being open to new, creative ideas: In the home-appliance industry, NRDC ended up working with Maytag and Whirlpool, both of whom have histories of being proactive about energy efficiency. A lot of the folks that we deal with on a day-to-day basis, mid-level managers or even the environmental folks, are true believers. And they’re really trying . . . to bring their companies along.

DISCUSSION AND CONCLUSION Generalizability of the Model Because the model developed in this study is based on stories gathered from 33 representatives of five ENGOs, with most of those interviewees telling multiple stories of their interactions with businesses and many stories being told from the perspectives of multiple interviewees, one can be reasonably confident that the model reliably reflects the targeting and influencing process at least for these ENGOs. The ENGOs generally proceeded through the four stages sequentially; only when lobbying was selected as the sole tactic to be employed was stage two sometimes ignored altogether. It is conceivable, however, that gathering stories from representatives of additional ENGOs could lead to augmenting or even altering the model. For example, further investigation may reveal instances in which the stages would not be sequential (e.g., stage three may precede stage two); additional research would be needed to determine the reasons for such a change in temporal order. Contribution to the Extant Literature The present research debunked a potential implication of the corporate social and environmental performance (CSP/CEP) field, provided additional rationale for managers’ producing CSP/CEP reports, yielded further support for third-party verification of CSP/CEP data, linked two research


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streams within the business and society field, and revealed complexities of ENGO tactical decision-making not previously described. The very existence of the literature on CSP/CEP seems to imply that stakeholders would use quantitative or qualitative measurements of CSP/CEP, if only such measurements were more ‘accurate’ or provided more useful metrics (e.g., Hendry, 1999). Given that corporate environmental performance reports have become commonplace among US firms, one might therefore expect at least US ENGOs to use these reports to inform their decisions regarding particular firms or industries. However, in the present research none of the ENGOs had used these reports. They saw the reports as providing one useful function: reporting itself is seen as a constructive management exercise, as managers aware of the need to report performance data in the future are more likely to take greater care in managing the actions that lead to that data. ENGOs are also highly skeptical about the data being reported because, to paraphrase one interviewee, ‘the fox is not only guarding the henhouse, he’s reporting to the farmer on the well-being of the hens’. This tends to imply a need for third-party verification, an effort CSP scholars and others have been encouraging and pursuing over the last 30 years or more. This is not to say that ENGOs do not assess particular firms’ CEP. They do; they simply do not use CEP reports to inform those assessments. And although ENGO assessments of environmental performance are not conducted as part of the targeting process for allies, assessments clearly contribute to targeting decisions regarding partners and adversarial targets. This is an important new link between the CSP/CEP literature and the research on stakeholder targeting. Other targeting prerequisites (Rowley and Berman, 2000) also were supported by the results of this study. (1) When a firm’s impact on the environment – corresponding to the magnitude of the consequences – was high, firms were more likely to become adversarial targets or corporate partners. (2) Inasmuch as larger firms tended to be more able to influence competitors and suppliers, ENGOs were more likely to select them as allies, partners, or adversarial targets. (3) Larger firms also tended to have well-known brands, which tended to lead to adversarial targeting. (4) Existing relationships between the ENGO and the firm increased the likelihood that the ENGO would choose the firm as an ally or partner. (5) Some adversarial targets were close to consumers in the value chain, but other adversarial targets did not share this distinction; more data is needed to draw conclusions in this regard. As shown in Figure 3.1, tactic selection generally precedes firm targeting and is much more complex than previous theoretical contributions (e.g., Frooman, 1999) suggest. In fact, ENGOs frequently engage in lobbying at

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the same time they undertake other initiatives; this is usually because they have experience with lobbying and do not feel they can afford to be shut out of the lobbying process by well-financed business efforts. However, even when pursuing non-lobbying initiatives, multiple tactics are often tackled simultaneously; some of these might be as predicted, but others might not be as predicted. For example, an ENGO might shun a particular tactic because it conflicts with the ENGO’s desired image, regardless of the likelihood of that tactic’s success. Or an ENGO may have no previous experience with a particular tactic, therefore not even considering that tactic’s potential for effecting change. Further, the ENGO might not pursue a particular tactic because it does not believe it has enough power in its relationships with firms to make that tactic effective: in other words the objective power-dependence in its relationship with firms might suggest the use of one type of tactic (e.g., direct withholding), but its perception of that power-dependence leads it to use another type of tactic (e.g., indirect withholding). Similarly, the strength, number and type of allies available may dictate the ENGO’s choices of tactics: boycotts may be far more attractive when numerous strong alliances exist with customers of firms in the targeted industry, while partnerships with firms may be pursued when industry customers are smaller or harder to identify. The possibility of tapping multiple allies in an effort to effect change further compounds tactical choices, as does the network aspect of relationships. As noted by Rowley (1997), the density and centrality of the network within which a stakeholder and firm operate have a great deal to do with the potential effectiveness of particular tactics and therefore with an ENGO’s tactic selection. For all these reasons the present research points toward the construction of a more complex, if less parsimonious, model of stakeholder influence strategies than has previously been developed. Finally, neo-institutional theorists might also find the present research enlightening. Neo-institutional theorists tend to focus on the ways in which organizations respond to external pressures; they may gain additional insight into their own field of study by considering the more comprehensive, systemic view of isomorphic forces developed in this model, which presents a view of the process by which activist organizations select target firms and determine how to exert coercive pressure on them. Implications of the Findings for Researchers, ENGOs and Firms Implications for researchers Directly interacting with stakeholders enabled the author to develop a far more detailed understanding of the stakeholder experience and the process in question than had been addressed in past research. For example, she


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began to recognize that ENGOs’ tactical decision-making is significantly more complex than described in previously existing theories. Moreover, interviews enabled her to gain greater insight into the difficulties of developing a useful, meaningful survey, which will doubtless be one of the important future steps for research in this area. Achieving this level of awareness of the ENGO perspective would have been unlikely, had she not chosen to conduct interviews. Participants at the Toronto Conference of business and society scholars noted that managers need to directly interact with stakeholders, rather than simply imagining they know what stakeholders want and need (Collins, 1994; Wartick, 1994; Wood, 1994). Researchers should attempt to do the same if they want to get a more thorough understanding of stakeholder experiences. Implications for ENGOs A couple of important conclusions may be of use to ENGOs. First, the ability of firms, regardless of their size, to influence their competitors, legislators, or others in their organizational field should be paramount in selecting adversarial targets, corporate allies, and corporate partners. Sometimes smaller firms may be easier to work with, in addition to being more progressive. Similarly, targeting firms that are open to innovative ideas and to acting differently from their competitors can be productive: it can demonstrate what is possible to other important stakeholders (and even competitors). Second, although a coalition of ENGOs may be effective at sharing information and providing diverse expertise, coalitions that are effective at influencing companies to change (the primary motivation for forming this sort of coalition) also must include allies (stakeholders or firms) that have power in their relationship with the target firm(s). Smaller ENGOs trying to become more effective may find studying the process modeled in this research helpful. The need to focus on designating specific issue areas, being efficient, and building alliances as a means of succeeding in spite of limited resources, was mentioned by a considerable number of interviewees. The development of an array of expertise and use of a variety of tactics was also a common theme, as was the need to be able to offer both ‘carrot and stick’ – praise to firms whose behavior is praiseworthy and punishment to firms whose behavior is objectionable. Implications for firms Numerous aspects of the findings of this research should be of interest to business decision-makers. First of all, business managers may be surprised to discover that many interviewees suggested that their assessments of particular firms depend heavily on their own impressions of those firms, developed over many years of experience, as well as the impressions of their

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contacts in the ENGO community. Thus business managers should likely be concerned about the impressions they make on ENGOs. Further, corporate managers should also be aware that some ENGOs, especially more activist ENGOs such as Greenpeace, are not at all hesitant to collect their own data on companies, whether through informants or via reconnaissance activity. One particular assessment finding is likely the most consequential for firm managers. The stance of a firm toward ENGOs and other stakeholders is a primary determinant of ENGOs’ assessments of that firm’s performance. If the firm is open to discussion and responsive to stakeholders’ concerns, the ENGO is much more likely to treat it with respect, giving it the benefit of the doubt for at least a limited period of time. On the other hand, if the firm stonewalls, refusing to speak with stakeholders, the ENGO is much more likely to assess the firm negatively, and it is subsequently much more likely to target the firm for confrontational campaign tactics. In a similar vein, the degree to which the firm ‘walks its talk’ is directly related to the ENGO’s assessment of the firm. ENGOs tend to look more favorably on firms whose resources are invested in ways that promote longterm environmental stewardship. A primary activity identified by ENGO interviewees as being a sign of a firm’s true long-term environmental posture is lobbying: ‘good’ lobbying is that which seeks to provide incentives for businesses to protect the natural environment; ‘bad’ lobbying is that which seeks to block such incentives or seeks to provide incentives for activities that harm the natural environment. Firms that hope to have cordial relations with ENGOs should plan their lobbying activity with this in mind. Being an ENGO target of the ‘partner’ or ‘ally’ type is often profitable for a firm. Cooperative ENGO activities include lobbying coalitions, multistakeholder dialogs, and partnerships to improve a firm’s environmental performance. In each of these situations, ENGOs are mindful that the results of the alliance must have significant financial benefits for the firm if the firm is to get involved in the first place. Time and experience have demonstrated to many ENGOs and businesses alike that environmental responsibility can yield greater profitability, typically through cost reductions but also through marketing opportunities. Because ENGOs are more likely to target companies with whom they have had previous interactions, firms may want to develop contacts with the kinds of ENGOs that use cooperative tactics because entering a cooperative alliance could improve the company’s bottom line. In sum, although most firms may be primarily concerned with targeting – because they hope to avoid being targeted – progressive firms will be more


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likely to concern themselves with assessment and influencing. Why assessment? Because ENGO assessments of a firm’s CEP largely depend on the ENGO’s perception of the firm’s stance toward the natural environment, which the firm has a great deal of control over. And why influencing? Because progressive firms will want to understand how to work with ENGOs, being positive targets of ENGO actions (allies or partners) and finding ways to become more profitable by becoming more environmentally responsible. Limitations of the Research Methods Although researchers had theorized about numerous aspects of this study, little empirical research had been conducted in this area. As a result, using a more quantitative research method such as survey research would have been premature: a deeper understanding of the situations faced by ENGOs in their interactions with businesses was needed prior to developing survey questions that would provide meaningful results. Thus the author chose to conduct interviews and was rewarded with rich data providing insights that could not have been generated through most alternative methods. However, the results may be questioned for the following reasons: 1.

2.

3.

4.

5.

The author conducted only seven to nine interviewees per case study site. This may raise questions regarding how representative these interviewees’ comments are of their particular ENGO overall. Only three ENGO case studies comprised the primary data for this research, potentially raising the generalizability issues always associated with small N studies. The author was the only researcher involved in conducting the qualitative analysis of interviews and documents, so interpretation bias may be an issue. None of the case study ENGOs represent the radical end of the political spectrum, so generalizability may be an issue here as well: we cannot be certain that interviewees from more radical ENGOs would present similar perspectives to those expressed by these interviewees. Although two of the ENGOs studied were ‘international’ organizations, all five were Western. Non-Western organizations may have very different ways of attempting to encourage business firms to change their behaviors regarding the natural environment.

Addressing the first three issues should be fairly straightforward. As noted in the Research Methods section, the author was gaining few additional insights from new interviewees as interviewing drew to a close, indicating that

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theoretical saturation (Glaser and Strauss, 1967) was occurring and that she likely did not need to conduct additional interviews in order to develop grounded theory. Nevertheless she could justify interviewing more staff members at each of the three case study ENGOs by focusing on fleshing out any weaker or incomplete theoretical concepts. The question of small N case studies is somewhat dealt with by the inclusion of two supporting study ENGOs, as well as by the inclusion of data from one international ENGO in the case studies. And although conducting additional case studies may yield enough data to improve the generalizability, a simpler means might be to flesh out the existing cases, thereby facilitating the creation of a survey that could be used to test the conclusions already reached. The third issue is, of course, the easiest to address: additional researchers should be asked to code the interviews in order to ensure multiple perspectives on the interpretation of the data. The fourth issue is more challenging: as noted in the article, more radical ENGOs do not typically welcome scrutiny. However, other researchers have managed to exploit previously established, trusting relationships with radical ENGOs – achieved, for example, as a result of having been employed by the ENGO at some point. Future Research After conducting the additional interviewing and analysis outlined in the above paragraph, conclusions based on the data should be sufficient to facilitate the creation of surveys designed to gain further understanding of assessment and targeting. In the course of gathering data for this research, the author inadvertently discovered that the development of strategies for influencing is considerably more complex than can be explained by a parsimonious model such as Frooman’s (1999). To expand on this theoretical grounding, an ethnographic study of an ENGO that uses a broad array of influence tactics (e.g., Greenpeace) could considerably clarify the strategic reasoning behind the tactics it selects for particular situations. At the very least, substantially more qualitative research is likely to be needed before being able to design a survey adequate for answering many questions that arose as a result of this research. For example, (1) What causes an ENGO to add new issues to its list or to deselect issues it had previously prioritized? (2) Are US ENGOs less likely to use confrontational tactics (e.g., boycotts, protests, blockades) than international ENGOs or nationally-based ENGOs in other countries? If so, why? (3) What leads an ENGO to select aggressive strategies versus less confrontational or even cooperative strategies? (4) What leads an ENGO to decide to use a particular influence


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tactic or a particular combination of influence tactics (e.g., blockades and/or protests; letter-writing, emailing, or faxing campaigns; boycotts; litigation; lobbying, including in lobbying partnerships; cooperative performance-improvement partnerships; multi-stakeholder dialogs)? (5) When targeting a whole industry, rather than particular companies within an industry, two influence tactics are used primarily: lobbying and multi-stakeholder dialog. What leads to the choice of one over the other? (6) Why might an ENGO choose to change its strategy and how would it do so? (7) What would cause an ENGO to withdraw from or reduce the priority of an engagement with a particular firm, whether that firm was an ally, partner, or adversarial target? (8) What might cause an ENGO to skip one of the steps in the model developed in this chapter? Why might an ENGO perform the steps in a different order? Other research questions regarding ENGO strategies and operations might include: (1) What causes one ENGO to choose to partner with another or other ENGOs for a particular effort? (2) How do ENGOs share information with or transfer knowledge to other ENGOs regarding strategies? (3) How do ENGOs handle criticism by others within the ENGO community? Closing Remarks The research the author chose to conduct is influenced by two primary concerns: (1) The (urgent) need to protect the natural environment, and (2) The need for businesses to minimize their negative impacts on stakeholders, particularly on those stakeholders who have little power. For too long firms have felt safe abusing the natural environment for their own economic benefit. The environment could not speak for itself, and environmentalists were marginalized as ‘tree huggers’. In this research she has endeavored to examine actions taken by environmentalists to pressure or otherwise influence businesses to change. In the process she has spoken with ENGO representatives who have participated in activities ranging from multi-stakeholder dialogs to blockading ships. In her personal view the most potent finding is that many different motivations for ENGO action exist, and that many different ENGO actions have proven successful in effecting change. Although there are some important limitations to the methods used, the research has provided substantial important insights into the assessment, targeting and influencing process. Potential implications for business managers, ENGOs and researchers abound. It is hoped that this research will advance the studies of tactics for assuring the protection of the natural environment and means for building more responsive, stakeholder-centered businesses.

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NOTES 1. Although interviewees generally believe corporate self-reporting of environmental performance can provide increased management awareness and that customers and shareholders can use the data to make more informed decisions, none of the interviewees failed to mention drawbacks to relying on self-reports, with many suggesting that such reports should, at a minimum, be audited by an independent. Only one of the 33 interviewees indicated he had used CEP reports as a source of information for his own assessment. 2. Non-firm allies are also often sought, such as governmental entities, other NGOs and consumers. The model eschews these details, however, just as it eschews the other details of specific influence strategies.

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4. Stakeholder influence strategies for smarter growth Duane Windsor INTRODUCTION This chapter seeks to advance sustainable development by examining how concerned stakeholders can influence more effectively firms and their other stakeholders toward smarter growth options that will evolve over time into truly sustainable business models. ‘Special forum issues’ of The Academy of Management Review gave theoretical attention to ecologically sustainable organizations (1995) and the related role of time (2001). Understudied is the as yet weakly exploited potential for more effective stakeholder influence efforts and stakeholder coalition or network governance arrangements. The sustainable development context often generates mixed conflict and cooperation situations for a firm and its stakeholders. Relationships among firms, concerned stakeholders and other stakeholders will involve sometimes tradeoffs of stakeholder interests and sometimes possibilities for win–win collaboration. Stakeholder influence strategies and governance arrangements can have significant implications for moving the balance from tradeoffs toward collaborations (Gray, 1989; Svendsen, 1998). Stakeholder influence strategies are approaches by which concerned stakeholders can affect the actions of firms and other stakeholders. Governance arrangements concern how coalitions and networks can function more effectively over time (Dickerson, 1998). A coalition is a temporary relationship among stakeholders with different interests. A network is a permanently structured relationship among such stakeholders. (Time is a key feature of the distinction.) More effective stakeholder coalitions and networks and influence strategies are needed for generating valid scientific and technical information, political pressures and motivating incentives for smarter growth choices. Aimed at both sustainable development theory building and improved stakeholder influence strategies and coalition or network governance practices directed at effecting smarter growth activities by firms and their stakeholders, this chapter explores the gap between two bodies of literature on 93

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stakeholders. The chapter seeks to advance better integration of practice and theoretical literatures in the sustainable development context. A largely practice literature addresses multi-stakeholder dialog experiences and other forms of interaction with firms (Calton and Payne, 2003; Welcomer, Cochran, Rands and Haggerty, 2003). A largely theoretical literature has just begun to address stakeholder influence strategies and coalition or network relationships. An instrumental mode of analysis should consider how alternative governance arrangements and influence strategies affect design, adoption and implementation of sustainable business models and consumer behaviors. Influence and governance are inextricably linked in the sustainable development context. Sustainable development (Utting, 2000), broader than ecological impacts of human activities, is longitudinal improvement in all dimensions of the triple bottom line performance framework for business (Bowden, Lane and Martin, 2001; Elkington, 1998; Fombrun, 1997). Triple bottom line performance requires firms to improve environmental and social conditions in addition to economic outcomes (focused in sustainable development on consumer welfare). This conception of sustainable development and sustainable business models comports with views of the World Bank and the UN aimed at equitable development without environmental damage. It is analogous to the notion of ‘sustaincentrism’ defined as a mediating combination of ‘technocentrism’ and ‘ecocentrism’ (Gladwin, Kennelly and Krause, 1995). To meet multiple objectives, firms and their stakeholders must make smarter growth choices. Smarter growth takes its definition relative to historical patterns of economic development occurring without concern for environmental or social conditions. The only long-term alternative to smarter growth will be decreased consumer welfare as the price of ecological and social sustainability. Smarter growth occurs when firms and their stakeholders find ways to improve, jointly, environmental conditions, social conditions and economic outcomes. Such smarter growth options make win–win collaboration among firms and stakeholders easier. Difficult forced tradeoffs among environmental, social and economic outcomes result unavoidably in competition or conflict for the firm’s stakeholders. The contribution of the chapter to sustainable development and stakeholder literatures is that it addresses explicitly the understudied role of stakeholder influence strategies and governance arrangements for stakeholder coalitions and networks in promoting sustainable development through effecting smarter growth outcomes. Stakeholder influence efforts likely will become the most effective path forward to sustainable development outcomes. The remainder of the chapter develops this contribution in the following sequence. The second (next) section addresses

Stakeholder influence strategies for smarter growth

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conceptualization of smarter growth options for firms and their stakeholders as the path to evolution of more sustainable business models and consumer behaviors. These options must be grounded in valid scientific and technical information. The third (subsequent) section considers how to improve effectiveness of stakeholder influence strategies and coalition and network governance arrangements. Scientific and technical information is the necessary but likely not sufficient foundation for smarter growth choices. The fourth section distills theory-building and practice insights from three illustrative cases at different levels of sustainable development. The purpose of the illustrations is to suggest how to connect practice and theory. The Kyoto Protocol aimed at global collaboration for pollution reduction remains largely symbolic due to US non-ratification and the unresolved issue of emissions reduction trading among signatories. Amazon rainforest preservation experience reveals opportunities for and complex barriers to progress in a globally vital bioregional area. PCB pollution litigation against Monsanto localized in Anniston, Alabama reveals the likelihood of some irreconcilable conflict of interests thwarting win–win collaboration. Such conflicts occur in the Kyoto Protocol and Amazon as well. Recent pollution litigation against ChevronTexaco in Ecuador points to the same lesson. All these cases involve complex intertwining of environmental, social and economic dimensions. The concluding section reviews key insights and recommendations for managers and others.

SMARTER GROWTH BUSINESS MODELS This section seeks to improve conceptualization of smarter growth options for firms and their stakeholders as a path to evolution of more sustainable business models and consumer behaviors. Smarter growth takes definition relative to historical patterns of economic development occurring without regard for ecological and social outcomes. A key framework for understanding stakeholder influence strategies is the distinction among power, legitimacy and urgency as dimensions of stakeholders’ salience to managers (Mitchell, Agle and Wood, 1997). Coalition and network mobilization often must occur in conditions of low salience of ecology and society to firms. Low salience reflects low stakeholder power, low activist legitimacy and low urgency due to the reality that destruction scenarios appear temporally distant and at least arguably uncertain scientifically. Disputable scientific and technical information is not a strong basis for long-term governance arrangements aimed at more systematic marshaling and use of stakeholder influence. There remains considerable scientific and

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political controversy over future ecological, social and economic conditions concerning whether the historical pattern can be sustainable and also over the distributive effects of changes away from that historical pattern. Improved conceptualization of smarter growth options and sustainable business models is desirable. Figures 4.1 and 4.2, in that order, model the deep divide between ‘environmental pessimists’ and ‘environmental optimists’ (Brown, 2003). Pessimists emphasize destructiveness and optimists emphasize sustainability of the historical pattern. Both Figures 4.1 and 4.2 expand the notion of this split to the triple bottom line framework for sustainable development. Economic development is associated with rising per capita consumer welfare so as incorporate indirectly population growth. Ecological and social degradations reduce that welfare on a net basis. For brevity, depiction here combines negative social impacts with ecological harms in Figure 4.1 for a destruction scenario outpacing economic development, and combines positive social impacts with consumer welfare growth in Figure 4.2 for a smarter growth scenario. Environmental and social outcomes involve multiple choices by many partly interdependent actors. Per capita economic growth for rising consumer welfare is especially important in the developing countries, where negative environmental impacts are often dramatic and equitable development is needed (Ivanovich, 2000). This interpretation comports with the views of the World Bank and UN. Figure 4.1 illustrates an ecological and social destruction scenario reflecting the historical pattern of economic development applicable at global, regional and local levels (Starik and Rands, 1995). The horizontal axis reflects time. The vertical axis reflects aggregate benefits and costs to stakeholders. Until recently, economic development has occurred by per capita consumer welfare outrunning population growth and rising ecological and social harms. This historical pattern must prove illusory if development results in approaching and exceeding irreversible ecological and social tipping points, even locally. An ecological or social tipping point is defined as any point at which natural ecology or desirable social conditions cannot recover. Figure 4.1 depicts tipping points in the form of a vertical dashed line at which ecological or social harms become irreversible. Even short of a ‘global doomsday scenario’, there are many negative environmental and social outcomes occurring on an ongoing basis at global, regional and local levels. Local effects may aggregate regionally and globally before tipping becomes apparent. This invisibility underlies the concept of ‘ecological surprise’ (King, 1995). Figure 4.2 depicts the smarter growth scenario combining per capita consumer welfare growth with positive social gains and ecological improvements (modeled as reductions in harms). The horizontal axis remains time. The ver-

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Benefits and Costs to Stakeholders

Stakeholder influence strategies for smarter growth Per Capita Consumer Welfare Irreversible Ecological Harms and Negative Social Impacts

Ecological and Social Tipping Points

Ecological and social destruction scenario Per Capita Consumer Welfare and Positive Social Impacts

Benefits and Costs to Stakeholders

Figure 4.1

Time

Declining Ecological Harms Time

Figure 4.2

Smarter growth scenario

tical axis remains aggregate benefits and costs to stakeholders. Valid scientific and technical information may be insufficient although necessary. A problem difficult to assess is that simple cessation of ecological or social harm may not be sufficient for recovery due to near proximity to various tipping points. Reported ecological examples concern Endangered Species Act ineffectiveness (Kerkvliet and Langpap, 2002), coral reef destruction (Chadwick, 1999, 2001), Caspian Sea sturgeon (Houston Chronicle, 2003) and

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smog (Petit, 2003). This problem emphasizes the need for smarter growth options aimed at environmental and social improvements. Concerned stakeholders must develop more effective strategies and network governance arrangements for influencing business practices and consumers’ choices. The situation may be assisted regionally in Europe by an eventual decline in total population that now appears possible (Wattenberg, 2003). A scientific mode of analysis is highly desirable in encouraging smarter growth choices by firms and their stakeholders. There are two key barriers to scientific and technical information for sustainable business models. One barrier is the weakness of existing standards for environmental and social performance. The other barrier is the high level of dispute over the state of the world and the effects of changes in behavior. First, for sustainable business models there must be useful standards for environmental and social performance dimensions of the triple bottom line framework. The International Organization for Standardization (Geneva, Switzerland) ISO 14000 is a series of international standards on environment management (Epstein and Roy, 1998). ISO 14001 is the cornerstone standard. It specifies a framework of control for an environmental management system that can be certified by a third party. Social performance is not yet as well developed and requires continued attention by ISO and other standards bodies. Conventional business models emphasize economic performance. But even an argument that, in practice, business managers can only handle one objective – an economic performance target that must be profitability – leaves theoretical and practical scope for increased stakeholder influence strategies and better governance arrangements for coalitions and networks (Jensen, 2000). The reason is that enlightened executives and employees may legitimately regard the interests of other stakeholders as important morally and/or psychologically (Jensen, 2000). The essential purpose of stakeholder theory is to alter the psychology or perception of management (Donaldson, 1999). The object of stakeholder influence efforts can be sentiment, concern and/or rational calculus. Psychology can be sentiment about stakeholders’ welfare or corporate social responsibility, or concern for potential environmental consequences. Rational calculus by firms would be ecologically and socially smarter behaviors at the same profitability; rational calculus by customers would be the same economic welfare at lower ecological and social impacts. Second, while transparency of environmental and social information to stakeholders is vital in mobilizing influence (Davis, 2003), scientific and technical information about the state of the world is hotly disputed. The Greenpeace executive director published an apology to Shell UK after the ‘Brent Spar’ incident in the North Sea. The apology admitted miscalculation of vital information about a specific alleged hazard of sinking the platform


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(Klein and Greyser, 1996: 5). Often complex issues of scientific methodology (Coglianese and Marchant, 2003) are subject to ‘ideology’ in the form of assumptions and opinions about parameters and values (Fuchs, Krueger and Poterba, 1997). The Lomborg controversy revealed difficult questions about the ideological nature and non-scientific status of environmental (and by extension here social) debates (Weiss, 2003). Lomborg (2001) asserted what many regard as highly dubious, overly optimistic predictions about the real state of the world, arguably repeating the very types of errors he criticizes (Brown, 2003). The Danish Committee on Scientific Dishonesty, a government body of scientists, decided that Lomborg’s book was guilty of ‘scientific dishonesty’ in the specific form of ‘not comprehending the science rather than deliberately intending to mislead or being grossly negligent’ (Brown, 2003). The committee reportedly did not, however, sustain other alleged and more damaging criticisms (Brown, 2003).

STAKEHOLDER INFLUENCE STRATEGIES AND GOVERNANCE ARRANGEMENTS Scientifically valid and transparent information is only the first if necessary step toward improved collaboration among firms and stakeholders. The next step is more effective mobilization of concerned stakeholders through improved influence strategies and governance arrangements. This section addresses stakeholders’ mobilization and use of influence for the specific purpose of encouraging smarter growth solutions by firms and their other stakeholders such as customers and partners. The first subsection assesses the practice and theoretical literatures on stakeholder management. The second subsection discusses stakeholder coalitions and networks. The third subsection reconfigures the conventional value creation model as a framework for considering stakeholder influence strategies and network governance arrangements. The fourth subsection assesses stakeholder influence strategies. The Practice and Theoretical Literatures The practice literature is only vaguely connected to the theoretical literature. One body of practice literature has emphasized instrumental influence strategies by firms (Savage, Nix, Whitehead and Blair, 1991). A rather limited empirical literature suggests that managers are purely instrumental in assessment of stakeholder considerations (Agle, Mitchell and Sonnenfeld, 1999; Ogden and Watson, 1999). A study of 12 forest products firms in Maine, conducted using surveys of stakeholders, concluded

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that both instrumental considerations (perception of power of stakeholder) and normative considerations (corporate social responsiveness processes) can affect firms’ working with non-governmental stakeholders. Shared vision, innovative solutions, reduction of power gridlock costs and mutual learning over time may open the path to win–win collaboration (Welcomer, Cochran, Rands and Haggerty, 2003). There is increasing experience with multi-stakeholder dialog, especially with forest companies (Calton and Payne, 2003). The theoretical literature on stakeholders includes important but as yet only limited attempts to address influence strategies for firms acting on stakeholders, for stakeholders acting on firms and for effective collaboration of firms and stakeholders. A general theme has explored organizational responses to external pressures from the perspectives of institutional theory and resource dependency theory (Oliver, 1991). A specific theme has addressed stakeholder influence strategies as purely instrumental ends– means relationships that may be affected by stakeholder attributes and interests (Frooman, 1999). While networks have been examined (Rowley, 1997), governance arrangements remain a neglected topic. Institutional theory suggests passive compliance with external pressures or acquiescence; while resource dependency theory suggests active manipulation and control of external pressures (Rowley, 1997: 895). In between these two extremes lie – in order along a continuum of behaviors – compromise, avoidance and defiance (Oliver, 1991). Each behavioral response reflects varying conditions (Oliver, 1991). For example, contingent variation in response by forest product firms can be interpreted in this fashion (Näsi, Näsi, Philips and Zyglidopoulos, 1997). Influence strategy is a first-mover effort to affect another party. Such strategy may attempt direct or indirect means in relationship to usage or withholding techniques (using distinctions developed by Frooman, 1999). In contrast, response strategy is the second-mover effort by that other party to react to influence, whether by direct or indirect means in relationship to usage or withholding techniques. Resource dependency theory focuses attention on the balance of power between firm and stakeholder (Frooman, 1999). Where the stakeholder is dependent on the firm, the latter has power; where the firm is dependent on the stakeholder, the latter has power. Where neither party is dependent on the other, there is low interdependence. Where both parties are dependent on the other, there is high interdependence. High stakeholder dependence on the firm results in usage strategies: the stakeholder must interact with the firm and thus engage in usage in some form; this circumstance shifts power to the firm. By contrast, low stakeholder dependence on the firm results in withholding strategies: the stakeholder can exert power by withholding important resources in some


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manner; this circumstance shifts power to the stakeholder. High firm dependence on a stakeholder permits the stakeholder to act directly on the firm. Low firm dependence on a stakeholder compels that stakeholder to act indirectly. Two key difficulties with this response and influence literature are that it is largely dyadic in orientation and static in analysis. Dyadic focus lies on the firm and some particular stakeholder group or type (Welcomer, Cochran, Rands and Haggerty, 2003). Analysis and modeling typically begin with components considered statically as the simplest possible approach. Multiple relationships considered simultaneously in a dynamic analysis make for very difficult analytical and modeling problems. Yet such problems are the heart of stakeholder influence strategies and governance arrangements for smarter growth. Influence and response strategies involve addressing and also building and institutionalizing complex multi-party networks in which sequential, parallel and concerted efforts can work more effectively. Coalitions and Networks The key step to move beyond dyadic and static influence strategies (defined as influence and response between two parties) is dynamic mobilization of stakeholder coalitions and networks. A network of nodes and relationships comprises channels of communication for flow of information, persuasion, influence and so on among multiple parties (Rowley, 1997). Governance arrangements for temporary coalitions and permanent networks have barely been discussed at all. A further consideration is that permanent networks may become sources of civil society institution building. For example, forest certification efforts, initially intended simply to report sustainable forestry practices, have moved further toward civil society institution building efforts with forest communities (Meidinger, 2001). This example suggests that stakeholder networking can have much broader effects. Figure 4.3 illustrates a simplified collaboration and implementation network for economic value creation in conjunction with ecological and social improvements. This simplified version involves eight two-way relationships. This depiction retains the conventional firm-focused model of the mainstream stakeholder literature. Simplification here means two things. First, not all potential stakeholders are included. There are other stakeholders such as complementary firms and their stakeholders. Second, some stakeholder groups have been combined together for simplicity of display that might be broken out in a more complicated depiction. The two-directional arrows indicate bilateral relationships that can embed several dimensions of

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Stakeholders, the environment and society Concerned Stakeholders and Communities

Creditors and Vendors

Firm

Customers

Governments and Media

Figure 4.3 Collaboration and implementation network for value creation and performance improvements relationship. The firm (comprising investors, management and employees) is part of a value creation chain of economic activities beginning with creditors and vendors and reaching through to customers (both distributors and final consumers). Other important actors are governments, media and concerned stakeholders such as communities or environmental activists. Figure 4.3 can integrate well with the ‘co-opetition’ model of mixed cooperation and competition built around a conception of a value creation network (Brandenburger and Nalebuff, 1996). The co-opetition approach admits competitors to the value creation process, an admission valid in a marketplace model as distinct from a stakeholder model. The value creation network is broader than and embeds the stakeholder network of a particular firm. Nevertheless, the conventional firm-focused model gets in the way of true network analysis. The conventional model simply differentiates stakeholders into internal and external categories. A network approach must build collaborative relationships that function to influence actors toward multiple purposes. The network firm involves objectives of ecological and social improvements in addition to conventional value creation. Reconfiguration of the Conventional Value Creation Model Figure 4.4 reconfigures the conventional value creation model into a true network model in which the firm is no longer the central node through which multiple stakeholder relationships must work. Indeed there is no central node so that governance arrangements must be developed and institutionalized in some manner. Such governance arrangements may prove unstable


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Concerned Stakeholders and Communities

Creditors and Vendors

Governments and Media

Figure 4.4

Firms • Investors • Executives • Employees

Customers

Influence networks affecting performance improvements

(Dickerson, 1998). What Figure 4.4 models is a multi-stakeholder influence system. In this simplified depiction ten direct two-way relationships are shown. (For brevity, the multiple indirect relationships are not shown.) Concerned stakeholders may attempt to influence firms directly or indirectly through other stakeholders, governmental and non-governmental. A key consideration is how collective action among multiple stakeholder groups or types operating in various configurations through temporary coalitions or permanent networks can influence more effectively firms, governments and other stakeholders toward smarter growth choices. External stakeholders may network among themselves as well as with the internal constituencies of the firm. Such networking may be instrumentally useful under conditions of direct or indirect strategies, or of usage or withholding strategies. Stakeholder Influence Strategies Stakeholder influence strategies should aim at both external pressures (regulations and market changes) and change in internal corporate factors (such as corporate culture) as a basis for affecting corporate environmental strategy and processes (Epstein and Roy, 1998: 286). Alternatives for stakeholder influence include market pressure, sensitive property ownership, legislation/regulations, public policy influence, direct action (often counterproductive in coalitions), lawsuit, mediation/arbitration, dialog/voice and voting representation. Methods of self-organization, non-violent protest, dialog and compromise seem to characterize forest certification civil institution building for example (Meidinger, 2001: 14, citing Kaldor, 1999: 475–6).

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Two different considerations affect marshaling collective action through coalitions and networks. One consideration involves the incentives and governance arrangements for such cooperation. Selection and mix of approaches affect coalition–network viability and functioning. Incentives for coalition formation include both psychological–moral commitment (Donaldson, 1999) and as the second consideration welfare substitution solutions. Welfare substitution concerns creation of equivalent welfare packages that enhance sustainability over time. Partial arrangements leave open the possibility that global welfare is reduced (through suboptimization) rather than increased (especially where consumer welfare is neglected). For example, reduction of consumption standards may reduce ecological or social harm, but consumer welfare is reduced and this consideration may well bear on salience of issues to consumers and other affected stakeholders. Stakeholder influence strategies must address the broader value creation network in order to bring influence to bear on a particular firm or government, or by coordination, on an industry or sector of the economy. In addition, the conception of stakeholder influence strategies must expand beyond simple adversarial ‘contest’ to include ‘competition’ and ‘cooperation’. A contest can occur in two general forms: by force or by law (Locke, [1689] 1983: 49). Force has played a significant role in Amazon exploitation. Litigation became the only course of stakeholder action in PCB pollution. Competition occurs in the marketplace or public policy institutions. Cooperation as in the Kyoto Protocol can occur in several ways, such as direct collaboration or common action, parallel action by observation of the conduct of other parties without direct collaboration or action due to parallel incentive without such observation. Influence strategies thus depend on the conditions of type of contest or type of cooperation as well as on degree of competition. Environmental influence efforts must presently be built and operated issue by issue and area by area. Coalitions and networks are the next phase. This argument draws on the notion of global public policy networks (Reinicke, 1998). The notion substitutes collaborative networks among interested parties for traditional intergovernmental frameworks for developing global public policy so as to emphasize effective implementation. An example is increasing collaboration for the amelioration of child labor (French and Wokutch, 2002).

THREE CASE ILLUSTRATIONS This section distills theory-building and practice insights from three case examples, each at a different level of action. The Kyoto Protocol attempted


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international collaboration to reduce global air pollution levels. The protocol remains largely symbolic because the US has declined to ratify the agreement and the signing parties cannot agree to emissions reduction trading standards. Amazon forest preservation illustrates opportunities and barriers to collaboration in place of competition and force at a bioregional level. The PCB pollution lawsuit in Anniston, Alabama illustrates an instance of conflict rather than cooperation at the local level. The Kyoto Protocol The Kyoto Protocol (December 1997) to the UN Framework Convention on Climate (May 1992) is a multilateral intergovernmental accord by which most advanced and transition countries agreed to limit and reduce greenhouse gas emissions ‘in order to promote sustainable development’. Signatories accepted a percentage of a base year or period as a reduction target. Much of Europe, including transition countries of Eastern Europe, accepted a target of 92, an 8 per cent reduction from base at 100 (Thorning, 2001). The US (Clinton Administration) agreed to 93. Other countries (largely developing) were allowed to increase emissions fivefold from applicable base (Article 3, Paragraph 7). Trading of emission reduction units among countries would be permitted (Article 17), but rules for trading were deferred to subsequent conferences. Key developing countries – Brazil, China, India, Indonesia and Nigeria – will not participate for decades (Schelling, 2002). A profound split has occurred between the US and the European Union (EU) over the Kyoto Protocol due to deep differences over environmental issues (Davis, 2003). Greatly different population dynamics (falling in Europe, rising in the US) may affect the split over environmental policy (Wattenberg, 2003). The US (Bush Administration) declined to ratify the Kyoto Protocol, on stated grounds that emission targets are neither scientifically based nor environmentally effective. The protocol was likely never going to pass the US Senate in any case (Schelling, 2002). Assessment of the US interest would seem straightforward. The US would have to reduce emissions by 7 per cent from 1990 levels, possibly forcing rationing of energy use and steep taxes to reduce energy demand. US compliance might reduce US gross domestic product by 1 to 4 per cent annually according to various estimates or $100–400 billion annually in inflation-adjusted dollars with resultant effects on governmental fiscal outcomes (Thorning, 2001). US compliance costs exceed low willingness to pay for reduction of global warming in the face of low urgency and scientific uncertainty. The US has substituted voluntary emissions reduction efforts through EPA. Every major environmental group and the Democrats,

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together with the Pew Center on Global Climate Change (important firms are members) oppose the Bush approach; the Pew Center supports emissions reduction trading – possibly reflecting its business members’ expectations (Franz, 2002). No coalition of countries has power to compel US adhesion. The Bush Administration does not view the terms of the Kyoto Protocol as legitimately binding on the US; and there is certainly no sense of urgency in the present US government that the world is rapidly approaching an ecological tipping point. Upon US withdrawal the remaining non-EU parties to the Protocol, mostly transition states, arguably gained veto bargaining power for extraction of additional concessions by the EU on carbon sink credits (addressed in Bonn and Marrakech following Kyoto) and emission rights trading (Böhringer and Vogt, 2002). The Kyoto Protocol may be essentially symbolic, simply codifying business-as-usual emissions and cheap compliance (Böhringer and Vogt, 2002). The protocol creates potentially a market power situation in which Eastern European countries operate as the dominant suppliers of emissions permits, and EU countries the dominant buyers; the US would have been the biggest single buyer (Löschel and Zhang, 2002). At The Hague meeting, international cooperation began to fail (Victor, 2001). The EU proposed a ceiling of 50 per cent on national emissions, use of carbon sinks and an international market control system (Brandt and Svendsen, 2002). A key difficulty is distribution of burden in a cartel without practical enforceability. There is no monitoring and enforcement mechanism (compare OPEC’s difficulties in quota enforcement); and the protocol proposes politically unacceptable transfers across countries (Cooper, 2001). Kyoto is in effect a form of cartel game with regions of the world forming a coalition for reducing greenhouse gas emissions (Lise, Tol and van der Zwaan, 2001). There is disagreement over the potential effectiveness of such a cartel. One analysis suggests that ‘a stable global agreement’ for burden sharing without free riding cannot be achieved, without coupling global emission trading to some transfer mechanism to offset incentives to free riding (Carraro, Bosello, Buchner and Raggi, 2001). Another analysis suggests possibly successful negotiations in a social situation setting presuming farsightedness, commitment and restrictions on moves by players (Lise, Tol and van der Zwaan, 2001). The entire Kyoto approach may make little difference to world climate and may be unimportant relative to developing cheap forms of energy and technology not emitting greenhouse gases (Verweij, 2001). Even with respect to ozone reduction, different interests argue alternative approaches (Borenstein, 2003). One analysis concluded it would be very difficult for the US, the EU and Japan to achieve carbon dioxide targets at previous high


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economic growth rates (Sun, 2002). Increasing criticism has argued that the Kyoto Protocol is not a sensible instrument for moderating global climate change’ (Sundakov, 2002). Amazon Bioregional Forest Preservation An appreciation for the climate effects of regional forest preservation is an important aspect of the Kyoto Protocol (Article 2). Much of the world’s remaining important forest areas is in wet tropical countries. Much of the remaining tropical hardwoods reside in remote areas inhabited by indigenous communities (Klare, 2001: 193). Significant deforestation pressures operate for example in Sarawak, part of Malaysia on the island of Borneo (Reid, 1997: 110–111). Some 4.5 million new hectares of forest (perhaps 3 million successfully) are established annually, largely in Asia and South America; about 187 million hectares of such plantings existed worldwide in 2000, the largest proportion in Asia (Carle, Vuorinen and Del Lungo, 2002). Sustainable settlement of rainforest areas involves interaction of civil society with national government and typically indigenous communities (Meidinger, 2001: 4). In this context, ‘civil society organizations generally promote particular values’ (Meidinger, 2001: 13), of ‘sustainable forest management’ and ‘visions of the “good society” ’ to include ‘viability of forest communities and the health and employment of forest workers’ (Meidinger, 2001: 13, 14). Amazon rainforest preservation, a leading example of tropical deforestation difficulties, is a vital test case for sustainable settlement (Almeida and Compari, 1995; Barbosa, 2000). There is a relatively large literature on Amazonian ecological and social issues (such as Hecht and Cockburn, 1989; Rudel, 1993; Wallace, 2003). The Amazon rainforest has been historically (Anderson, 1999) the location of expansion by often forcible seizure of land from indigenous populations and destruction of forest for farming and lumbering purposes (Cowell, 1990) reflecting population growth, lumbering and gold rush forces (Cleary, 1990). In 1988 the Brazilian government set aside more than a million acres for the Tikuna, the second largest indigenous group. Lumbermen reportedly killed 14 people including five children in a village and threw the bodies in the river (Van Dyk, 1995: 27). Deforestation may have slowed (Van Dyk, 1995: 23); and there was recently a remaining population of some 150 000 Indians in Brazilian Amazonia speaking some 180 different languages (Roosevelt, 1994; Van Dyk, 1995: 27). The difficulty lies in transforming tradeoff conflict and force into win–win collaboration and effective law. Transnational networks can help define and enforce standards for forest management (Näsi, Näsi, Philips and Zyglidopoulos, 1997). Certifying groups such as the Forest Stewardship

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Council, the Pan-European Forest Certification Scheme and the Sustainable Forestry Initiative provide logos, signifying production in an environmentally (and sometimes socially) acceptable way (Meidinger, 2001). Multiple approaches might be unified under some kind of global umbrella governance arrangement. The Monsanto PCB Litigation The emphasis in the two previous case illustrations was on possibilities for improved collaboration among firms and stakeholders. But even broadbased agreements regulating future conduct can leave behind difficult problems not susceptible to win–win collaboration. In May 2001 over 100 countries meeting in Stockholm adopted a UN convention banning or severely restricting ‘the dirty dozen’ of dangerous chemicals such as DDT and PCBs (Canada and the World Backgrounder, 2002). Previous chemical production and use leave behind a long trail of effects engendering potentially irreconcilable conflicts of concerns. Firms understandably may seek to limit liability for previous alleged negative impacts (or analogously in case of bankruptcy pension obligations). Health care damages particularly may be open-ended (as in recent asbestos litigation). Difficult and complex litigation by affected stakeholders or governments may well remain an unavoidable course of action for remedy. (Civil litigation concerns ‘liability’ on a preponderance of evidence.) An example is the wellreported litigation over alleged PCB liability of Monsanto at Anniston, Alabama – where coincidentally in August 2003 the US Army began destroying chemical weapons stockpiled there. Anniston is a small town (population about 26 000) roughly halfway between Birmingham and Atlanta. Between 1935 and 1971, Monsanto had produced polychlorinated biphenyls (PCBs) at Anniston as components in insulation. The plant was reportedly one of only two such operations in the US. Wastes were allegedly dumped into two unlined landfill sites; and PCBs, lead and mercury allegedly got into streams and soil. EPA tests found elevated levels of hazardous substances (Canada and the World Backgrounder, 2002). Monsanto allegedly knew of toxicity as early as the 1950s. The firm’s legal position (Fisk, 2001) argued that production was halted when PCBs were recognized to be potentially hazardous, eight years before the US government banned production; and that no physical injuries have been shown for PCB exposure other than temporary skin eruption in high exposure cases. Monsanto had paid about $42 million to residents of neighborhoods farther away from the plant for property damage. Monsanto had also paid some $40 million in cleanup expenses (Foster and Liu, 2002).


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Important changes occur over time during difficult litigation. Corporate restructuring had the effect (whether intended or not) of leaving a complicated responsibility trail to backup defendants (Gilbert, 2002a). In 1997 Monsanto spun out its chemicals division as Solutia Inc., which inherited the liability for PCB contamination. Monsanto merged with Pharmacia & Upjohn in early 2000 to form Pharmacia Corp., which in turn restructured the agricultural and biotechnology business as a wholly-owned subsidiary the ‘new’ Monsanto Company. Later in 2000 Pharmacia sold 15 per cent of that Monsanto stock in a public offering and then in December 2001 announced plans for full divestiture (Gilbert, 2002a). The ‘new’ Monsanto inherited all environmental liabilities from Pharmacia in both agricultural and chemical businesses and thus for Solutia if necessary. On 16 April 2003, Pfizer acquired Pharmacia for a purchase price of about $56 billion. Multiple state and federal lawsuits and a federal EPA consent decree have occurred. (The author worked briefly as an expert witness in one case.) In 1993 and 1994, two actions (later consolidated for some 4,600 class members) were filed in Alabama state circuit court. Mediation resulted in a $43.7 million settlement. Three subsequent lawsuits (not class actions) in state circuit court, involving some 2,714 plaintiffs, the first filed in March 1996, were consolidated. (One of the three was severed and removed to federal district court.) Also in 1996, 1,596 people (former and current residents of an African–American neighborhood) filed a federal suit against Monsanto (Fisk, 2001). The trial was delayed until April 2001 to permit a final mediation effort. A suggested $40 million settlement was agreed to by plaintiffs but rejected by Monsanto. After trial testimony by plaintiffs’ witnesses, Monsanto reopened settlement talks and agreed to the $40 million, plus forfeiture of $2.7 million escrow due to failure to accept the initial mediation recommendation. This case reportedly constitutes the first time Monsanto has paid any money for personal injury claims. In a church lawsuit against Monsanto, a settlement was reached in 1999 for a new van and $2.5 million to finance a new sanctuary at a different location. A lawsuit filed in state circuit court alleged nearly 700 property damage claims by more than 3,500 residents. A jury decided in February 2002 that Solutia and Monsanto were liable for property damage and Pharmacia liable for claims of negligence (Foster and Liu, 2002). Plaintiffs’ lawyers estimated property damages at $23 million. Alabama law, according to Solutia’s general counsel, does not allow personal injury damages for potential future ailments as distinct from current problems. The general counsel argued that many of the health claims fall into the future possibility category (Melcer, 2003). A lawsuit involving 15 664 people filed in 2001 in federal court alleged damages under a law holding polluters liable

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(Melcer, 2002). This suit was scheduled for trial in spring 2003 (Melcer, 2002). In March 2002 Solutia signed a consent decree with the EPA for cleanup operations (a federal judge must concur). The EPA consent decree would fund a Remedial Investigation/Feasibility Study of the entire area through EPA-approved contractors in lieu of federal Superfund financing. The state circuit court was considering ordering a cleanup (Gilbert, 2002b). Complexity and long time period characterize even successful environmental litigation. This pattern may be spreading outside the US. An example is recent litigation in Ecuador against ChevronTexaco, created by merger in 2001 (Forero, 2003). About 30 000 residents allege that during 1971–92 Texaco dumped waste into open, unlined pits and spilled oil. Ecuador had no environmental laws regulating waste disposal. Plaintiffs’ attorneys argue that long-established practice has been reinjecting waste back into wells. A US appeals court ruled in 2002 that a 1993 lawsuit should be heard in Ecuador but would be enforceable in the US. ChevronTexaco argues that the suit should be against its subsidiary Texaco Petroleum Co. (Tex-Pet), which operated in partnership with Ecuador’s state oil company, and that the government of Ecuador, which certified in 1998 Texaco’s $40 million cleanup, absolved it of liability.

CONCLUSION AND RECOMMENDATIONS The historical pattern for economic development neglects negative environmental and social impacts. Concerned stakeholders need to improve coalition and network governance arrangements for mobilizing and using stakeholder influence to effect more sustainable business models through smarter growth choices. Influence and governance are inextricably linked in the sustainable development context. This chapter assesses the current state of knowledge concerning stakeholder influence strategies and governance arrangements for coalitions and networks. The chapter first improves conceptualization of smarter growth and sustainable business models. It then assesses influence and governance approaches. The influence and response literature is largely dyadic and static and has tended to neglect governance arrangements. The chapter distills theory-building and practice insights from three case illustrations: (1) the Kyoto Protocol at the global level; (2) Amazon forest preservation at a bioregional level; and (3) complex litigation efforts at a local level in Anniston, Alabama. These cases reveal opportunities for and barriers to win–win collaboration among firms and their stakeholders. This chapter attempts to improve understanding of smarter growth possibilities by all parties. There are no obvious quick fixes. Win–win


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collaboration should prove superior to win–lose conflict. Key conclusions for consideration by managers and other stakeholders follow: 1.

2.

3.

4.

5.

6.

Smarter growth business models involve shifting from negative to positive environmental and social outcomes to avoid local, regional and global tipping points. Negative outcomes generate irreconcilable conflicts; positive outcomes help foster win–win collaboration. There is a significant relationship between valid and transparent information and stakeholder influence strategies and governance arrangements. Neither businesses nor concerned stakeholders can rely on disputable scientific and technical information while discounting the power, legitimacy and urgency of other stakeholders. Smarter growth business models will involve the development of more effective stakeholder coalitions and networks and improved governance arrangements for such coalitions and networks. Such arrangements aim at mobilizing opinion and media attention on specific issues. The chapter examines case illustrations at global, regional and local levels of action. The Kyoto Protocol process suggests that concerned stakeholders must take adequate account of other stakeholders’ appreciation of their own interests and views. Valid scientific and technical information is vitally important to understanding. A long-term split between the US and EU may be grounded in very different population dynamics. The US declined to ratify the protocol not simply because of a change in administration but due to deeper economic and equity grounds conjoined to perceived lack of reliable information. The Bush Administration concluded that the protocol would cost the US while shifting emissions opportunities to developing countries. The negotiating process following the protocol may have shifted undue influence to holdouts in Eastern Europe and the developing world relative to EU countries. Amazon forest preservation efforts suggest the importance of world attention and support in effecting positive regional environmental and social outcomes through peaceful means. Indigenous populations may have difficulty resisting environmental and social degradations without such attention and support. Forest certification efforts may be ameliorating the situation and helping to build multi-stakeholder civil institutions, but there are strong market and population pressures making for degradation of tropical forests and forest communities. The previous two case studies emphasize opportunities for win–win collaboration. There can also be irreconcilable conflicts of interest. Firms understandably may seek to isolate themselves from liability. The Monsanto PCB pollution suggests that civil lawsuits by affected

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stakeholders in combination with regulatory enforcement action may still remain the unavoidable final instrument for influencing business actions. A similar litigation situation has emerged in Ecuador concerning alleged environmental and social impacts of ChevronTexaco.

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Cleary, David (1990), Anatomy of the Amazon Gold Rush, Iowa City, IA: University of Iowa Press. Coglianese, C. and G.E. Marchant (2003), ‘Shifting sands: The limits of science in setting risk standards’, John F. Kennedy School of Government Working Paper No. RWP03-036 (18 October 2003), Harvard University, available at http://ssrn.com/abstract=443080. Cooper, R.N. (2001), ‘The Kyoto Protocol: A flawed concept’, Fondazione Eni Enrico Mattei (FEEM) Working Paper No. 52.2001 (July 2001), Milan, Italy, available at http://ssrn.com/abstract=278536. Cowell, Adrian (1990), The Decade of Destruction, London: Hodder and Stoughton (book accompanying television series produced by Central Independent Television Plc.). Davis, M. (2003), ‘Shell chairman sees divide over environmental issues’, Houston Chronicle, 13 March, 3B. Dickerson, C.M. (1998), ‘Spinning out of control: The virtual organization and conflicting governance vectors’, University of Pittsburgh Law Review, 59 (4 Summer), 759–804. Donaldson, T. (1999), ‘Making stakeholder theory whole’, The Academy of Management Review, 24 (2), 237–41. Elkington, John (1998), Cannibals with Forks: The Triple Bottom Line of 21st Century Business, Gabriola Creek, BC and Stony Creek, CT: New Society Publishers. Epstein, M. and M.-J. Roy (1998), ‘Managing corporate environmental performance: A multinational perspective’, European Management Journal, 16 (3), 284–96. Fisk, M.C. (2001), ‘Settling late costs Monsanto $ 2.7M’, National Law Journal, 7 May, B4. Fombrun, Charles J. (1997), ‘Three pillars of corporate citizenship: Ethics, social benefit, profitability’, in Noel M. Tichy, Andrew R. McGillis and Lynda St. Clair (eds), Corporate Global Citizenship: Doing Business in the Public Eye, San Francisco, CA: New Lexington Press, pp. 27–42. Forero, J. (2003), ‘Texaco goes on trial in Ecuador pollution case’, New York Times, 23 October, 1 (Section W). Foster, L. and B. Liu (2002), ‘Monsanto found guilty of polluting small town’, Financial Times (London), 23 February, 1. Franz, N. (2002), ‘Business group pans Bush plan’, Chemical Week, 164 (8, 27 February): 84. French, J. Lawrence and Richard E. Wokutch (2002), ‘Global public policy networks and child labor in the Brazilian shoe industry: The case of the Pro-Child Institute’, in Duane Windsor and Stephanie A. Welcomer (eds), Proceedings of the Thirteenth Annual Meeting of the International Association for Business and Society, vol. 13, 169–70. Frooman, J. (1999), ‘Stakeholder influence strategies’, The Academy of Management Review, 24 (2), 191–205. Fuchs, V.R., A.B. Krueger and J.M. Poterba (1997), ‘Why do economists disagree about policy? The roles of beliefs about parameters and values’, National Bureau of Economic Research (NBER) Working Paper No. W6151, available at http://ssrn.com/abstract=225914. Gilbert, V.B. (2002a) ‘St. Louis-based Monsanto spin-off complicates Alabama chemical-pollution suit’, St. Louis Post-Dispatch, 17 January.

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Gilbert, V.B. (2002b), ‘Trial concerning St. Louis chemical products firm’s PCB cleanup to resume’, St. Louis Post-Dispatch, 20 June. Gladwin, T.N., J.J. Kennelly and T.-S. Krause (1995), ‘Shifting paradigms for sustainable development: Implications for management theory and research’, The Academy of Management Review, 20 (4), 874–907. Gray, Barbara (1989), Collaborating: Finding Common Ground for Multiparty Problems, San Francisco, CA: Jossey-Bass. Hecht, Susanna and Alexander Cockburn (1989), The Fate of the Forest: Developers, Destroyers, and Defenders of the Amazon, London and New York: Verso. Houston Chronicle (2003), ‘Much-savored beluga caviar could be pulled from U.S. menus’, 23 March, 8D. Ivanovich, D. (2000), ‘OK for African oil project expected, but its impact on two impoverished nations debated’, Houston Chronicle, 6 June, 1C, 5C. Jensen, Michael C. (2000), ‘Value maximization and the corporate objective function’, in Michael Beer and Nitin Nohria (eds), Breaking the Code of Change, Boston: Harvard Business School Press, pp. 37–57. Kaldor, M.H. (1999), ‘The ideas of 1989: The origins of the concept of global civil society’, Transnational Law and Contemporary Problems, 9 (2, Fall), 475–88. Kerkvliet, J. and C. Langpap (2002), ‘Success or failure: Measuring the effectiveness of the Endangered Species Act’, available at http://ssrn.com/ abstract=358720. King, A. (1995), ‘Avoiding ecological surprise: Lessons from long-standing communities’, The Academy of Management Review, 20 (4), 961–85. Klare, Michael T. (2001), Resource Wars: The New Landscape of Global Conflict, New York: Metropolitan Books of Henry Holt & Co. Klein, N. and S.A. Greyser (1996), ‘The Brent Spar incident: “A shell of a mess” ’, Harvard Business School case 9-597-013 (revised 14 January 1997). Lise, W., R.S.J. Tol and B. van der Zwaan (2001), ‘Negotiating climate change as a social situation’, Fondazione Eni Enrico Mattei (FEEM) Working Paper No. 44.2001 (June 2001), Milan, Italy, available at http://ssrn.com/abstract=278512. Locke, John (1689), A Letter Concerning Toleration, J.H. Tully (ed.) (1983), Indianapolis, IN: Hackett. Lomborg, Bjørn (2001), The Skeptical Environmentalist: Measuring the Real State of the World, Cambridge, UK and New York: Cambridge University Press. Löschel, A. and Z. Zhang (2002), ‘The economic and environmental implications of the US repudiation of the Kyoto Protocol and the subsequent deals in Bonn and Marrakech’, Fondazione Eni Enrico Mattei (FEEM) Working Paper No. 23.2002 (April 2002), Milan, Italy, available at http://ssrn.com/ abstract =299463. Meidinger, E. (2001), ‘Law making by global civil society: The forest certification prototype’, paper prepared for the Conference on Social and Political Dimensions of Forest Certification, University of Freiburg, Germany, June 20–22, 2001 (revision 2.2, 21 March 2002), available at http://ssrn.com/abstract=304924. Melcer, R. (2002), ‘Solutia seeks to shift focus of investors; its share price has suffered amid litigation involving PCBs’, p. C1, ‘Alabama pollution lawsuits target Solutia’, p. C15, St. Louis Post-Dispatch,15 September. Melcer, R. (2003), ‘Solutia hopes to reduce number of claimants, then settle Alabama PCB case’, St. Louis Post-Dispatch, 1 February, Business 4. Mitchell, R.K., B.R. Agle and D.J. Wood (1997), ‘Toward a theory of stakeholder identification and salience: Defining the principle of who and what really counts’, The Academy of Management Review, 22 (4), 853–86.


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Näsi, J., S. Näsi, N. Philips and S. Zyglidopoulos (1997), ‘The evolution of corporate social responsiveness: An exploratory study of Finnish and Canadian forestry companies’, Business & Society, 36 (3), 296–321. Ogden, S. and R. Watson (1999), ‘Corporate performance and stakeholder management: Balancing shareholder and customer interests in the U.K. privatized water industry’, The Academy of Management Journal, 42 (5), 526–38. Oliver, C. (1991), ‘Strategic responses to institutional processes’, The Academy of Management Review, 16 (1), 145–79. Petit, C.W. (2003), ‘A darkening sky: A smoky shroud over Asia blocks both sun and rain’, U.S. News & World Report, 17 March, 46–8. Reid, T.R. (1997), ‘Malaysia’, National Geographic, 192 (2, August), 100–121. Reinicke, Wolfgang H. (1998), Global Public Policy: Governing Without Government?, Washington, DC: Brookings Institution Press. Roosevelt, Anna C. (ed.) (1994), Amazonian Indians from Prehistory to the Present: Anthropological Perspectives, Tucson, AZ: University of Arizona Press. Rowley, T.J. (1997), ‘Moving beyond dyadic ties: A network theory of stakeholder influences’, The Academy of Management Review, 22 (4), 887–910. Rudel, Thomas K. with Bruce Horowitz (1993), Tropical Deforestation: Small Farmers and Land Clearing in the Ecuadorian Amazon, New York: Columbia University Press. Savage, G.T., T.W. Nix, C.J. Whitehead and J.D. Blair (1991), ‘Strategies for assessing and managing organizational stakeholders’, The Academy of Management Executive, 5 (2), 61–75. Schelling, T.C. (2002), ‘What makes greenhouse sense?’, Foreign Affairs, 81 (3), 2–9. Starik, M. and G.P. Rands (1995), ‘Weaving an integrated web: Multilevel and multisystem perspectives of ecologically sustainable organizations’, The Academy of Management Review, 20 (4), 908–35. Sun, J.W. (2002), ‘The Kyoto negotiations on climate change – An arithmetic perspective’, Energy Policy (Kidlington), 30 (2, January), 83–5. Sundakov, A. (2002), ‘The Kyoto Protocol: Emotion or realism?’, Chartered Accountants Journal of New Zealand, 81 (4), 41. Svendsen, Ann (1998), The Stakeholder Strategy: Profiting from Collaborative Business Relationships, San Francisco, CA: Berrett-Koehler. The Academy of Management Review, ‘Special topic forum on ecologically sustainable organizations’ (1995), 20 (4), 873–1089. The Academy of Management Review, ‘Special topic forum on time and organizational research’ (2001), 26 (4), 507–663. Thorning, M. (2001), ‘Climate change policy critical to US energy, economic security’, Oil & Gas Journal, 99 (44), 22–36. Utting, Paul (2000), Business Responsibility for Sustainable Development, Geneva: UN Research Institute for Social Development, Occasional Paper 2. Van Dyk, J. (1995), ‘The Amazon’, National Geographic, 187 (2, February), 2–39. Verweij, M. (2001), ‘A snowball against global warming: An alternative to the Kyoto Protocol’, Max Planck Project Group Preprint No. 2001/11 (August 2001), Bonn, Germany, available at http://ssrn.com/abstract=296369. Victor, David G. (2001), The Collapse of the Kyoto Protocol and the Struggle to Slow Global Warming, Princeton, NJ: Princeton University Press. Wallace, S. (2003), ‘Into the Amazon’, National Geographic, 204 (2, August), 2–27. Wattenberg, B.J. (2003), ‘A new demography: It will be smaller world after all’, Houston Chronicle, 15 March , 4C.

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5. Toward stakeholder responsibility and stakeholder motivation: systemic and holistic perspectives on corporate sustainability Nikolay A. Dentchev and Aimé Heene1 INTRODUCTION Alarming developments in the natural environment such as global warming, air pollution, acid rain, toxic wastes, the depletion of the ozone layer and the extinction of non-renewable resources have led to a growing awareness of the socio-economic consequences that may result from such environmental problems (Shrivastava 1994). In addition, it is generally perceived that organizations have significant impact on these alarming social and environmental developments (Starik and Marcus 2000). Unsustainable corporate practices and industrial accidents with significant impact (e.g. Chernobyl, Bhopal or Exxon Valdez) have drawn a lot of attention to business performance with respect to sustainability. Yet, scholarship in Organizations and the Natural Environment (ONE), interest group of the Academy of Management, has predominantly focused on the interaction between organizations and the natural environment, and on deepening our understanding of sustainable organizational forms and their impact on ecosystems and social welfare (Sharma 2002). The above-mentioned environmental developments and the acute inequalities in welfare distribution across the world have encouraged scholars to rethink the way modern societies should develop. As a result, the concept of corporate sustainability has been developed, referring to ‘the need [for organizations] to improve social and human welfare while reducing the ecological footprint and ensuring the effective achievement of organizational objectives’ (Sharma 2002, p. 13). Operating with respect for the natural environment is apparently not in conflict with the organizational function to generate profit, i.e. to build and sustain competitive advantage (e.g. AragónCorrea and Sharma 2003; Porter and van der Linde 1995). As to the meaning

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of organizational success, the sustainability principle suggests that the notion of ‘indefinite organizational growth’ should be replaced with the notion of ‘indefinite organizational development’ (Gladwin, Kennelly and Krause 1995, p. 897). This view on corporate sustainability advocates a broader scope of managerial decision-making as opposed to exclusive egocentered, techno-centered, and anthropo-centered strategies. It thus advances the simultaneous integration of principles such as economic welfare, social equity and environmental preservation in the organizational performance. However, the eco-centric management view on sustainability (Shrivastava 1995a) takes a rather extreme stand: A central feature of postindustrial modernization is the proliferation of technological and environmental risks and crises. (Shrivastava 1995a, p. 118) Eco-centrism calls for questioning the very concept of organizations. If the organizational environment is viewed as an eco-biosphere, it forces those in the field of management to question the simplistic assumption that organizations are innocent systems of production that produce products desired by consumers. Accordingly, this theory suggests that organizations also must be seen as systems of destruction because they systematically destroy ecological value…Objectives of the firm that maximize (or satisfice) variables like profits, revenues, and productivity are incomplete and inadequate. Such objectives also must include minimizing the negative and destructive effects of organizational activities. (Shrivastava 1995a, p. 134)

Critics of such an approach have noted: ‘[G]reen business evangelists appear to fall foul of their own rhetoric in appearing to believe that their eco-change rationales will work because they “must” do, since managers “will have to act” etc’ (Newton and Harte 1997, p. 93). The extreme eco-centric view on sustainability would incorrectly suggest that business should take the full responsibility for causing as well as finding solutions to all negative social and environmental developments. Claiming that business is fully responsible for sustainability would suggest that one makes at least three fallacious assumptions. First, it suggests that markets are only driven by supply and that demand is irrelevant in modern economies. Second, it suggests that market failure should be completely neglected and that market regulators cannot contribute to sustainable development. Third, it suggests, above all, that businesses are fully accountable for the limitations of science in general and of technology in particular. Yet, the ONE literature acknowledges ‘the desirability of economic and technological development that builds natural capital rather than depletes it, that enhances human welfare and builds healthier societies rather than deepens social divisions that lead to conflicts and acts of terrorism’ (Sharma 2002, p. 2). Moreover, Shrivastava (1995b)

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acknowledges the existence of ‘many wheels of sustainability’, referring to the contribution of consumers and governments to the sustainable development of societies. However, the role of social groups, other than companies, for advancing sustainability has remained under-researched. The authors will therefore advocate in this chapter an approach to sustainable development that integrates the joint efforts of multiple groups. The chapter is organized as follows. The first section argues that responsibilities for sustainability are subjective, dynamic, holistic and systemic, to conclude (1) that stakeholder responsibilities for sustainability are relevant at the global level of analysis; and (2) that companies should consider views on corporate sustainability as an ‘alarm bell’ at the organizational level of analysis. The second section integrates the responsibilities of organizations, policymakers, consumers and science in a global sustainability perspective. The next section proposes a stakeholder motivation process, which in a sense institutionalizes the ‘alarm bell’ of all (primary and secondary) stakeholder views on corporate sustainability. This chapter concludes by pointing out the implications of the advances on ‘stakeholder responsibilities’ and ‘stakeholder motivation’ for future research, for management and for policy-makers.

SUSTAINABLE DEVELOPMENT AND THE NOTION OF RESPONSIBILITY A generally accepted definition of sustainability has been proposed by the World Commission on Environment and Development at the macroeconomic level (Reinhardt 2000) or at the global level of analysis (Sharma 2003).2 It refers to ‘a process of change in which the exploitation of resources, the direction of investments, the orientation of technological development, and institutional change are all in harmony and enhance both current and future potential to meet human needs and aspirations’ (Brundtland 1987, p. 46). This definition is translated at the organizational level of analysis into concrete corporate responsibilities for sustainability. Advocating systemic and holistic perspectives on corporate sustainability, it will be argued that not only organizations but also their constituents or stakeholders have responsibilities for advancing the sustainable development of societies. The authors will develop these arguments, adapting knowledge from the ‘Corporate Social Responsibility’ (CSR) literature (Carroll 1999; Windsor 2001). Corporate Responsibility for Sustainable Development The sustainability literature has emphasized that companies should integrate their social, ecological and economic performance (e.g. Sharma 2002).

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Research has shown that companies should broaden their predominant concern with economic issues and take into account social and environmental issues (Elkington 1997; Waddock 2000). This perspective opposes those (limited) neo-classical claims that argued for a single (i.e. economic) function of organizations in society (Friedman 1962, 1970; Levitt 1958). Yet, the separation thesis was overcome (Wicks 1996), and economic, social and environmental issues of corporate performance are now generally described as inseparable (Herkstöter 1999). Despite such broader views on the organizational function in society, there is a need to look beyond the corporate responsibility for sustainability in attempting to advance sustainable development. Sustainability is the result of a continuous interplay between organizations and all other social actors. In this context, corporate responsibilities (social, environmental and economic) should be evaluated within the concrete interactions between an organization and its stakeholders (Carroll 2000; Griffin 2000). Moreover, Rowley (1997) demonstrates that the interactions between companies and their stakeholders are not dyadic in nature, as shown in the early work of Freeman (1984), but are rather based on complex network influences. Companies are hence complex systems that involve their stakeholders in the creation and the realization of products or services. Stakeholders affect (and are affected by) the actions of organizations (Freeman 1984). Corporate constituents thus determine the competitive position of the company and its environmental performance, since they influence, either directly or indirectly, the utilization of production factors in the production process. The authors refer here to the systemic perspective on sustainability, described in Starik and Rands (1995, p. 917) as ‘weaving a web of an organization’s sustainability relationships with individuals, other organizations, political-economic entities, and socialcultural entities’. Yet, stakeholders can also contribute to build sustainable relationships with the corporation. The complex matter of corporate responsibility for sustainability is also a function of dynamics: dynamics in stakeholder importance, dynamics in issues importance and dynamics in (appropriate) responsiveness to those issues. First of all, stakeholders differ in their salience to the firm via a combination of the power, legitimacy and urgency attributes (Agle, Mitchell and Sonnenfeld 1999; Mitchell, Agle and Wood 1997). In this context, stakeholders are not static but dynamic groups, whose claims could possibly change in power, legitimacy and urgency (Mitchell et al. 1997). This means in practice that latent stakeholders may become active, provided that a stakeholder with one attribute of a claim (power, urgency or legitimacy) acquires one or two more. Hence, the firm’s ‘latent’ attention to these constituents has to go through the same metamorphosis in order to secure the longevity of the business. Stakeholder dynamics imply as well that active


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stakeholders may become latent, if they reduce at least one attribute of their claims (power, urgency or legitimacy). Companies should observe and adapt to this sort of change in stakeholder importance. Consequently, organizations that are not committed to the natural environment will attempt to advance sustainability in building relationships with salient stakeholders if this is a central issue to those groups. Conversely, organizations committed to the natural environment will always attempt to advance sustainability, unless relatively powerful stakeholders find it unnecessary. Second, companies are confronted with dynamics in the importance of issues they need to address (Carroll 1979; Waddock and Boyle 1995). These issues tend to change over time, differ among industries and differ among social systems. Generally, all issues are embedded in the interactions between the company and its stakeholders (Mahon and Waddock 1992). Two or more parties (company and stakeholders) construct issues by interpreting key events (Lamertz, Martens and Heugens 2003). It is therefore likely that companies address those issues that are central to salient stakeholders. Even the importance given to a certain category of issues such as the environmental evolves (e.g. Hoffman 1999), which means that not only the problems in the natural environment evolve themselves, but also the awareness and the understanding of those problems. And third, dynamics in stakeholder salience and in the importance of environmental issues necessitates a dynamic responsiveness to those. Companies can adopt various responsiveness strategies (varying from proactive to reactive, and from doing much to doing nothing). Adapting a particular strategy to respond to an environmental issue is a reflection of the managerial interpretation of the importance of that issue (Sharma 2000). Moreover, what is being evaluated today as a responsible responsiveness toward sustainability might not be considered as such tomorrow (Zanisek 1979, p. 360). It should be mentioned here that sustainability definitions are characterized by their cognitive construction (e.g. Jennings and Zanderbergen 1995). It is therefore likely that a company and its stakeholder would give a different meaning to what sustainability implies, not to mention what their roles should be in a sustainable relationship. Different parties (evaluators, organizations or corporate stakeholders) (1) have conflicting interests (Jensen and Meckling 1976); (2) are interested in different sorts of information (issues) (Dutton and Webster 1988); or (3) diverge in their interpretations of information due to the differences in their environments or due to the differences in their experiences (Daft and Weick 1984). Consequently, different parties are likely to have dissimilar and sometimes conflicting opinions on what are the concrete responsibilities of organizations and their stakeholders in a sustainability context. For instance, one party in the

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corporate internal environment (e.g. the employees) may judge the company to have certain responsibilities towards a particular environmental problem, while another party (the management) may not accept this point of view. A disagreement on the responsibilities of organizations can also occur between ‘external’ stakeholders (e.g. environmental legal bodies and environmentalists). The responsibilities defined by ‘external’ parties (e.g. NGOs) and ‘internal’ parties (e.g. management) may also diverge. Overall, evaluations of responsibilities for sustainability are cognitively determined, unless there are specific, generally accepted prescriptions of responsible conduct with respect to the natural environment (e.g. legislation). These cognitive biases are impeding companies to build sustainable relationships with their stakeholders. In sum, sustainability is a complex matter due to its systemic, dynamic and cognitive characteristics. It would be therefore unrealistic to expect that only organizations can contribute to sustainability advancements. In addition to corporate efforts, organizational stakeholders need to engage in sustainability practices. However, the authors do not suggest that the corporate responsibility for sustainability should diminish in favor of the stakeholders’ responsibilities for sustainability. Instead, organizations need to adopt a holistic attitude toward all issues and all stakeholders in order to assess comprehensively the dynamic evolution of complex sustainability matters. Organizations are responsible for even unconscious negative impact on society and the natural environment. Mistakes are possible, but are not legitimate excuses for causing harm to others. Whose Responsibility? Integrating systemic, holistic, dynamic and cognitive notions in the analysis of sustainability has at least two implications. On the one hand, at the global level, a systemic perspective on sustainability (Costanza and Wainger 1993; Kay, Regier, Boyle and Francis 1999) suggests that companies have only a partial impact on alarming environmental and social developments (Gladwin et al. 1995). Consumers, regulators, scientists, information intermediaries and all other ‘institutions’ in society are also responsible for the (un)sustainable development of society, and should take their ‘stakeholder responsibility’ in cooperation with companies (Andriof, Waddock et al. 2002). As long as other ‘institutions’ in the social system ignore sustainability, the contribution of companies to the sustainable development of that system will be only marginal and may even have negative implications for the competitiveness of those companies. On the other hand, according to the subjective perspective, stakeholder views on corporate sustainability (e.g. this chapter) are only an indication


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of the organizational impact on the alarming social and environmental developments. Views of others are context-dependent and cognitively determined (Kahneman and Lovallo 1993; Simon 1982). Therefore, those opinions should be seen as ‘alarm bells’ for corporate performance rather than as ‘duties’ that organizations must fulfill. A ringing alarm does not imply a duty to react, unless the organization is convinced that a reaction is necessary. It is therefore advisable for companies to analyze and evaluate continuously what their impact is on the corporate constituents, and vice versa. In other words, managers always need to evaluate and assess the dynamics in the environment. These dynamics require a holistic focus on corporate stakeholders, assessing possible changes in interests and capabilities of all corporate constituents. After all, such holistic focus on primary and secondary stakeholders represents an instrumental approach to corporate sustainability. It is meant to enable practitioners to distribute the organizational value to all corporate constituents in an effective way. As a result of effective value distribution, it is argued that stakeholders will be motivated to collaborate. These ideas, advocating stakeholder responsibility and motivation are further developed in the next two sections.

STAKEHOLDER RESPONSIBILITIES FOR SUSTAINABILITY As already mentioned above, the eco-centric view on sustainability leaves the general impression that business should take full responsibility for extant negative social and environmental developments. Such a thesis incorrectly suggests that at least three groups – customers, scientists and policymakers – are dismissed from responsibility in the sustainability debate. The authors propose to integrate four different groups – policy-makers, consumers, scientists and business – in the analysis, attempting to analyze their responsibilities toward sustainable development. They acknowledge the limitations of that attempt, as responsibilities for sustainability at the global level of analysis are not (and should not be) limited only to policymakers, consumers, scientists and business. A focus on these four groups, however, represents an alternative analysis to the multilevel approach to sustainability (Starik and Rands 1995). To Starik and Rands organizations have a central role in a sustainability context, so these authors look at the corporate relationship with nature, with employees (as an example for individuals), with other organizations, with governments and with society. This perspective is complemented here by describing sustainability as the result of four different mechanisms to advance the overall sustainable development of society.

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If businesses are to be fully responsible for sustainability, then organizations (can) work with technologies that minimize their footprint, i.e. their negative influence on people and the natural environment. ‘Can’ means that if such technology does not exist as yet, one should be able to develop it. Although the authors fully agree with the necessity for developing technologies that enable organizations to minimize their negative impact on both society and the natural environment, they have to disagree with any suggestion that only business should be blamed for not developing such technologies. This view is supported by Healy (1995), who argues that ‘[in the context of sustainability] technological change, the development of new technological systems, is the result of a broad, complex interplay of forces in which no one element can be perceived to be dominant’. (p. 616) A ‘complex interplay of forces’ refers to the contextual framework, including extant scientific, political, economic and social aspects in which new technologies are developed. Although all other forces (political, economic and social) have a joint responsibility for scientific evolutions, scientists should in the first place be held responsible for the current development of science. Since scientists participate in the research and development processes of firms, they should be held responsible for the development of technologies that minimize the negative impact of organizations on both people and the natural environment. Consumers determine the demand for products with environmental and social features (Green, Morton and New 2000). Green et al. (2000) use the term ‘consumers’ in its broadest meaning, referring to ‘end users’ such as families or individuals, governments and organizations. Organizations might have a negative impact on people and the natural environment, but in modern capitalist economies companies are operating in the function of meeting the demand of consumers. Mohr, Webb and Harris (2001) conducted a study on the influence of social and environmental product features on consumer purchasing behavior.3 They report that only a small but articulate group of consumers actively consider corporate social responsibility as a criterion for purchase. The reasons for this fairly low demand for products with environmental and social features are twofold: ‘(1) selfinterest manifested in buying based on the traditional criteria of price, quality, and convenience, combined with the assumption that using CSR would compromise their choices on these criteria, and (2) low level of knowledge and difficulty obtaining information on the social responsibility records of companies’ (Mohr et al. 2001, p. 68). If there is no demand for products with social and environmental features, organizations will suffer a competitive disadvantage. Therefore, consumers should be partially held responsible for the (un)sustainable development of society. The existence of information problems – scarcity, selection and incentives (Stiglitz 2000) – is broadly accepted in the sustainability debate. In the


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Stiglitz framework, scarcity refers to information availability, while the problem of information complexity (or lack of knowledge) is inherent to selection, resulting in a necessity for certificates4 or increased motivation to search. As to incentives, Stiglitz refers to the problem of moral hazard (Mirrlees 1997), in which (due to information inefficiency) people ignore their promises. Information problems with respect to sustainability translate in (1) lack of information, (2) lack of understanding, (3) difficulties in finding information or (4) reliability problems. Policy-makers can thus contribute to sustainability by regulating these market frictions. There is an opportunity for policy-makers to educate consumers (Mohr et al. 2001), to stimulate science and technology development (Healy 1995), and to ensure ‘well-designed’ regulations for business (Majumdar and Marcus 2001).5 In doing so, incentives are created so as to bridge the sustainability problems of information scarcity and moral hazard, as well as the problems of finding and understanding the relevant information to take decisions that conform to the sustainability principles. In short, policy-makers should be partially held responsible for sustainability. It should be emphasized here that the four parties discussed – policymakers, consumers, scientists and business – simultaneously face similar and different challenges to advance sustainability. In this context, all parties (i.e. organizations and their stakeholders) experience the abovementioned information problems. Another similarity among stakeholders is the scarcity of resources that determines their sustainability related decisions. However, stakeholders have different roles in contributing to sustainability. Products with social and environmental features result from the innovative developments of science; they are either supply (push) driven or demand (pull) driven; and policy-makers (may) stimulate such production. Those are four different drivers for the emergence of sustainability products. The above discussion is, moreover, inconsistent with the (perceived) argument that organizations should be fully responsible for the sustainable development of society. Companies are only one group in the social system that can contribute to the sustainable development of nations, and it would be inappropriate if only business was blamed for the negative developments in society and the natural environment. Stakeholder responsibilities for sustainability need to be well integrated in a joint effort, based on a long-term vision (Hart 1995).

THE PROCESS OF STAKEHOLDER MOTIVATION Stakeholder responsibilities have been suggested when incorporating the subjective, dynamic, systemic and holistic responsibility notions into the

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principles of sustainable development at the global level of analysis. At the organizational level of analysis, an integration of these notions implies that companies consider subjective stakeholder views on corporate sustainability as an ‘alarm bell’ and not as a duty. When the bell rings, managers need to decide upon an appropriate corporate responsiveness, adopting a proactive, an accommodative, a defensive or a reactive strategy (Carroll 1979). However, Sharma (2000) has shown in his research that responsiveness strategies to the natural environment are dependent on the managerial interpretations of the importance of environmental issues. An environmental issue is important to a company if it is central to the primary corporate constituents. This argument is built on the ideas of Clarkson (1995), who argues that organizations are dependent on their primary stakeholders (i.e. shareholders and investors, employees, customers, suppliers and policy-makers),6 and therefore need to realize the necessity of distributing wealth and value created by the corporation among those primary stakeholders, to conform to the principles of fairness and balance. Dependency refers to the degree of control over specific (resource related) decisions (Russett 1984). It is therefore appropriate to say that primary stakeholders control critical resources, and hence are a criterion for organizational survival. This view is supported by the work of Ulrich and Barney (1984, p. 477), who argue that ‘both efficiency and resource dependence perspectives posit the development of stable, low cost resource relations as a precursor to organizational survival over time’. In other words, primary stakeholders can directly influence the organizational sustainability strategies (Sharma and Henriques 2003). Distribution of value, as Clarkson (1995) suggests, is a motivation for the primary stakeholders to take resource-related decisions, which are favorable for the organization, and as a consequence secure its longevity. Attention to secondary stakeholders is inappropriate in the Clarkson (1995) framework, since the organization is in no way resource-dependent on those constituents. Such a stance suggests that managers would consider environmental issues as not important, if those issues were central only to secondary stakeholders. However, ignoring the environmental interests of secondary stakeholders can endanger the longevity of organizations, for two reasons. First, Sharma and Henriques (2003) empirically demonstrate that secondary stakeholders can influence the sustainability strategy of organizations via indirect pathways, i.e. influencing primary stakeholders who have a direct impact on the organization. Second, companies are confronted, as already mentioned, with stakeholder dynamics. Theoretic and empirical research shows that stakeholder salience (in aggregation of legitimacy, urgency and power) can change over time (Agle et al. 1999; Mitchell et al. 1997). Parallel to this, Jawahar and McLaughlin (2001) argue that the nature


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of risk changes during the organizational life cycle, since stakeholders vary in importance over time, due to changes in their potential to satisfy critical organizational needs. So secondary stakeholders may become primary stakeholders due to dynamics in the stakeholder space and environmental issues central to them will then become important to management. Moreover, attention to primary stakeholders only refers to awareness of resources and capabilities that are currently critical for an organization. However, organizations should be aware of resources and capabilities that will be critical in the future. In this context, competitive companies establish a ‘strategic fit’ between their dynamic outside environment and inside reaction capacity (Hoskisson, Hitt, Wan and Yiu 1999). In other words, new practices, new techniques and new opportunities inspire companies to enhance their competitive potential. Consequently, organizations invest in strengthening their network ties so as to have leverage for such inspiration (McEvily and Zaheer 1999). In their research, McEvily and Zaheer studied the networking within regional institutions, defined as ‘locally-oriented organizations that provide a host of collective support services to firms in the region’ (e.g. technical assistance centers, university outreach programs, vocational training centers and local research institutes). They concluded that participation in regional institutions is positively related to the assimilation of competitive capabilities. Translated into the Clarkson (1995) framework, regional organizations are secondary stakeholders. Evidence clearly points to the importance of secondary stakeholders in enhancing the competitiveness of organizations. Attributing motivation strategies to primary stakeholders only, as Clarkson suggests, would lead to inertia (Sull 1999) that endangers the competitive position and the survival of companies. Stakeholder motivation is the process of value distribution to the corporate constituents, who in return provide the organization with faster access to ‘better’ and/or ‘cheaper’ resources than its competitors. The literature on organizations in the natural environment has shown that practitioners with different profiles of commitment (e.g. proactive vs. reactive) to the natural environment tend to perceive different stakeholder groups as important (Buysse and Verbeke 2003; Henriques and Sadorsky 1999). If an organization fails to acknowledge the importance of a particular stakeholder, (1) it might not adopt the most appropriate motivation strategy towards that particular stakeholder (to provide access to resources and capabilities); or (2) it might neglect its claims. In both cases stakeholders can react adversely, varying from not providing (faster) access to cheaper and/or better resources to withdrawing the organizational ‘license to operate’. It should therefore be emphasized that it is of equal significance to assess the stakeholders’ importance as to promptly identify the changes in stakeholders’ importance. Assessing the power and

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the dependency (Frooman 1999) of stakeholders vis-à-vis organizations is important to describe the resource relationships and the influence strategies of corporate sustainability. However, the power/dependency classification may force practitioners into inertia, a disregard of the changes in stakeholder importance or of the indirect influences on the environmental strategies of organizations (Rowley 1997; Sharma and Henriques 2003). In sum, attention is required not only to critical stakeholders with a potential to contribute to the organizational resources, but also to dynamic evolutions in the stakeholder space when evaluating the importance of environmental issues. However, Buysse and Verbeke (2003, p. 467) found that only ‘firms adopting an environmental leadership strategy clearly view as critical a broader range of stakeholders …’ Organizations need therefore to ‘institutionalize’ the attention to secondary stakeholders. Moreover, conflicts can occur among stakeholders for the amount of value that should be distributed to them. Taking into account all this (stakeholders, dynamics and conflicts), organizations distribute value as a motivation factor to all their constituents. Value distribution motivates stakeholders to provide organizations with faster access to cheaper and/or better resources. The level of stakeholder motivation gives valuable feedback on the effectiveness of the whole process so as to eventually suggest necessary adjustments. A summary of the process of stakeholder motivation is proposed in Figure 5.1, followed by a brief explanation of the rationale behind the different sub-processes.

Identify Stakeholder: 1. Space 2. Interests

Evaluate Stakeholder’s: 3. Contribution to firm’s resources 4. Willingness 5. Ability

6. Identify potential conflicts

Value distribution as motivation factor

Stakeholder motivation

Figure 5.1

Stakeholder motivation process


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Stakeholder Identification and Evaluation Sub-processes In order to organize a comprehensive stakeholder motivation process, the following sub-processes, inspired by the literature on stakeholder management (e.g. Clarkson 1994; Freeman 1984; Freeman and Liedtka 1997; Mitchell et al. 1997), are proposed: 1. 2. 3. 4. 5.

6.

identify those parties that can be qualified as a ‘stakeholder’; identify the stakeholder’s stake in the firm and as a result the stakeholder’s interest(s); evaluate how the stakeholder contributes to the firm’s resources and capabilities base; evaluate the willingness of stakeholders to provide (access to) resources and capabilities; evaluate the ability of stakeholders to build ‘better’ and/or ‘cheaper’ resources that are set at the disposal of the firm, or to increase the speed with which the firm can gain access to these resources and capabilities; identify and evaluate potential conflicts between the stakes of all stakeholders.

The six phases of these identification and evaluation sub-processes, presented in Figure 5.1, are a permanent process. They should be continuously repeated, because of (1) the stakeholder dynamics, (2) the dynamics of issues, and (3) the dynamics in corporate responsiveness. Those dynamics can lead to misidentifications or misevaluations of stakeholder’s interests and importance, which will most probably result in an inadequate motivation strategy. Overall, this actually represents a learning (trial and error) process in stakeholder motivation and problem solving. Identification of the Stakeholder Space and Interests (Phases 1 and 2) The corporation needs to clearly identify which stakeholders are considered ‘important’ in influencing the corporate sustainability strategies. It must be emphasized that a too ‘narrow’ definition of important stakeholders (i.e. the primary stakeholders, as defined by Clarkson, [1995]) can lead to an underestimation of the ‘importance’ and a lack of response to particular environmental issues. On the other hand, a too ‘broad’ definition (primary and secondary stakeholders) of the stakeholder space can lead to inefficient and ineffective corporate sustainability performance, i.e. responding to some environmental issues that lack a strategic importance. Therefore, managers need to consider the potential importance of both primary and secondary stakeholders as an influence factor in developing organizational

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sustainability strategies, without losing sight of the main organizational objectives. Once the stakeholder space is identified, one should focus on the identification of specific stakeholder interests. Organizations can base their motivation strategies on (1) responding to stakeholder interests; and on (2) not negatively affecting these interests. This will lead to a reduction of agency costs (Jensen and Meckling 1976) and to the alignment of stakeholder objectives with corporate objectives. Evaluation of Stakeholders’ Willingness and Ability to Provide Resources (Phases 3, 4 and 5) Stakeholders should be willing to provide the organization with faster access to cheaper and/or better resources. The reciprocity perspective (Fehr and Gächter 2000) suggests that stakeholder willingness depends on corporate sustainability strategies that organizations implement, at least in those cases that corporate constituents are committed to the natural environment. In other words, corporate constituents base their views on corporate sustainability on their perceptions of the organizational performance. The more attempts a corporation makes to minimize its negative impact and maximize its positive impact on people and the natural environment (by performing ‘better’ stakeholder management processes), the higher the willingness of stakeholders to provide faster access to better and/or cheaper resources and capabilities. The stakeholder’s willingness alone is necessary but not sufficient, however. In addition to their ‘willingness’, stakeholders must be ‘able’ to provide the organization with critical resources and capabilities. For instance, employees willing to perform at the highest possible level need to have the requisite competences and appropriate facilities to do so. Identification and Evaluation of Potential Conflicts (Phase 6) Stakeholders have different (if not conflicting) interests, described by Jensen and Meckling (1976) as the agency problem.7 Unfortunately, not all stakeholder groups have an interest in advancing the organizational contribution to the natural environment. Therefore, different motivation strategies (incentives) are necessary for various constituents of the firm. Scarcity of time, resources and capabilities implies that (in certain situations) the preferences of (some) stakeholders may remain unanswered. Apart from scarcity, some stakeholders’ preferences may not get a response due to the lack of legitimacy of their claims. These two cases refer to the deliberate decision of organizations to leave specific stakeholder preferences (e.g. from environmental groups) unanswered. As opposed to these motivated decisions, stakeholder


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preferences may be ignored simply because organizations neglect to identify those preferences. Hence, executives should explain the background of their decisions (not to respond to particular stakeholder preferences) so as to make the position of their organization stronger (Herkstöter 1999, p. 14). Balancing divergent stakeholders’ interests, or being responsible rather to the entire stakeholder space than to a single stakeholder group, will ensure the longevity of the company. The identification and evaluation sub-processes are value-consuming. The value ‘consumed’ depends on the conditions, in which the process is undertaken. In order to perform these sub-processes, organizations use resources and capabilities built up in the past. In order to complete the stakeholder motivation process, companies distribute value to the stakeholders in function of the above six phases. The Sub-process of Value Distribution The value, distributed in this sub-process, can be of a financial or of a nonfinancial nature. Value distribution of a financial nature implies a transfer of money to the stakeholders. Examples for such pecuniary transfers are payments of dividends, corporate taxes, above-average (or extra-legal) wages and fringe benefits or returns of premiums. In the case of sustainability, examples of financial value distribution are investments in environmentally friendly technology, in safety measures or in health measures. Non-financial value distribution is not necessarily less costly, even though it does not imply a transfer of money to the stakeholders. Examples of non-pecuniary transfers are ensuring quality, sharing knowledge and making credible commitments (McEvily, Das and McCabe 2000). The latter should aim at enhancing green production processes in the case of value distribution to stakeholders for whom environmental issues are central. Overall, the sub-process of value distribution allows the organization to satisfy stakeholders’ needs and preferences. As a result of value distribution, organizations ‘motivate’ their stakeholders. Motivated stakeholders give the corporation access to critical resources and capabilities and secure the organizational longevity. Hillman and Keim (2001, p. 135) found that ‘investing in stakeholder-management may be complementary to shareholder value creation and may indeed provide a basis for competitive advantage as important resources and capabilities differentiate a firm from competitors’. Stakeholder Motivation Finally, the process of stakeholder motivation addresses the question of whether the value distributed to (primary and secondary) stakeholders has

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the effect that it initially intended. The intention of the overall process is at the minimum level to contribute to the organizational survival, if not to build and sustain the competitive advantage of organizations. Keeping this intention in mind, managers need to evaluate the effect of their stakeholder motivation strategy and if necessary to adjust it. In effect, two questions are relevant here. The one is whether changes in the mode of value distribution lead to changes in the perceived views on corporate sustainability. The other addresses whether changes in perceived views on corporate sustainability lead to faster access to cheaper and/or better resources. Those questions can be preferably answered in two stages. First, the impact on specific stakeholders should be measured, as defined in phase 1 of the identification and evaluation sub-process. This will give valuable feedback to managers on the logic of their decision-making in the stakeholder motivation process. Second, the integrated impact of value distribution on the overall organizational performance needs to be measured, so as to give feedback on the overall process of stakeholder motivation. This feedback will indicate whether adjustments are necessary at any stage of the process of stakeholder motivation.

DISCUSSION This chapter advances the systemic and holistic perspectives in the literature on organizations in the natural environment. Its systemic perspective advocates the integration of organizational and stakeholder responsibilities for sustainability at the global level of analysis. Its holistic perspective advocates a process of stakeholder motivation, in which the different views on corporate sustainability are seen as ‘alarm bells’. As these views on stakeholder responsibility and stakeholder motivation have not been explored yet in the ONE literature, it is opportune to speculate in this section on the implications of the authors’ ideas for management, for policy-makers and for future research. Implications for Management Acknowledging stakeholder responsibilities for sustainability must be a pleasant relief for managers (Windsor 2002), since business is generally considered to be a major factor for advancing sustainability. Executives should not, however, perceive tenets on stakeholder responsibilities for sustainability as a victory over decennia of criticism. The overall attitude of companies toward sustainability has contributed to forming the critical and prescriptive language used in the ONE literature. In other words, the


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general perception that organizations have significant impact on the alarming social and environmental developments (Starik and Marcus 2000) is a reflection on how the available information on corporate performance has been interpreted. Interpretation is a matter of understanding and availability of information on specific facts. Therefore, executives should consider the authors’ views on stakeholder responsibility as an invitation for constructive collaboration to sustainable development. Constructive collaboration requires from organizations attitudes of open communication, knowledge sharing, a spirit of continuous improvement and stakeholder involvement to guarantee that the sustainability principles are successfully integrated in the overall corporate culture. However, organizations should stimulate their constituents to share the same values and attitudes. The process of stakeholder motivation, presented in Figure 5.1, advances the importance of value distribution towards primary stakeholders, defended by Clarkson (1995), with the importance of value distribution towards secondary stakeholders. This implies that management needs to be aware of changes in stakeholder importance, in stakeholder needs and in stakeholder preferences, when evaluating the importance of environmental issues. It does not imply, however, that executives have to distribute equal amounts or kinds of value to all their constituents. Managers instead face the challenge to find the most appropriate mode of value distribution for each stakeholder, aiming at an overall improvement in corporate performance. This process of the motivation of primary and secondary stakeholders is quite complex, however, and managers are likely to unconsciously influence stakeholders or the natural environment in a negative way. Although mistakes remain possible, they should be no legitimate excuse for harming people and the natural environment. Thus, a reactive responsiveness strategy of value distribution is unlikely to motivate the negatively influenced stakeholders. Implications for Policy-makers Policy-makers contribute traditionally to the sustainable development of society by imposing regulations on industries and by stimulating scientific research. This chapter suggests that policy-makers have the opportunity to provide the necessary information on sustainability to, apparently, the majority of the citizens. In trying to bridge market frictions in the context of sustainability, policy-makers need to consult continuously the different social groups, e.g. civil society, organizations, investors, consumers, NGOs, media. As a result of such a broad consultation, policy-makers will be able to guide the development of a long-term strategy for the sustainability of their nation. ‘To guide’ means to develop a long-term vision for

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development, acknowledging the implications (positive and negative) of the required improvements toward sustainability. Policy-makers can also make mistakes in their decisions on sustainable development of societies. Such mistakes are easy to attribute to business, since the power structure between policy-makers and multinationals has become dramatically asymmetrical during the last decades. However, this is not an excuse for political decisions based on motives or principles in conflict with the sustainability concept (e.g. in the case of the Kyoto agreement). The multitude of political scandals worldwide suggests that ‘morality’ is not only a business problem – it is more of a human problem. Implications for Future Research The authors believe that the topic ‘stakeholder responsibilities for sustainability’ has the potential to become a fruitful field of research. More attention to stakeholder responsibility may lead to a comprehensive analysis of the potential threats and opportunities for collective action toward advancing sustainability. Consequently, strategies can be developed in order to realize the optimal improvement of performance. However, the attempt here to integrate the different stakeholder responsibilities for sustainability has been limited to four groups only, i.e. organizations, policy-makers, consumers and scientists. In advancing these ideas on stakeholder responsibilities for sustainability, scholars in ONE will therefore be confronted with numerous questions. A few of them might be: what are the responsibilities for sustainability of all those groups this chapter does not cover, e.g. of investors, shareholders, NGOs, media, employees, competitors and suppliers? Are there differences in stakeholder responsibilities for sustainability among organizations, industries and countries? If yes, what are the drivers of those differences? To what extent do stakeholder responsibilities for sustainability complement each other? To what extent do stakeholder responsibilities for sustainability supplement each other? How can complementary and supplementary responsibilities be integrated in a collective effort for sustainability advancement, as opposed to the systematic free-riding on sustainable development? The authors’ proposition on a process for stakeholder motivation is a reflection of the increasing need for instrumental approaches to corporate sustainability. Their contribution resides in the advocating of a holistic approach to both primary and secondary stakeholders, based on continuous process of stakeholder assessment. This process confirms the existence of numerous variables that moderate the link between improvements in corporate sustainability and organizational competitive advantage (Aragón-Correa and Sharma 2003). An alternative way to look at these


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moderating effects is to analyze the effectiveness of value distribution. It has been proposed that there are different sorts of value to be distributed to primary and secondary stakeholders. However, the contribution does not suggest a complete classification of what different groups perceive as valuable. This is also an opportune field for future research. Recent knowledge of stakeholder action (Rowley and Moldoveanu 2003) suggests that constituents not only make intention-driven decisions, but also identitydriven decisions. In this context, future research should focus on the drivers of decision-making, in order to reach a complete classification of value distribution.

CONCLUSION This contribution advocates two inclusive approaches to sustainability. One approach promotes organizational and stakeholder responsibilities for sustainability, attempting to integrate four different drivers of sustainable development – business, scientists, consumers and policy-makers. The other approach promotes the process of stakeholder motivation, suggesting that managers should pay attention to and distribute value to all corporate constituents. It would be a pleasure, if these ideas on stakeholder responsibility and motivation become an inspiration for future research, for policy-makers and for practitioners.

NOTES 1. The authors gratefully acknowledge the editors, Sanjay Sharma and Mark Starik for their helpful comments on earlier versions of this chapter. They would like to thank sincerely Johan Albrecht and Stefan Ivanov for discussing the authors’ ideas and for stimulating them to develop the ideas to the discourse presented here. The authors are also indebted to Annick Van Rossem, Simonne Vermeylen and Martine Braekman for their comments and suggestions on earlier drafts of this chapter. Gratitude is expressed to the Stichting Verantwoord Ondernemen from Amsterdam for its financial support. 2. One can distinguish among global, institutional, inter-organizational, organizational and individual levels of sustainability analysis (Sharma 2003). 3. Mohr et al. (2001) identify the missing knowledge in the literature and research on what consumers think about socially responsible and irresponsible companies. They contributed to that knowledge by conducting deep semi-structured interviews with 48 persons in a varied sample of respondents. Interviewees were anonymous, approached in public settings, and encouraged to discuss freely a phenomenon of interest, which contributed to the richness of data and with attention to minimizing social desirability response bias. To decrease rejection rates, US$10 was offered to respondents. 4. Certificates refer to any form of third party verification. 5. According to Majumdar and Marcus (2001, p. 170), well-designed regulations are ‘flexible and grant firms the latitude on how to meet goals, allow them time to deploy new means to meet goals, and set ambitious goals that stretch them beyond current practices’.

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6. ‘A primary stakeholder group is one without whose continuing participation the corporation cannot survive as going concern . . . Secondary stakeholder groups are defined as those who influence or affect, or are affected by, the corporation, but they are not engaged in transactions with the corporation and are not essential for its survival’ (Clarkson 1995, pp. 106–107). 7. The authors refer here to the agency problem in its broadest sense (i.e. incongruent interests among stakeholders). Jensen and Meckling (1976, p. 309) refer to the existence of a broad agency problem when they argue that ‘. . . agency costs arise in any situation involving cooperative effort by two or more people even though there is no clear cut principal– agent relationship . . . We confine our attention in this chapter to only a small part of this general problem (owner-top management). . .’

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6. Who speaks for the trees? Invoking an ethic of care to give voice to the silent stakeholder Linda M. Sama, Stephanie A. Welcomer and Virginia W. Gerde INTRODUCTION In response to the accelerating degradation of global ecological and attendant social systems, theorists, practitioners and communities have called for sustainable approaches to human and non-human modes of organizing. Most visible among these approaches is the World Commission on Environment and Development’s (WCED) definition of sustainable development as, ‘development which meets the needs of the present without compromising the ability of future generations to meet their own needs’ (1987, p. 8). To embody this powerful and potentially far-reaching organizing principle, the task for societies is to migrate sustainable development from the abstract meta-level to levels of practice. As DiMaggio and Powell (1983) note, organizations are the dominant institutions of our time, and therefore play an especially important role in the furtherance of such initiatives as sustainable development. Intrinsic to this furtherance is the integration of sustainable concepts into firms’ ethos. The authors suggest that this integration is a natural extension of stakeholder theory, contingent upon development of a normative core giving voice and legitimacy to the natural environment. To develop this approach, stakeholder management is explicated as normatively grounded in an ethic of care, thereby shifting the nature of stakeholder identification and salience (Mitchell, Agle and Wood, 1997) from adversarial to dialogic. For purposes of this chapter, the ‘natural environment’ is referred to as the ecological system in which organizations (or networks of organizations) operate, from which they derive resources, for which they bear certain responsibilities, and to which they have the capacity to make changes, either positively or negatively (externalities, in economic terms). ‘The world is an intrinsically dynamic, interconnected web of relations in 140

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which there are no absolutely discrete entities and no absolute dividing lines between the living and the nonliving, the animate and the inanimate, or the human and the nonhuman’ (Eckersley, 1992, p. 49). This includes biotic entities such as animals and plants, abiotic entities such as soil and air, as well as energy processes such as photosynthesis. In order for any organization to fully appreciate what constitutes its relevant natural environment, a comprehensive and systematic audit of the organization’s ecological impact, both short and long term, and both local and global, must be undertaken. Further, the authors draw from the work of Tronto (1993) and Ruddick (1989) and use a practice-oriented definition of ‘care’ as ‘consideration’. Consideration embodies the practices of ‘taking into account’ and ‘respecting’. The practice of care would require firms to take into account the relevant natural environment’s (i.e. such biotic entities as animals, plants, as well as soil and air) concerns and needs for its maintenance, continuation and repair. The natural environment must also be treated with respect, which assumes a positive valuation of the environment’s contribution to organizational life, and a certain deference to ecological claims. How then, are these claims to be voiced, when natural environmental elements, such as trees, sand and lakes, are not endowed with a means for directly articulating them? How does traditional stakeholder analysis account for such claims? Since Freeman’s (1984) explication of stakeholder theory, scholars have called for normative theoretical underpinnings (Donaldson and Preston, 1995; Freeman, 1994; Phillips, 1997). Nonetheless, no specific normative principles, especially incorporating environmental concerns, have been accepted (see Academy of Management Review, 1999, volume 24, number 2, for a debate regarding the status of stakeholder theory’s normative dimension). Although Christopher Stone’s 1972 landmark article, ‘Should trees have standing? Toward legal rights for natural objects’, incited the debate about the legal standing of trees and other elements of the ecosystem, this discourse is limited to legal representation – not the determination of moral standing of natural objects, much less the natural environment as an ecosystem. Consistent with Stone’s subsequent 1987 proposal, normative ethics remains critical to a discussion of not only the relationship between human organizations, but organizations and the natural environment as well. Although the organization’s normative stance in relation to the natural environment remains uneasy, there has been substantial organizational research and discussion on the interdependence of humans and the natural environment (e.g., Aragón-Correa and Sharma, 2003; Haberl and Schandl, 1999; Iyer, 1999; Purser, Park and Montuori, 1995). Advances such

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as the chemical industry’s Responsible Care initiative and ISO 14000 are examples of systematic approaches affecting environmental sustainability. However, the absence of theoretical normative principles at the organizational level has led to a patchwork formulation and implementation of environmental approaches, assigning such approaches a status as more of an add-on module, rather than an integrated part of enterprise. Instead of viewing environmental programs and performance as separate from operational programs or economic performance, all of these processes can be seen as grounding sustainable development and consistent with the ideals of stakeholder management. In order to comprehensively ground sustainable development in firm processes, it is important to reconsider the environment’s moral status and give it a stakeholder voice. Although representation of the natural environment via stakeholder theory is a problematic area (cf. Phillips and Reichart, 2000; Starik, 1993, 1994, 1995), the authors propose that society’s organizing principle of sustainable development necessitates identifying the natural environment as a stakeholder. The first section of this chapter introduces the concept of sustainable development and its relationship to legitimacy. The second section builds on previous literature in the business ethics field using stakeholder theory to provide legitimacy and voice to the environment. The third section adopts a new conceptual view of the process of stakeholder management through the lens of an ethic of care and suggests how the diffusion of the ethic of care builds sustainable development. To conclude is a discussion of the implications of applying an ethic of care to organization– environment interactions for both scholarship and practice. Because the concept of sustainable development has different implications to various audiences, the chapter begins with a brief look at the concept of sustainable development, practical definitions and its application in the business ethics literature.

SUSTAINABLE DEVELOPMENT Sustainable development shares common defining characteristics with stakeholder management. Both are based on the premise of interdependent relations, both place as central the participatory process of various constituents, and finally, both have focused on the processes and criteria by which constituents are identified. The previously cited WCED definition of sustainable development focuses on intergenerational benefits, both economic and social, of preserving the environment. Conforming to this definition, sustainability seeks a balance between the health of the planet and the needs and desires of its human inhabitants with development understood as


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a process leading to the improvement of human welfare. The concept of development itself has progressed from solely economic considerations such as the gross domestic product (GDP) to include social and environmental considerations as well, ‘. . . such as life expectancy, sustainable environmental practices, gender equity, respect for human rights and participatory governance’ (Beemans, 1996: Foreword). The United Nations Conference on Environment and Development (UNCED) in 1992 resulted in an action plan called Agenda 21. This action plan identifies three key components in achieving sustainable development: information, integration and participation. The first two of these components, information and integration require recognition and acceptance of the legitimacy of the stakeholders or constituents as well as the processes for collecting and integrating relevant information. Addressing the third component, participation, the plan emphasizes that broad public participation in decision-making is a fundamental prerequisite. The World Bank’s definition of participation is ‘a process through which stakeholders influence and share control over development initiatives and the decisions and resources which affect them’ (UNCED, 1992, p. 1). With respect to the authors’ task of identifying a voice for the natural environment, they refine the first two of the components mentioned by the UNCED and offer the following conditions for the incorporation of sustainability in an organization: 1. 2.

recognition and acceptance of the interdependence of the ecological system, and, participation of the natural environment in dialogic processes.

Sustainability has been variously defined in the academic literature (see Gladwin, Kennelly and Krause, 1995; Jennings and Zandbergen, 1995; Shrivastava, 1995a; Starik and Rands, 1995), but is undergirded by common core characteristics closely related to those of interdependence and inclusiveness as defined above. In a content analysis of sustainable development definitions, Gladwin, Kennelly and Krause (1995) found that inclusiveness, connectedness and equity are key components of sustainable development (along with prudence and security, which are beyond the scope of this chapter). Inclusiveness refers to the notion that ‘sustainability embraces both environmental and human systems, both near and far, in both the present and the future’ (p. 878). Connectivity is ‘an understanding of the world’s problems as systemically interconnected and interdependent’ (p. 879). Equity pertains to the ‘. . . fair distribution of resources and property rights, both within and between generations . . . The moral imperatives of intergenerational and intragenerational (as well as interspecies) equity cannot be found empirically; they can be found only intersubjectively’

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(p. 879). These components of sustainable development also centrally locate the interdependence of human and natural environment communities, the need to include the natural environment, and the call to treat it fairly. These concepts of interdependence, inclusion and moral standing as a participant are operationalizable at the firm level via stakeholder theory. Firms’ adoption of sustainability principles and processes may offer opportunities and pose constraints (Shrivastava, 1995a). For example, most of the world’s research and development efforts are focused on the needs and wants of the developed world, not on the greater number of people who earn less than $1,500 annually (Chapas, 2003). As Chapas notes, the same product development process can be used to identify and provide products and services for the majority of the world’s population. Opportunities for doing business with the world’s poor who are entering the market economy are plentiful. Prahalad and Hart (2002) discuss the business potential for multinational corporations (MNCs) working with ‘the bottom of the pyramid’ to develop environmentally sustainable technologies and products as well as the potential to avoid environmental damage from the effects of poverty and social decay. These authors further suggest that to be successful in ventures and opportunities in poor countries, MNCs will have to develop innovative models, processes and technology (Prahalad and Hart, 2002), in other words, sources of competitive advantage. In Liedtka’s terms (1999), organizations concerned with sustainability may be developing ‘metacapabilities’, which permit organizations to address change in competitively superior ways that confer on them a distinct source of competitive advantage. The concept of sustainable development has been criticized as ‘vague, oxymoronic, technocratic, mere rhetoric, inegalitarian, and for being a smokescreen for perpetuation of the status quo, vacuous, politically correct sloganeering’ (Buttel, 1998, p. 262). Indeed, the concepts of sustainability and sustainable development are debated in many academic areas, a few of which are political science, sociology and organization theory. For this chapter, sustainable development is viewed as one way to affect positive changes in human, as well as non-human natural environmental communities. A sustainable organization would work with its community/society to move toward a more equitable arrangement for current and future generations, both human and ecological. Moving sustainable development from conceptual to operational realms rests on translating its key ideas to organizational principles and processes. Sustainable development’s core idea is the interdependence between ecological and human systems. This interdependence translates in organizational terms to stakeholder management. As Wicks, Gilbert and Freeman note, ‘the corporation is constituted by the network of relationships which


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it is involved in’ (1994, p. 483). This interdependence, though, is a contested space. Interdependence is bounded by principles usually applied to identification of stakeholders, as well as their salience (Mitchell, Agle and Wood, 1997). Crucial for the corporation’s inclusion of the environment as interdependent is the extent to which the environment is viewed not only as a stakeholder but one with legitimacy.

STAKEHOLDER MANAGEMENT AND LEGITIMACY Stakeholder theory holds that organizational performance ought to be judged by how effectively managers balance the interests of a multiplicity of external and internal constituents (Freeman, 1984). Originally, a stakeholder was defined as ‘any group or individual who can affect or is affected by the achievement of the firm’s objectives’ (Freeman, 1984, p. 25). The challenge to management is to successfully balance conflicting interests (Frooman, 1999), while at the same time acknowledging the intrinsic value of all legitimate claims (Clarkson, 1991, 1995; Donaldson and Preston, 1995; Evan and Freeman, 1988). The question of legitimacy then becomes the hinge upon which stakeholders are left inside or outside of corporate consideration. Stakeholder theory has been categorized as both instrumental and normative (Donaldson and Preston, 1995). Instrumental stakeholder theory is a contractual approach to the relationship between an organization and its stakeholders and has legal underpinnings. It is hierarchical in that it relies on a prioritization of stakeholder claims, often resorting to a utilitarian, calculative rationality that assumes to address the relative costs and benefits associated with perceived legitimate claims emanating from diverse stakeholder groups. The organization and its stakeholders are essentially adversaries in a battle over a limited pool of resources. Traditional normative stakeholder theory is a prescriptive approach based on moral precepts (e.g. Phillips, 1997). It relies on universalized rules of justice or fairness in assigning relative weights to the claims levied against the organization, but remains adversarial in its dialectic. An alternative normative approach based on the ethic of care is discussed later in this chapter as one that reframes the relationships in terms of mutual beneficence/benefit, and is therefore more inclusive in its consideration of the environment and less adversarial in describing the organization–environment relationship. In its original formulation, the primary argument for inclusion of stakeholders in business decision-making was instrumental (see Wicks, Gilbert and Freeman, 1994 for a summary of stakeholder theory’s evolution) because the stakeholder may (now or in the future) affect the business and thus the stockholders’ value. Less attention was devoted to claimants on the

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other side of the stakeholder arrangement as originally described, that is, those stakeholders affected by the firm in the pursuit of its objectives. Phillips terms the instrumental approach a ‘prudential stakeholder model’, which ‘relies only on considerations of organizational well being. . . [and] is insufficient as a basis of normative organizational ethics study’ (1997, p. 53). Other scholars similarly have noted a lack of normative justification or ‘coherent justificatory framework’ of stakeholder theory as currently understood (Donaldson, 1989; Donaldson and Preston, 1995; Freeman, 1994; Phillips, 1997, p. 51) and warn of ‘normative surrender’ to practicability standards (Trevino and Weaver, 1999). Convergence of the normative and instrumental elements of the stakeholder approach to management (Jones and Wicks, 1999) has opened up a new dialogue that addresses some of these issues head on, while leaving some disturbing questions unresolved, not the least of which is how to account for non-market stakeholders who may not have a direct interest in the viability of the firm, but are nonetheless affected by firm activities. The natural environment is one such stakeholder that, to date, has not been given a substantial voice in the stakeholder narrative. Saliency from a Normative Ethics Perspective One perplexing problem for stakeholder theory is in determining who is a stakeholder and what stakeholder issues really matter, that is, stakeholder identity and stakeholder salience (Mitchell, Agle and Wood, 1997). Stakeholder identification has been based on either general criteria such as Freeman’s 1984 characterization of a stakeholder as one that ‘can affect, or is affected by, achievement of the organization’s objectives’ (p. 46); or, specific criteria such as Clarkson’s 1994 definition of a stakeholder as one that will ‘bear some form of risk as a result of having invested some form of capital, human or financial, something of value, in a firm’ (Clarkson, 1994, p. 5, quoted in Mitchell et al. 1997, p. 855). Stakeholder salience stems from managers’ attributions regarding stakeholders’ legitimacy, power and urgency. Thus, because, according to Mitchell, Agle and Wood (1997), to be identified as a stakeholder, one must have either power, legitimacy or urgency, identifying the natural environment as such has been tenuous. Some scholars have addressed the inclusion of future generations and the natural environment in the stakeholder framework (Phillips and Reichart, 2000; Starik, 1993, 1994, 1995). For instance, using Rawls’ (1971) theory of justice, future generations are stakeholders, because one cannot tell from the ‘original position’ where and in what generation one will be a participant. In the face of uncertainty as to when and where in the social system one will be, as well as which resources will be critical to one’s life plan, the legitimacy of the natural environment as stakeholder becomes more apparent.


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Justification for inclusion of the environment as a stakeholder often revolves around arguments of power, such as the environment’s usefulness as an organizational resource, and the resource scarcity risks attending its overuse or exploitation. The manner in which the environment acts upon the organization is, therefore, limited to its withholding of resources. This resource dependence (Pfeffer and Salancik, 1978) rationale for inclusion appeals to the social science discipline as it has practical portent, and speaks to the language of business sustainability but skirts the real issues of environmental sustainability. It is the organization’s mortality that is at stake, not that of the environment. To use Mitchell, Agle and Wood’s (1997) terminology, framed in a resource dependence perspective, the environment as stakeholder lacks sufficient power to elicit a corporation’s attention and action. A consequence of this economically rational approach to including the environment as stakeholder, however unintended, is to make claims ostensibly on behalf of the environment that are, in point of fact, on behalf of the firm. In addition to the powerlessness of the environment to affect organizational change, corporate boundary scanners may also mistakenly perceive environmental stakeholder claims to be less immediate than that of other constituencies. The unintended result is the propagation of risks spanning generations and nations (e.g. radioactivity; global warming) developed theoretically as the ‘risk society’ (see Beck, 1992; Shrivastava, 1995b). While most would concur that the environment’s claims are legitimate, the combined lack of power and urgency that attaches to the environment as stakeholder render it less vocal among those competing for a limited pool of corporate resources. This neglect of a justifiable claim emphasizes the centrality of normative ethics in identifying the natural environment as a stakeholder with legitimacy. While it is not suggested that ‘oughtness’ alone will sufficiently address the claims of those stakeholders left unattended, the authors do believe that a moral imperative must be invoked in the case of stakeholder claims that may not neatly advance the firm’s profitability goals as they are typically described and measured. Unless and until its market stakeholders judge the firm differently, with a greater focus on long-term projections for growth and sustainability and incorporating the true costs of environmental exploitation, other non-market stakeholders risk relegation to a relatively meaningless periphery of corporate concern. Without the power and urgency to achieve prominence on the corporate radar screen, those that speak on behalf of the environment must make use of a value-laden argument. This is largely due to the fact that while the organization and its natural environment do, in fact, act in an exchange relationship, that exchange is often viewed by the organization as a one-sided contract. Organizational forms

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have demonstrated an entitlement mentality in their tendency to take resources from that environment without a sense of obligation for payment beyond whatever market costs are attached to the tangible resources. Compensation heuristics conveniently leave out the true costs of environmental degradation. Any extra compensation might be categorized as ‘corporate social responsibility’ rather than fair payment. (The logic of this argument is owed to the writing of Etzioni (1988, pp. 67–87), in his chapter on ‘The irreducibility of moral behavior’). As Jones and Wicks (1999) point out, the question remains, which normative principles apply? Reference has been made to the principle of justice, specifically distributive justice. Reliance on justice and equity, however, returns us to a resource allocation model that tends to be operationalized in terms of priority schemes that do not give the environment its due, in moral terms. One could also and perhaps more appropriately refer to a Kantian principle of the categorical imperative. This ethical approach, unequivocal in its application, gives the environment as stakeholder intrinsic legitimacy and puts the onus of adhering to a moral imperative on the firm owing to its inherent power and its attendant positive duty to provide for a clean, natural environment (Gibson, 2000). Problems result, however, from applying Kant’s moral precepts to organizational forms, as these moral obligations are designed to prescribe individual moral behavior without taking into account the behavior of relevant others in the community (cf. Hartman, 1996, Chap. 3 and Chap. 5; 2001). Recognition of the interactions that comprise the ecological system of humans and the natural environment provides a more comprehensive framework than that suggested by individual-based deontological approaches. What is needed is a set of ethical guidelines that addresses the specific moral burdens shouldered by firms as institutional players in a larger social context than that enacted by individuals in their personal lives. This dilemma or paradox, if you will, has attached itself to the dialogue surrounding the nature of business ethics, questioning whether or not it exists as a unique discipline from that of moral philosophy, or merely a subset of it. Hartman (2001) calls on Aristotle’s view of a political philosophy in guiding organizational conduct, and suggests that moral communities must exist to give rise to good moral behavior on the part of its citizens, and that good moral actors in bad moral communities do not survive. This argument conforms to the authors’ view that legitimacy and the tenets of a communitarian ethic of care (Gilligan, 1982) better accommodate an organization that includes, and in fact embraces, the natural environment as a significant stakeholder than Rawlsian or Kantian ethics might. Morality is a prerequisite to the ‘environment as stakeholder approach’, yet autonomous morality is not a sufficient condition to give voice to the environment in organizational politics. The community of


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relevant firms and interdependent stakeholders must adhere to agreed upon moral principles, whether that community is defined as the industry in which firms are institutionalized or the local community in which they conduct exchange transactions with the environment. In the perspective of firms building moral communities, the environment is not just a stakeholder for one firm, but for many. Power then accrues to the environment as one stakeholder that can and does influence the ability of the firm to survive and prosper, beyond its mere reliance on environmental inputs. The firm’s viability now rests on its conformance to community standards and appraisals of responsible moral action. Further, the boundedness of rational decision-making (March, 1978; Simon, 1979a, 1979b) calls for us to take recourse in the moral underpinnings of ultimate decisions. Without morality, the environment must make pecuniary arguments for its claims, which may not be the appropriate venue for debate. In assessing the nature of claims against it, the corporation typically assigns weights to these claims based on the nature of the claim, its legitimacy and urgency, and the power of the stakeholder group from which it emanates (Mitchell, Agle and Wood, 1997). Yet, environmental claims are often contextually different from those of other market actors, and not as easily subject to quantification. The question of relative weights is addressed in the concept of sustainability. Instead of focusing on the relative weights of one atomistic group versus another, the consideration of all stakeholders in an interdependent system is taken into account. However, by applying only a utilitarian perspective or framework, the consideration of the natural environment, in practice, is often limited to ‘an economically defined notion of sustainability’, (O’Hara, 1998), not sustainability as defined earlier in this chapter. Stakeholder theory claims that everyone affected by a decision should have input in that decision (Freeman, 1984, 1994). From an anthropocentric view, only those humans affected by a decision should have a say. But as the inclusion of ‘the system’ is expanded to include the non-human natural environment, the question arises as to how that natural environment can be represented. The ability of the environment to achieve stakeholder saliency is dependent on who acts as its agent or representative. The question of who best represents the environment’s claims to the firm is an important one, and this is turned to next.

STAKEHOLDER REPRESENTATION How stakeholders are represented has also been questioned by a number of scholars (Cellarius and Staddon, 2002; Starik, 1995; Stone, 1972). While

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traditional stakeholders of the firm are personified, and therefore have a voice and direct access, the natural environment is without a voice of its own. It must rely on viable coalitions for effective representation such that its bargaining position is heightened and it is poised to redirect the ‘attention-focus’ of dominant organizational coalitions toward particular ecological goals (Cyert and March, 1963). Recognizing the interdependence of all living things and the natural environment calls for representation but does not specifically address how that representation is accomplished. Sustainability is the concept that intrinsically includes the natural environment even if there is no one group representing it. Depending on the principles involved, the environment is likely to be explicitly considered because of the interdependence. Nonetheless, environmental representatives remain critical to a dynamic process of renewing the organization’s awareness of interdependence with its natural environment and to diverting its attention (and resources) to ecological system forces that impinge upon it (Katz and Kahn, 1966). Without such intervention, organizations are likely to resort to closed system thinking, a tendency that increases with the high stakes and uncertainty that are attached to assuming any responsibility for the future state of the ecological system (Thompson, 1967). Representatives of the environment have included governments, various media, environmental and community activists and scientists engaged in environmental research. Choosing an appropriate representative may be issue-dependent (content and immediacy), but certain other stakeholder-specific selection criteria merit exploration. Mitchell, Agle and Wood (1997) suggest that those with greatest likelihood of identification are environmental agents with the greatest legitimacy, power and urgency. Legitimate agents are those viewed by key publics as having rightful claims to organizational actions and resources. Powerful or influential agents are those that have access to critical resources, which if withheld, will spell the demise of the organization. Urgent agents are those deemed to have concerns of the most immediate nature, the resolution of which may have life or death consequences for the organization, its affected stakeholders, or both. The authors argue for inclusion of broader criteria and expansion of the existing criteria categories when assigning a representative to act on behalf of the environment. Many of the agents cited above, including environmental activists, would not be able to serve as agents given the sole criteria of legitimacy, power and urgency (although one might cite Berry, 2003, for an example of environmental activists that did gain power as a primary stakeholder). Nonetheless, the authors affirm that environmentalists and like-minded activists are an appropriate voice for articulating environmental claims. How, then, might one justify their inclusion as representatives of the ‘environment as stakeholder’? Perhaps the notion of


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‘representativeness’ is not wholly explanatory of the process of stakeholder management. The chapter turns to alternative conceptions of the stakeholder model and how they can work to create a ‘community of practice’ (Lave and Wenger, 1991; Liedtka, 1999) that embraces environment as an intrinsically valuable participant in the evolution of organizational life. An ethic of care (Gilligan, 1982) is invoked to support a case for making activists – and the environment to which they give voice – authorized participants in this process.

STAKEHOLDER VOICE – SPEAKING FOR THE TREES THROUGH AN ETHIC OF CARE Giving voice to silent stakeholders is more complex than it appears at first blush. The complexities of a global marketplace, the dynamic condition of the modern corporation and the interdependencies created by both, urge a more profound understanding of who and what stakeholders and their issues represent. Firms no longer sit at the center of a nexus of activity, orbited by stakeholders with whom they may negotiate at will. Rather, a new model of organizations and stakeholders is emerging wherein the center is mutable, and occupied by different agencies depending on the context. That context may include geographic and cultural differences, situational and personal differences, and competitive and cooperative differences. Players in the relevant arena change in terms of their identification and interests, bargaining leverage, and relationships with each other. Firms are described as ‘boundaryless’ and engage in ‘strategic alliances’, often with erstwhile rivals (Daboub and Calton, 2002). The entire system is one of co-evolution, where changes in one part of the system provoke changes in other related aspects of the system. Organizations that understand the nature of these interdependencies and are vigilant in their maintenance of relationships with network participants are more likely to survive for the long term. Of all the stakeholders that are traditionally referred to in a stakeholder model, the natural environment is perhaps the least subject to change over time, at least with respect to the issues attached to it that require organizational attention. One might assume, then, that it is the best understood of all stakeholders. Organizational learning theorists (cf. Lave and Wenger, 1991) might expect that certain routines would be embedded in the firm in terms of its relationship with the environment, and that economies have been achieved to permit not only a healthy stakeholder relationship, but a profitable one as well. Nonetheless, the environment remains on the periphery of the organization’s radar screen, largely due to

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the legitimacy criteria discussed in Mitchell, Agle and Wood (1997). Perhaps one of the reasons the environment enjoys so little legitimacy in a stakeholder model is that we understand participation in the West from a political (democratic) perspective, that of representation and, ultimately, a vote. Liedtka (1999) argues convincingly for ‘more of a voice than a vote’. In other words, if the natural environment could directly participate in the process, rather than rely solely on representation by some ‘other’ who acts to negotiate on its behalf, the result might be a more sustainable world. It could be argued further that the voice is more powerful if it is an internalized voice. That is, the organization, to be truly responsive to the environment, must incorporate the environment as a part or extension of itself, and the inner voice, or conscience, which attends to environmental concerns, must entirely permeate the organization’s strategic process. This is a fundamental re-conceptualization of the organization–environment interface, and creates a mandate for change that is internally driven and propelled by a mutual vision of the future. One method of arriving at this change is to inculcate the ethic of care (Gilligan, 1982) into the organizational ethos. An ethic of care takes stakeholder management to its normative roots, and substitutes a network, communitarian ethic for the more predominant Rawlsian justice approach. While Rawls’ (1971) notion of justice remains blind to actual injustices, as invoked by his ‘veil of ignorance’, an ethic of care openly acknowledges the paradox of conflicting perceptions of justice or fairness (Scott, 2000). It seeks to balance these perceptions through dialogue and consensus (Benhabib, 1992; Gilligan, 1982; Held, 1993; Scott, 2000). In doing so, moral maturity is in evidence (Kohlberg, 1976). Dialogue is achieved only if participants to the exchange have a voice. Stakeholders are not merely ‘represented’. They exist legitimately and contribute to a narrative that proceeds over time. The web of relationships is the focal point for this conceptualization of the stakeholder model, rather than the organization-centric wheel and spoke model traditionally depicted. The ethic of care organizes around this relatedness, highlighting ‘the importance of attending to the needs of those with whom we are in relation’ (Lauritzen, 1989, p. 32). As Phillips and Reichart (2000) point out, having a normative system providing criteria by which to narrow the stakeholder field helps to keep stakeholder theory from going beyond a theory of organizational behavior. Yet, though stakeholder theory’s explication of rules for determining stakeholders does narrow the field of focus for managers, it constructs stakeholders in terms of their identity. Such identity-based systems propose abstract rules divorced from concrete contexts such as the natural environment. These rules essentially serve as filters to distinguish those who matter morally from those who do not, inaccurately representing the myriad relations of humans


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and non-humans as non-moral relations. King (1996) summarizes this as the construction of ‘moral community on the bases of sameness rather than leaving space for a community of difference’ (p. 85). Incorporating the natural environment’s legitimacy suggests a transformation situated largely in managers’ perceptual realm. The needs of the organization and its environment are less opposed than we imagine. They both are oriented towards long-term sustainability, and they have mutual dependencies that, if not respected, threaten their respective abilities to be sustainable. A dialogue infused with this common understanding would go a long way to obtaining consensus around priorities and conduct. One model of the dialogic processes between human and ecological communities is detailed in Whiteman and Cooper’s study of ecological embeddedness (2000). Consensus is further dependent on iterative interactions. The organization can be understood as part of network, system or community, in which it practices routines that permit it to evolve through learning. Liedtka (1999) uses the term ‘community of practice’, which she borrows from Lave and Wenger (1991) to describe a network of participants who share similar values surrounding their behavior and what the significance of their actions mean for the community’s good. This sense of shared purpose, again, requires a consensus that derives from a transformation of how goals are defined. Deviating from a rules-based, or heuristics-based, approach to stakeholder management, and business ethics more generally, is not very radical. Freeman’s first foray into stakeholder management (1984) opposed a rulesbased approach, as do Etzioni (1988) and Hartman (1996). Early traditions in a virtue ethic, rather than one moored on justice, include Aristotle and Hume. While Kantian ethics has normative appeal, it is largely believed to be problematic when applied to the business context due to what some have termed its ‘excessive formalization’ (Liedtka, 1999). Utilitarianism, a teleological reasoning approach, may be invoked to rationalize otherwise immoral actions based on an overly simplified assessment of costs and benefits associated with business decisions that have ethical implications (Cavanagh, 1998). This ends-based approach would recommend that decisions be made that produce the greatest good for the greatest number, and should incorporate a complicated, calculative process emphasizing outcomes. In practice, calculations are reduced as a result of time and information-gathering constraints that operate to pressure managers to adopt heuristic formulae and to address inputs that are easily subject to quantification. A major drawback of applying this approach to decisionmaking is the inherent assumption that social ‘goods’ and ‘bads’ are measurable, which in reality is often not the case. An unambiguous reliance on utility for decision-making runs the risk, then, of miscalculating the

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potential harm, or benefit, of a decision’s consequences or the intensity of the harm, or benefit (Sama and Shoaf, 2002). The ethic of care as applied to stakeholder theory has the advantage of being explicitly relational rather than hierarchical, relying on dialogue and interaction rather than rules and pre-assigned priorities arrived at under a ‘veil of ignorance’. It has a further application advantage for the modern corporation operating in a very complex global environment in that it is situation-dependent. It eschews the standardization of a moral code across contexts, inviting instead a dialogue and consensus building based on a shared vision of purpose and iterative interactions. This is the essence of Donaldson and Dunfee’s thesis (1994, 1999) and their concept of moral free space. Indeed, integrative social contracts theory (ISCT), although lacking empirical support, offers an interesting parallel to the ethic of care worthy of further examination, as does Daboub and Calton’s (2002) stakeholder learning dialogues. The challenge remains to give an audible voice to the silent stakeholder and to perpetuate that voice through embedding it in the organizational conscience. As those working within organizations construct the natural environment as stakeholder and organizations go beyond caring about the environment to caring for the environment, the organization and environment may become interspecies communities of practice. These communities of practice can be likened to the biogeographic notion of ecological islands – those areas where ecological processes are intact, but are cut off from those other ecological islands (Hunter, 1990). The question becomes, then, how to bridge these communities of sustainable practice. Institutional theory’s focus on the institutionalization of meanings suggests that organizations tend to adopt principles and processes due to mimetic, coercive and normative pressures (DiMaggio and Powell, 1983). Jennings and Zandbergen suggest that deeply held concepts such as Gaia influence organizations’ ‘valuation of sustainability’ (1995, p. 1027), which conforms to the opening definition of ‘care’ to include respect for the natural environment. Building on this, it is suggested that organizations holding an ethic of care will care for the environment and more highly value sustainability. Constructing larger communities practicing sustainability is dependent on the adoption by other organizations of the ethic of care. Jennings and Zandbergen further posit that coercive pressures will spur organizations to adopt forms associated with an ethic of care, but not the content. The authors warn: ‘In institutional theory the elements diffused – practices or structures or activities – tend to lose their original value or meaning if coercive forces and rules for compliance are the basis of that diffusion’ (Jennings and Zandbergen, 1995, p. 1033). Though they suggest that regarding adoption of sustainability concepts and practices, mimetic forces will play more of a role than normative


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forces, here, the reverse is suggested. Namely, if firms employ a stakeholder model of management infused with an ethic of care, the basis of organizing principles shifts from instrumental, largely economic, reasoning to enterprise based on caring for stakeholders. This shift to normative values based on respect and relationships supplants the instrumental with the normative. Thus, it is argued that normative forces are more likely than mimetic to influence organizations to adopt sustainability concepts and practices.

DISCUSSION AND IMPLICATIONS OF AN ETHIC OF CARE STAKEHOLDER MODEL This chapter proposes a new model of the organization–stakeholder relationship that does not rely on ‘managing’ stakeholders, but rather relies on co-existing with stakeholders in a shared community. This shift has important implications for the traditional power relationships posed between and among various stakeholders and the firm, and seeks to give voice to the ‘silent’ stakeholder through an ethic of care. Jacques (1992, p. 590), in his examination of new trends in organizational theory building, counterposes an ethic of care against an ethic of judgment, with the former based on interconnectedness, and the latter on a ‘spirit of contest’. Similarly, this chapter recommends adopting an ethic of care for addressing environmental stakeholder claims in the belief that in reaching out toward the position of these stakeholders, through understanding and dialogue that is iterative, organizations may find mutual ground with these very same stakeholders for achieving desirable purposes. Nurturing a meaningful dialogue among the constituents that contribute to organizational life will ensure a more sustainable world in which all might participate far into the future. The following Table 6.1 highlights the differences between the traditional stakeholder model and the ethic of care stakeholder model. The former is informed by an ethic of judgment using rules and heuristics to justify ends that are sought by the organization. The latter is informed by normative values and an ethic of care that are invoked to support mutually desirable aims. In the traditional model, stakeholders are ‘managed’ with needs attended to as determined by stakeholder salience. Stakeholders that are perceived by the organization to possess power, urgency and legitimacy are attended to first. In the ethic of care stakeholder model, stakeholders and the firm participate equally in a ‘community of practice’ wherein it behooves all members to attend to each other’s needs in order to sustain the community. Establishment of the community is based on shared values and shared purposes. While the traditional model of stakeholder management is hierarchical, a shift to a new model based on an ethic of care requires a

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Table 6.1 Comparing the ethic of care model with the traditional stakeholder model Model Characteristics ⇓

Traditional Stakeholder Model

Ethic of Care Stakeholder Model

Informed by ⇒

Instrumentality; ethic of judgment; rules/justice

Normative values; ethic of care

Attends to stakeholders as determined by ⇒

Salience based on power, urgency and legitimacy

Shared values and purpose based on belonging to a ‘community of practice’

Structural relationship between the firm and stakeholders ⇒

Hierarchical; organization-centric

Web of iterative interrelationships with shifting center

Communication with stakeholders ⇒

Bargaining; contestable claims

Dialogic; shared meanings; cooperative claims

Placement and voice of the natural environment as stakeholder ⇒

Outside of the organization; often silent

Embedded in the organizational consciousness; a vocal participant

breaking down of hierarchical relationships, substituting a complex web of interdependencies with the center shifting according to situation-specific mandates. This new structure implies communication between and among stakeholders, including the firm, which is no longer one of bargaining and contestable claims, but rather one of dialogue, shared meaning and cooperative claims. The voice of the natural environment, which is now embedded in the organizational consciousness, is no longer ‘silent’ and apart. Rather, it speaks directly with and from the organization as a direct participant in the establishment of organizational objectives and the implementation of organizational processes to achieve those objectives. The process of incorporating an ethic of care in practice, then, involves several essential steps that relate to the sustainability components of interdependence, information, integration and inclusiveness described earlier. These steps may be described as follows: 1.

Recognition and sense-making. First, the organization must recognize that the non-human, natural environment represents an important area of concern. For this to happen, a cultural, or sense-making, change


2.

3.

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needs to occur internally, often through the championing of ‘green’ issues by an internal advocate who has access to the halls of power in the organization. Information and education are the champion’s weapons in defending against internal resistance to change, and obtaining top management commitment ensures that such changes are maintained even as organizational slack is restricted. In light of this, it is not suggested that alternative ethical reasoning is obviated by the application of an ethic of care stakeholder model. Indeed, internal change may require allusion to prioritization of claims, or the application of utilitarian reasoning. It is suggested, however, that once the organization recognizes the environment as a stakeholder, the interface between the organization and the environment and the ongoing conversation addressing claims and claimants is best served by an ethic of care. Representation, inclusion and mutual goal-setting. Second, environmental objectives and values and organizational objectives and values need to find a common ground. While the former domain focuses on sustainability goals and the latter on profitability goals, the authors contend that the inherent interdependence of all systems, human and non-human, creates the potential for the intersection of interests between the two domains. The integration of these objectives and values is best achieved through a dialogue between environmental representatives and the organization, with the organizational champion acting, at least initially, as liaison. Focus groups are a useful means for engaging in this dialogue (Keeney, 1988). Representatives might include ‘green’ activists, scientists, governmental agents and interested community stakeholders. As Keeney suggests, the broader the range of stakeholder groups involved, and the earlier their involvement, the greater the opportunity for an enhanced awareness of mutual concerns and interests and of potential sources of conflict. At the same time, a broader constituency may invite more disharmonies and consume more resources. The organization must examine these tradeoffs with forethought, since the goals of sustainability are long term and thus require solutions that anticipate a long-term payoff matrix. Communication and control. The dialogue between the organization and agents of the environment has to be ongoing if it is to effect change. Ecological needs are pressing and dynamic, as are organizational obligations. The valuation of these needs and duties must be made transparent. It follows that the dialogue would be complemented by thorough documentation of objectives, processes (means), realized outcomes and interventions to control deviations. This information should be made publicly available, perhaps in the context of a hearing or special assembly of invited experts, policy-makers, and public

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interest groups (Keeney, Von Winterfeldt and Eppel, 1990). Further, in order to attach value to means and ends, there also must be a process of understanding ‘why’ certain goals are important, ‘what’ the specific means are for achieving them, and ‘how’ these means might attach to other, unrelated (sometimes undesirable) ends (Keeney, 1988). Implications of the Model for Practice, Scholarship and Teaching The implications of this approach for practice and scholarship will vary contingent upon the organization or network of organizations within which it is applied and according to the nature of research conducted. Practicing managers will undoubtedly be exposed to more public debate on environmental issues as a result of this approach. Moreover, they will need to re-evaluate the resource allocation systems currently employed in their organizations, and dedicate resources to an ongoing dialogue with natural environmental stakeholders. Internal champions need to be hired who can effectively relate to the exigencies of both organizational and ecological sustainability goals and who can disseminate information to organizational members in an effort to attain recognition of the environment as a legitimate stakeholder, and to reduce resistance. In terms of implementing an ethic of care, this may require the construction of new information systems within the organization to capture relevant data, to facilitate monitoring, and to evaluate progress toward desired outcomes. Harking back to the recommendation provided in Swanson (1999), an ethic of care would subsume a ‘value attuned’ approach to decision-making, rather than one of ‘value neglect’. To practice an ethic of care, organizations will need to aim at a more relational model of organizing based on dialogue. Dialogue has three distinctive features: equality and the absence of coercion, listening with empathy and bringing assumptions into the open (Yankelovich, 1999, pp. 43–44). These features are embedded in the threestep process for incorporating an ethic of care described in the previous section. Through these features, organizations set up a co-determination process that constructs conditions approximating Habermas’ (1984) ideal speech community. Such a community is one where communication is without power differentials, and where participants are truly trying to understand each other. In contrast to property rights’ emphasis on who is a legitimate stakeholder, for the firm practicing an ethic of care, communicative acts themselves are central so that ‘. . . management’s function must become the coordination of the conflicting interests of these stakeholders, rather than the controlling of them. The logic is not one of containing stakeholder interests, but of trying to accomplish them through corporate activity’ (Deetz, 1995, p. 49). The ethic of care model shifts the focus away from a traditional


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reliance on rules established to specify whether or not to include or exclude stakeholders, arguing that prescriptive rules are used to control access to decision-making and to protect privileged positions. The ethic of care stakeholder model (see Table 6.1), replaces hierarchical, prioritization schemes for identifying stakeholders and their claims with an intricate web of communication that will assess these claims not on the basis of power and urgency, but on the basis of a careful, articulated response to the question, ‘Why is this important?’ For researchers, it can no longer be assumed that the focal point for this web be the human organization, but rather, the web’s center would change as the nature of objectives shifts over time, with the non-human environment equally viable as a central component of the interaction. Researchers must also be cognizant of this shift as they depict stakeholder models and a process for stakeholder identification. Building upon the model posed in Mitchell, Agle and Wood (1997), the authors seek to assure that the natural environment is, indeed, salient to the practicing manager, and suggest a means, through an ethic of care, to effect that outcome. The contention here is that how managers think about nature will affect what they do, and a re-direction of managerial thinking toward sustainability goals is best achieved through constructive dialogue that encourages empathy. Training managers in effective dialogic processes is certainly an important practical concern, and might be initiated in the classrooms of higher education institutions dedicated to preparing future executives for the complexities of modern management decision-making. Role-playing and stakeholder dialogue tables may be used in business and society classes to simulate real world situations and can be an effective pedagogical tool for effecting a change to an ethic of care approach to stakeholder management. Limitations Similar to the UNCED and the WCED discussions of sustainable development, the ideal application of this model assumes accurate and complete information about the natural environment and the ecology of human and organizational interactions. As discussed previously, information-gathering and time constraints can limit decision-making facility. This first limitation of the model exists for any model or framework; however, the proposed stakeholder model using an ethic of care as the normative basis provides a framework of consistent consideration of humans and the natural environment. The authors’ model provides a perspective of the organization within a web of relationships with an emphasis on interdependence and interactions instead of a compartmentalized view. This new model does not provide a detailed prescription for addressing environmental problems; rather it

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presents an overarching principle within which organizations can consider the specific context. Using an ethic of care may prevent or minimize the problems attending the use of traditional stakeholder management, i.e. exclusion of non-vocal, or non-urgent, participants, miscalculation of the consequences and harms resulting from decisions that affect stakeholders, and relationships viewed as adversarial. Recognizing the interdependency, an ethic of care is proposed, not only to bring the natural environment into consideration with other stakeholders, but also to provide a normative basis for coherent stakeholder management. Besides limited information, a second limitation of the model is the assumption of cooperation of other stakeholder groups and representatives of the environment that the firm seeks to engage in a dialogue. In practice, this cooperation may not occur immediately, but over time and with demonstrated commitment on the part of the firm, it is reasonable to expect an open trusting relationship conducive to collaboration to develop. Change within the organization would have to be paired with change in the organization’s external relationships, and that likely necessitates more transparency of operations and performance, greater accountability, and improved communication. Finally, new conceptions of success have to be developed. While this is not a direct limitation of the model, it is an obstacle in the continued implementation and evaluation of the achievement of the model, posing challenges for researchers and practitioners alike. Changes and refinements of the measures, or conceptions, of growth, profit and sustainability are needed that adequately reflect evolving system goals articulated through a dynamic dialogic process, and that are tailored to the exigencies of the relevant organization–environment exchange. Suggestions for Future Research Future research could develop in several areas, from the theoretical in the areas of ethics, organizational change and organizational learning to the more material application or implementation of an ethic of care. Building on the model proposed here, scholars could integrate the ethic of care into the consideration of other stakeholders to develop a more comprehensive, integrated approach to stakeholder ‘management’. As firms adopt or support this model of inclusion of the natural environment as a stakeholder, the development of the organization can be observed. For instance, how do organizational structure, culture and learning evolve? A more external perspective would involve study of the interorganizational collaborations and partnerships, including issues of transparency, communication and accountability. Finally, qualitative case research might explore the practical consequences of implementing an ethic of care approach to the organiza-


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tion–environment interface, recommending improvements or modifications of the steps described here, and suggesting useful outcome measures that might serve as industry benchmarks.

CONCLUDING REMARKS In the framework developed here, sustainable development is constructed through the normative processes suggested by the ethic of care, as firms give the natural environment both voice and legitimacy. Sustainable development and stakeholder theory’s founding tenet of interdependence privileges relationships. However, whereas sustainability’s interdependencies are largely unbounded by time, space and species, stakeholder theory has relied on normative systems precluding the natural environment, thus limiting its reach. The seams bounding stakeholder theory’s rules for inclusion and participation are stretched, however, by not only the emergence of alternative normative systems emphasizing relation in lieu of hierarchy, but also by the sheer rapidity with which ecological systems throughout the world are declining. Though stakeholder theorists may argue that including the natural environment brings managers into relations merely tangential to the firm’s core operations, all managers – indeed all humans – are already in relations with the natural world, embodying myriad moral implications, and it is time that we acknowledged these relations and proceeded accordingly.

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7. Managing organisational project risks of stakeholder demands in industrial investments Rianne de Leeuw and Joram Krozer INTRODUCTION This chapter discusses the manner in which companies during investment preparation can anticipate the demands of stakeholders to reduce investment risks. These stakeholders, like authorities, residents and environmental organisations, represent public interests. An investment risk is defined as the chance of liability times the extra costs caused by the liability (after Carey and Turnbull, 2001). An investment takes many years: starting with an idea and feasibility study, then basic and detailed engineering, which is followed by technology procurement with applications for permits, construction of the facility and start up of production. Only thereafter can income from sales be generated. The expenditures grow exponentially in each phase, mostly financed by loans and shares. Non-compliance with the stakeholders’ demands is a risk because it can cause delays in the start up of production, extend financial negotiations, trigger a higher interest rate and invoke tougher than expected standards in permits. Firstly, the literature about companies’ strategies in view of stakeholders’ demands is discussed, then stakeholders’ interests based on a case study of an investment preparation in magnesium production, and finally the authors illustrate how investors can anticipate environmental demands in order to reduce investment risks connected with the permit procedure.

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Managing organisational project risks

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LITERATURE REVIEW: ANTICIPATING STAKEHOLDER DEMANDS AND COSTS OF NON-COMPLIANCE Anticipating Stakeholder Demands Dealing with stakeholder demands can take many forms, ranging from neglecting the demands to joint projects. Recently, companies are more often changing from mere data distribution to education of, discussions with, or even participation of stakeholders when developing projects (Voges and Veerkamp, 2002). According to Marshall (2002), industry has to learn that more resources must be spent on public involvement and impact assessment in the development phase of a project, before the detailed design is started. The question is, are there reasons for companies to communicate with stakeholders and anticipate their demands? Modern management literature on stakeholders gives a positive answer (e.g. Scholes and Clutterbuck, 1998; Connor, 1998). Managers value consultation with stakeholders for developing mitigation measures that reduce the negative impact of business projects for the stakeholder groups (Voges and Veerkamp, 2002). In that way, interactive stakeholder engagement helps planners to identify potential problems and to reduce uncertainties (Enserink, 2000). Further, including key stakeholder interests and requirements for environment and society provides long-term benefits to companies due to increased competitiveness and reduced corporate risks (Wheeler and Sillanpää, 1998). Also, they can trigger resource prudent processes that can reduce costs, and significant portions of the market respond to green marketing (Mason et al., 1999). Often, citizens’ input and participation in project assessment are seen as essential for the success of it (Connor, 1998; Marshall, 2002), and according to this reasoning, incorporating stakeholder values can make the difference between success and failure of an investment project (for example Firth, 1998). Also, in the longer term, engagement with a broad range of stakeholders is deemed vital for the survival and profitability of companies (Andriof et al., 2002). Social theories also support negotiations, because companies are expected to anticipate the demands by a search for and selection of cleaner solutions, which in turn triggers negotiations between interests within a company (inter-negotiation) and between a company and stakeholders (intra-communication) that evolve into a ‘learning network’. A ‘learning network’ opens business opportunities and reduces the risks connected with investments (Tomer, 1992; Cramer and Schot, 1993; Schrama, 1998; Noci and Verganti, 1999; Vickers and Cirdney-Hayes, 1999). Some scholars argue

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that companies systematically search for cleaner technologies to anticipate the demands of stakeholders (Roome, 1994; Clark and Roome, 1995) or, at a minimum requirement, that companies should take the responsibility to accommodate major stakeholders’ demands and communicate about social and corporate values across stakeholders’ organisations (Scholes and Clutterbuck, 1998; Wheeler and Sillanpää, 1998). Others advocate going further to develop corporate planning to anticipate the demands (Cramer, 1997). Some authors argue that cleaner technologies must be developed in cooperation with stakeholders to address severe barriers for technology development and dissemination, like poor market demand, contradiction in environmental policy, inadequate information about new technologies and poor infrastructure (Verheul and Vergragt, 1995; Kemp et al., 1998). Empirical findings, however, do not confirm the creation of learning networks in which stakeholder environmental demands are anticipated in investment projects. Although happening in an increasing number of companies, it is not yet common that decisions about products, processes and facilities are reviewed on their environmental performance and tools for capital investment decisions in many companies have not changed in the past years to include environmental considerations (Epstein and Roy, 1998). Despite proven benefits, projects trying to stimulate cooperation between companies in a chain show that companies are reluctant to cooperate on cleaner technology development. This is due to impediments like unequal market positions between partners, difficulties about division of costs and benefits and miscommunications between partners (Georg et al., 1992). Many companies hardly generate any environmental know-how, but rely on the expertise of suppliers and experts because environment is outside their core business activities (Brezet, 1994). This is also found at Philips, which selects technologies based on market criteria and company’s competence without environmental criteria in the selection process (Chiesa et al., 1999). In addition, companies in a supply chain have diverging interests. The main polluters are the large processors at the beginning of supply chains (upstream) that usually oppose tougher environmental demands, whereas the producers downstream cause little pollution during production, but they are sensitive to the environmental demands with respect to their products. The latter are usually less resistant to the demands because they do not need to spend much money to comply and they can benefit from the ‘clean’ image of their products (Dutilh, 1995; Arora and Cason, 1996). Also, a study in the base metal industry shows that industries start with the development of innovative cleaner technologies only if they expect a crisis that can be invoked by active stakeholders (Moors, 2000). In general, in line with Moors (2000), the authors assert that companies develop and implement cleaner technologies only if they sense that the


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stakeholders focus on the companies’ performance and can enforce demands, hence that the chance of liability is high. In these cases, the risk of non-compliance can also be high. Costs of Non-compliance Firstly, the weak point in the debate of ‘learning networks’ is the assumption that environmental demands are forceful enough to trigger negotiations and invoke technology development and changes in the investment project. However, statistical data shows that companies are rarely held liable for non-compliance, with the exception of the obligatory legal requirements in permits. The statistical costs of companies’ liability for safety and emissions and the costs of insurance for liabilities are hardly relevant to companies’ results. In the Netherlands these are 1 per cent of the total pollution control costs whereas the latter is about 1 per cent of average annual turnover (CBS, 1998). Secondly, the demands are often driven by emotions or intuition connected to risk perceptions or by individual values, but these are difficult to anticipate using rational models (Chicken, 1996; Firth, 1998; Reinhardt, 2001). Therefore, less significant hazards do not necessarily lead to fewer stakeholder demands and fewer investment risks (Reinhardt, 2001). Moreover, the valuation criteria of stakeholders cover various contradictory issues, for example the diverging effects on nature and culture or on environment and labour conditions. On the other hand, in some situations, the chance for liability is high because the investment is large and polluting, the location is sensitive or stakeholders strongly influence policy and media. Thus, there are situations with a high chance of liability, albeit the risk is often difficult to assess because stakeholders do not enter negotiations directly but lobby policymakers to strengthen tough regulations and media to influence image. In view of the difficulty of assessing the chance of liability, companies can simulate effects of non-compliance with the demands on the cost of investment. The additional investment cost caused by non-compliance with the demands can be large. Because the expenditures during the investment preparation (from feasibility to implementation) are covered by a loan or shares, progress with the activities must be insured, particularly in the latter phases when large expenditures must be made. Table 7.1 presents a simple simulation model to illustrate the effect of non-compliance with demands on the interest expenditure for an investment. An investment process is assumed to consist of five stages of one year each: feasibility, basic engineering, detail engineering, technology procurement (with application for a permit) and construction. The funds needed for each phase increase tenfold and are financed through loans. The sum of

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Table 7.1 Simulation of the costs of extra risk and delays on repayment of a loan connected with non-compliance with stakeholders’ demands (interest low risk loan: 5%; interest higher risk loan: 6%; years of repayment: 5; currency unspecified) Phases in Investment

Loans

Outstanding Loan at Beginning of Operation Low risk, High risk, Low risk, High risk, no delay no delay delay delay

1. Feasibility 100 2. Basic engineering 1 000 3. Detailed engineering 10 000 4. Technology 100 000 procurement 5. Construction 1 000 000 Total outstanding loan and interest Annual repayment (annuity) Total payments Total interest paid Interest (%)

128 1 216 11 576 110 250

134 1 262 11 910 112 360

134 1 276 12 155 115 763

142 1 338 12 625 119 102

1 050 000 1 173 169

1 060 000 1 185 666

1 102 500 1 231 828

1 123 600 1 256 806

270 973

281 473

284 521

298 361

1 354 863 243 763

1 407 365 296 265

1 422 606 311 506

1 491 807 380 707

100%

122%

128%

156%

the loans (1 111 100) and the incurred interest outstanding at the start of operation is paid back in equal annuities in the first five years of operation. A higher project risk (from non-compliance with demands) increases the interest rate by 1 per cent. A delay in the project postpones operation and thus repayment of the loan by one year, incurring an extra year of interest charges on the loans. For this example it means that the loan for the feasibility phase is not repaid after five but after six years, increasing the sum of the loan and incurred interest that needs to be repaid from 100*1.055 128 to 100*1.056 134. The simulation shows that the interest costs increase more than 50 per cent for a slightly more risky project with a one-year delay. This delay is especially costly for the company. It is postulated here that large-scale industrial investors usually deal with uncertain demands; hence a low chance of liability is perceived. However, there is the potential burden of significant extra cost on investment if the company is shown to have liability. These are typical ‘low chance, large effect’ situations that are difficult to handle in investment decisions. Therefore, it is practical to assess the investment risks at the early stages of decision-making, which are also the stages


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with limited expenditures. This theoretical approach is underpinned by a case study of magnesium production.

DATA COLLECTION: CASE STUDY ON INVESTMENT IN A MAGNESIUM PRODUCTION FACILITY This case of magnesium production is interesting to focus on in the discussion of investment risks for several reasons. Firstly, it is a large project (the total projected investment is about 250 million euros). Secondly, it is projected to be in the vicinity of a nature reserve (Waddensea) and it is polluting (albeit cleaner technologies are available). Thirdly, the interests of several influential stakeholders are affected by the project (de Leeuw and Krozer, 2001). Magnesium is a costly but lightweight metal (density 1,740 kg/m3) compared with aluminium and steel (density respectively 2,700 kg/m3 and 7,800 kg/m3), which can be more easily processed (die-cast). For these reasons, magnesium alloys are used in automotive applications where the higher price of magnesium products can be justified by additional fuel saving. Other applications include electronics, telecommunication and hand tools. Fuel saving during the use of products is the major environmental advantage of magnesium products, but the current production of magnesium is polluting. The project in the Netherlands started because of a large stock of magnesium-chloride salt at a depth of 1.5 km in the north-east of the Netherlands. Antheus Magnesium Ltd decided to assess the development of magnesium production and related activities with the aim of developing a metal cluster in this economically disadvantaged region of the Netherlands. The process entails three basic steps. The first one is winning of salt, processing it into brine and transporting it to the magnesium plant where it is processed and used as a feedstock (anhydrous magnesium-chloride) for the electrolysis. This converts the brine into one part magnesium and about three parts chlorine, some of which can be used by local companies to substitute the existing polluting chlorine production and therefore reducing the need for chlorine transport. Subsequently, the raw magnesium is mixed with scrap and alloying metals in a foundry and refined, followed by die-casting into ingots or products. The projected plant will be close to the Waddensea, which is a natural area protected by national and international regulations. For this reason and because the proposed activities require an Environmental Impact Assessment, the provincial authority, that is, the coordinating regulatory body, has addressed many issues right from the start of the investment preparation. These include: risks of chlorine handling and transport, risks

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of magnesium production, potential harm to the Waddensea area, water use, discharges of pollutants and cooling water, emissions of chlorinated compounds to water and air, emissions of cover gas, energy use and supply, noise levels, household and hazardous waste. In addition to the negotiations with the regulator, the Antheus management decided to address stakeholders’ demands in the decision-making with the help of an independent institute. Based on a review of the regional social structure, two types of stakeholders are defined: residents’ groups and environmental groups. Both have been interviewed to define their demands. Nine residential groups and the local contact group of the company AKZO Nobel were approached. Five residents’ groups were interested in discussing their demands, but they preferred to discuss the matter in a joint meeting with support from a local community worker in order to present a common opinion. The attitude of the residents’ groups towards the investment was positive because it provided employment for the region and generated positive side-effects on local commerce and social life. The residential groups were particularly concerned about employment possibilities for the local population because many young residents migrate to other regions. The groups had confidence that regulations would address the environmental impacts, but their main concern was health, safety and nuisance issues. The major demands of the residents’ groups were full compliance with all legal requirements, extension of local industrial processing and minimising the risks of chlorine transport. They also asked the company to seriously address complaints about health, nuisance and safety and to go beyond the formal permit requirements if necessary to solve complaints. The AKZO Nobel contact group proposed additional activities to improve the image of the region. In particular, they have mentioned chlorine transport and soil subsidence caused by mining activities as the major issues in addition to the permit. Many local and national environmental organisations were contacted. Some of them were not interested in discussing their demands and many referred to the Waddensea Association, whose main aim is the protection of the Waddensea area. Following that, two interviews were held, one with the Waddensea Association combined with a representative of a local organisation and one with Greenpeace Netherlands. In the interviews, the environmental organisations focused on chlorine as a by-product of magnesium production because they argued that chlorine causes many harmful effects throughout the product chain (in production, use and disposal). The organisations advocated that cleaner technologies would not be satisfactory and promoted elimination of chlorine from product chains. The only acceptable alternatives were chlorine-free magnesium production, by using another raw material, or no magnesium production


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at all. The organisations had a common opinion on this issue but there was a difference of opinion between Greenpeace and the Waddensea Association. The former stated that the magnesium project has no positive aspects, it only wanted to negotiate on the basis of ‘no chlorine’. While the Waddensea Association acknowledged that economic development is important for the region, it also stated that environment should be considered in decisions about industrial projects. In general, the association prefers to discuss all environmental issues during the permit procedure because the procedure functions well and it offers a legal means to gain access to information. The demands expressed by stakeholders and the authorities’ requirements are shown in Appendix 7.1. It lists 35 demands addressing issues like public safety, wildlife protection, nuisance by noise and odour, soil subsidence, energy and water use, effluents and waste, cover gas (an inert gas used to prevent the reaction of molten magnesium with oxygen from the air), local health and employment, increased economic development, compliance with permits, risks of transport and storage of chlorine, as well as objections to the investment in magnesium production because of the dangers of chlorine. Some demands are connected, for example the demands on risk and on chlorine transport. The regional authorities focused on environmental impacts of the magnesium production, the residential organisations pinpointed various social issues like more employment in the region whereas the environmental organisations opposed the investments because of additional risks for the Waddensea and the dangers of chlorine production. Some demands have a legal basis for a requirement in the permit with a high potential for liability because the production is close to the natural area, but most demands lack a legal basis. Some are difficult to anticipate because stakeholders obscure their demands for strategic reasons, for example to delay investment or to gain publicity later. The spokespersons of Greenpeace illustrated this by stating that ‘they will not show everything at this early stage’, but details will be addressed during the permit process.

DATA ANALYSIS: INTEGRATING DEMANDS IN DECISION-MAKING ON INVESTMENT The interaction with stakeholders in the preparation of the project is important to avoid problems later (Nicholis, 2002). Thus, the challenge is to anticipate the stakeholders’ demands at an early stage of the investment process in order to reduce the investment risks connected with a permit. Based on risk management theories (Carey and Turnbull, 2001), the authors argue for a stepwise approach: (1) elaborate a comprehensive list

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of the demands; (2) definition of the chance of liability (burden) for each demand; (3) generation of options to anticipate priority demands; (4) decision on implementation, based on an assessment of the costs and benefits to implement each option. Comprehensive List The stakeholders’ demands can be related to the investor’s competence. Many demands address cleaner technologies but others may go beyond the competence of a single investor, for example the use of chlorine from the magnesium plant in the chemical industry because investments in the metal and chemical industries must be considered. Therefore, the demands have been classified into four levels of decision-making: (1) issues that address production, (2) issues about location (site and impact on the region), (3) product chain of the main product, (4) the system of product and by-products chains. This classification is shown in the fourth column in Appendix 7.1. It is indicated that the authorities mainly address the production level and a few issues linked with location, mainly for habitat protection. Compared with the authorities, the residential and environmental organisations’ demands also address the location, the product chain and the system. In addition, the residents address social issues connected with the location like attracting local labour and health issues. The environmental organisations pose the most farreaching demands on the levels of chains and the system, e.g. elimination of chlorine production and transport compared with a reduction of emissions that is required by the authorities (the organisations strategically keep permit-related issues and demands for later). The competence level can be linked with the decisions during preparation of an investment: in general, the higher the level of demands, the earlier in the investment process decisions are required. The demands that address a system or a chain can only be considered at the early phase of investment preparation – at the feasibility phase – because it is hardly possible to change the system in the later phases and because it is needed to find clients in the chain at the early phases. For example, in the case of magnesium, demands regarding chlorine production and chlorine transports (system level demands) must be considered at the phase of project definition because the choice of raw material (subject of the project definition) determines the generation of by-products like chlorine. Vice versa, many production-related demands can be tackled later. Chance of Liability Even the most willing investor cannot comply with all demands at once, therefore ranking is a necessity. In order to reduce the investment risks, the


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ranking can focus on the chance of liability. This chance that the company will be held liable for a demand can be assessed in view of the relevance of the demand for various stakeholders combined with the judicial basis for the demand. The authors use the relevance of the demand for the various stakeholders to indicate the likelihood that at least one of the stakeholders will try to enforce the demand. The legal basis is an indicator for the chance that the demand will be enforced once attempts to do so are undertaken. Following this reasoning, demands with a strong juridical basis and addressed by many stakeholder groups have a higher chance of enforcement than demands that lack a legal basis and are only supported by one stakeholder. The juridical basis can be an enforceable regulation based on law, an agreement or a recommendation imposed by the regulator based on (legal) guidelines, and finally, the demand can be an objective of stakeholders to be reached by social actions or pressure on the public opinion but without formal grounds. In this sense, the status of the demand reflects the juridical power that the stakeholders have to enforce the demand. The relevance of the demand to various stakeholders is reflected by the number of stakeholder groups that address the demand. According to Rodgers (2000), the extent to which the position of a stakeholder coincides with the opinions of other stakeholders or can trigger support from other stakeholders is an important factor for the willingness of companies to accommodate the demands. Several demands are addressed by both authorities and another stakeholder group, although the non-governmental stakeholders usually pose stricter demands, e.g. authorities’ demand to minimise emissions of chlorinated compounds and environmental organisations’ demand to eliminate emissions. In such cases, the authorities’ demand is supported by a second stakeholder group, but the stricter demand of the non-governmental stakeholder is not supported by the authorities. In the case of magnesium production, full agreement is only reached about far-reaching reduction of chlorine transport risks. Other demands are debatable; hence there is less political and public support. The demands are ranked by scoring for the juridical basis (from 1 to 3) and for the stakeholders’ support (from 1 to 3). The total score is the product, from 1 (lowest chance) to 9 (highest chance). Following that, the chance of liability and level of decision-making are correlated in Table 7.2. The table presents the chance of liability connected with stakeholders’ demands. A few demands are related with the system and must be addressed at the feasibility stage (particularly chlorine transport). Most of the demands need decisions at the level of production and most of them pose a low chance for liability. A few demands pose a high chance of liability, in particular noise, safety, storage of chlorine, emissions to air and water of chlorinated compounds and compliance with permits.

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Table 7.2 Chance of liability caused by stakeholder demands (numbers refer to demands in the magnesium case in Appendix 7.1) System Chain Location Procurement Production Investment Definition Feasibility

Chance for liability

28, 32, 34, 35 26, 29 21, 22, 23, 27, 33 8, 9, 10, 11, 12, 13, 14, 17, 19, 20, 25, 30, 31, 35 Low (score 3)

18 6 7, 15, 16

4, 5 1, 2, 3, 24

Mid (score 3–5)

High (score 5)

Table 7.3 Main environmental impacts of magnesium production and possible solutions Production Step

Pollution

Solution

Effect

Winning* Transport brine Electrolysis

Soil sink Spills Energy use

Electrolysis

95%–100% 95%–100% 60% (of standard) 100%

Foundry

Chlorine and chlorine transports Organic chlorine

Re-injection of CO2 Pipelines Modern process and recycling Local use (process integration) Active coal treatment

Foundry

SF6

100%, below detection 100% (SO2 95%)

Refining

Salts to water

General

Waste

Location

Nuisance

Substitution by SO2 and scrubber Closed cycle by membranes Modern process and recycling (high percentage) Environmental Impact Statement

95% 95%

–

Note: * brine winning causes hardly any waste contrary to extraction of ore.

Options for Priorities The stakeholders’ demands in the magnesium case have triggered a search for cleaner technologies, particularly in relation to the production plant. Table 7.3 shows some of the major environmental impacts connected with


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the production of magnesium and the possible reduction methods and amounts. The inventories indicate a possibility of pollution reduction to levels that can be considered as having no effect on environmental quality, albeit some technologies are costly. The management of Antheus has already decided to include chlorine processing in the project, accommodating the demands for minimisation or elimination of chlorine transport (demands 18, 28 and 34) and thereby reducing the increasing political and public concern about the issue. This option also answers the demand for local chlorine processing in the light of employment opportunities. Decision on Implementation The final step in anticipating stakeholders’ demands is deciding what options to implement. This decision can be based on an analysis of the costs and benefits of each (priority) option and using a technique like the Net Present Value. Following sound economic reasoning, those options that have higher (discounted) benefits than costs will be beneficial for the company. The private benefits of implementing the options are a reduced investment risk. This is because of a lower chance for liability and/or lower costs of non-compliance like delay, extra investment or stricter permit requirements. Various approaches can be used to estimate the magnitude of environmental liabilities, for example, professional judgment, engineering cost estimation, decision analysis and statistical techniques, modelling, scenario techniques and valuation methods (USEPA, 2000). Other benefits might be lower operational pollution control expenses, like lower waste fees because of a reduced amount of waste or lower transport costs caused by the use of pipelines. Private costs include the extra investment and operational costs compared to the original project plan and costs of further communication and deliberation with stakeholders about the adaptations. The social benefits in this case are reduction of environmental impacts and positive impacts on local economy and social life because of extension of the project into processing of chlorine, creating extra employment. Limitations The fact that stakeholders vary in their power and legitimacy is addressed by using an indicator for the legal status of the demand from which the stakeholders, in case of a strong legal status, can derive power and legitimacy. However, this does not fully incorporate the fact that stakeholder groups differ in many ways, for example, time and resources available as well as urgency and commitment. In some special cases a single stakeholder

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group can trigger a strong public reaction even without a legal basis. This can lead to unforeseen problems, as the famous example of the Brent Spar has made clear. However, in order to fully incorporate the characteristics of stakeholder groups, a separate methodology would need to be developed, which is outside the scope of this study. Further, this chapter does not attempt to express the chance for liability in percentage terms, but rather in the categories low, medium or high. Putting a percentage value to this would require experienced professional judgment and case study analysis of more or less similar cases. The second main limitation of this chapter is its core focus on how companies can incorporate information retrieved through stakeholder consultation in investment decisions. However, the scope of stakeholder thinking is much broader, involving ‘interactive, mutually engaged and responsive relationships’ and the process of stakeholder engagement ‘creates a dynamic context of interaction, mutual respect, dialogue and change’ (Andriof et al., 2002). As a result, issues like the process of stakeholder engagement, how best to communicate with various interest groups, how to monitor and report about project results, continue a valuable relationship over the years and strive for continuous improvement in meeting stakeholders’ demands are not addressed here.

IMPLICATIONS AND CONCLUSION It is discussed how industries can anticipate stakeholders’ demands. In the literature, one finds many arguments for cooperation between management and stakeholders but it remains unclear whether industries benefit from this because of uncertain demands, as stakeholders do not often agree on common issues and most demands lack a legal basis. Thus, the chance of liability for the demands is often low, but the costs of non-compliance with the demands can be severe in cases of possible project delays and when the perceived high risk incurs the high interest rates of polluting activities. One finds various interests in the case of magnesium production, like the residents’ organisations that favour the investment based on clean technology and the environmental groups that object to industrial development, and particularly chlorine production, in the vicinity of the nature reserve. Most demands lack a legal basis and are therefore negotiable. The environmental groups have a risk of being ‘over-demanding’ by posing unacceptable issues. The investor and the residents’ groups have a risk that the regulator uses the demands of environmental groups to include restrictive regulations in the permit that can be debated because of poor legal basis but that cause costly delays of the project.


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To manage the risks created by interest groups, a step-wise procedure can be developed. This entails: inventory and classification of the demands in view of decision levels, followed by an assessment of liabilities in view of legal basis and social preferences, then selection of possible solutions based on technology reviews and finally agreement on implementation by analysis of costs and benefits. When used in practice, the step-wise approach taken here internalises some environmental and social costs and benefits that would normally be treated by companies as externalities because they do not represent direct costs or benefits for the project (Behrens and Hawranek, 1991, p. 139). Policy can stimulate this internalisation by two main modifications to the permit policy. Firstly, the policy can provide a legal basis to clarify what demands cause liability, thus reducing uncertainty about the chance for liability. If an environmental factor to be affected by the project is regulated, financial costs will accrue to the project for compliance measures (Cunningham et al., 2003) and the factor will be internalised in the company’s decision-making process. Secondly, the application for a permit can be a negotiation process with a number of stakeholders right from the early phase of the investment process. This enables investors to anticipate demands from the start and to reach efficient agreements. In this way, efficient and appropriate solutions can be reached for varying projects, since this approach has flexibility to deal with different project characteristics. In a situation like this, the challenge for research is to analyse the power of stakeholders to influence the success or failure of projects using channels beyond those of the permit process.

180

Chlorine risk Safety nature

Safety nature

Space

Hazardous waste Industry waste Cooling water

3 4

5

6

7

9

8

Noise

Noise

1

2

Issue

No.

Noise; industrial area within zone limits Noise; individual company within legal norms Storage of chlorine within norms No harm essentials of Waddensea under regular production No irreparable damage to Waddensea due to calamities Spatial plan needs adaptation to allow energy infrastructure Hazardous waste: treat or deliver to authorised company Industrial waste: solutions for prevention and separation Restrictions on discharges of cooling and process water

Demand

Production

Production

Production

Location

Location

Production Location

Production

Production

Decision Level

Rec.

Rec.

Law

Law

Law

Law Law

Law

Law

Status

3 2 2

3

3 3

3

3

3

E

Status

R

A

Issued By

1

1

1

1

2

2 2

2

2

2

2

3

3

6

6 6

6

6

Rele- Chance vance of Liability

Overview of demands that are issued by Authorities (A), Residents (R) and Environmental organisations (E) and their juridical status (by law, recommendation in guidelines-rec., or aim); assessment of chance for burden is based on the number of organisations and juridical basis

APPENDIX 7.1 OVERVIEW OF THE DEMANDS OF STAKEHOLDERS

181

Energy Energy

Chlorine risk Safety

Chlorinated compounds emissions Chlorinated compounds to water Cover gas

Chlorine transport Noise Odour Health

Safety humans Workforce Compliance Compliance Workforce Workforce

11 12

13 14

15

18

22 23 24 25 26 27

19 20 21

17

16

Cooling water

10

Cover gas: careful evaluation/state of the art expected Risks from chlorine transport: possibly demands No nuisance by noise No nuisance by odour No negative health impacts from emissions etc. No negative impacts on safety Recruit employees locally Comply with permits Go beyond permit if necessary Process magnesium in region Increase employment: process chlorine in region

Discharges of chlorinated compounds: minimisation

Additives to cooling water: careful evaluation alternatives Energy efficient construction Energy efficient production: benchmark/world-top Storage of chlorine: go beyond norms Risks in production: demands for construction Emissions of chlorinated compounds: minimisation

Location Location Production Production Chain Location

Production Production Location

Production

Production

Production

Production

Production Production

Production Production

Production

Aim Aim Law Aim Aim Aim

Aim Aim Aim

Rec.

Rec.

Rec.

Rec.

Rec. Rec.

Rec. Rec.

Rec.

2

1 1 1 1 1 3 1 1 1

2

2

2 2

2 2

2

2

1 1 2 1 1 1

1 1 1

3

1

2

2

1 1

1 1

1

1 1 6 1 1 1

1 1 1

6

2

4

4

2 2

2 2

2

182

Chlorine transport Soil

28

Chlorine transport Production chlorine

34

35

33

32

31

Chlorinated compounds emission Chlorinated compounds to water Production chlorine Safety nature

20

29

Issue

No.

Decision Level

No chlorine industry near Wadden Sea Eliminate risks: no chlorine transports No chlorine industry along the production chain

No chlorine production

No discharges of chlorinated compounds

System

System

Location

System

System

Eliminate risks of chlorine Production transport (by local processing chlorine) Seek solutions for decline of Chain mining site No emissions of chlorinated System compounds

Demand

Aim

Aim

Aim

Aim

Aim

Aim

Aim

Aim

Status

A

1

1

1

1

1

1

1

1

Status

E

R

Issued By

1

2

1

1

1

1

1

2

1

2

1

1

1

1

1

2

Rele- Chance vance of Liability

Overview of demands that are issued by Authorities (A), Residents (R) and Environmental organisations (E) and their juridical status (by law, recommendation in guidelines-rec., or aim); assessment of chance for burden is based on the number of organisations and juridical basis (continued)


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REFERENCES Andriof, J., B. Husted, S. Waddock and S. Sutherland Rahman (2002), ‘Introduction’, Unfolding Stakeholder Thinking, Vol. 1, Sheffield: Greenleaf Publishing, pp. 9–16. Arora, S. and T.N. Cason (1996), ‘Why do firms volunteer to exceed environmental regulations? Understanding participation in EPAs 33/50 program’, Land Economics, 72(4), 413–32. Behrens, W. and P.M. Hawranek (1991), Manual for the Preparation of Industrial Feasibility Studies, Vienna: UNIDO, p. 139. Brezet, J. (1994), Van Prototype tot Standaard; De Diffusie van Energiebesparende Technologie (From Prototype to Standard; Diffusion of an Energy Saving Technology), Rotterdam: Denhatex BV. Carey and Turnbull (2001), ‘De directie en interne controle’ (‘Management and internal control’), in Pickford and Alexander (eds), Mastering Risico (Mastering Risk), Amsterdam/Antwerp: Business Contact Publishing. CBS (Central Bureau for Statistics, the Netherlands), Milieukosten voor Bedrijven, 1980–1998 (Environmental Costs for Companies, 1980–1998). Chicken, John C. (1996), Risk Handbook, London: International Thomson Business Press, p. 85. Chiesa, V., E. Giglioli and R. Manzini (1999), ‘R&D corporate planning: Selecting the core technological competence’, Technology Analysis & Strategic Management, 11(2), 255–79. Clarke, S.F. and N.J. Roome (1995), ‘Managing for environmentally sensitive technology: Networks for collaboration and learning’, Technology Analysis & Strategic Management, 7(2), 191–215. Connor, D.M. (1998), ‘Participative social impact assessment and management cross-cultural application’, Impact Assessment and Project Appraisal, 16(1), 65–9. Cramer, J. (1997), Milieumanagement: Van ‘Fit’ naar ‘Strech’ (Environmental Management: From ‘Fit’ to ‘Stretch’), Utrecht: Jan van Arkel. Cramer, J. and J. Schot (1993), ‘Environmental co-makership among firms as a cornerstone in the striving for sustainable development’, in K. Fischer and J. Schot (eds), Environmental Strategies for Industry, Washington DC: Island Press, pp. 311–28. Cunningham, Cunningham and Saigo (2003), Environmental Science, A Global Concern, 7th edition, New York: McGraw-Hill Higher Education. de Leeuw and Krozer (2001), Stakeholders’ Interests with the Antheus Magnesium Project, University of Twente: CSTM/Cartesius Institute. Dutilh, C.E. (1995), ‘Mechanismen die het produktbeleid bepalen’ (‘Mechanisms that determine product policy’), in J.J. Bouma, J.M.D. Kosten and H.R.J. Vollenbergh (eds), Milieurendement in Theorie en Praktijk (Environmental Effectiveness in Theory and Practice), Alphen aan de Rijn: Samson HD Tjeenk Willink, pp. 153–9. Enserink, B. (2000), ‘A quick scan for infrastructure planning: Screening alternatives through interactive stakeholder analysis’, Impact Assessment and Project Appraisal, 18(1), 15–22. Epstein, M.J. and M.-J. Roy (1998), ‘Integrating environmental impacts into capital investment decisions’, in M. Bennett and P. James (eds), The Green Bottom Line: Environmental Accounting for Management: Current Practice and Future Trends, Greenleaf Publishing, Chapter 4. Firth, L.J. (1998), ‘Roles of values in public decision making: Where is the fit?’, Impact Assessment and Project Appraisal, 16(4), 325–9.

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Georg, S., I. Ropke and U. Jorgensen (1992), ‘Clean technology-innovation and environmental regulation’, Environmental and Resource Economics, 2, 533–50. Kemp. R., J. Schot and R. Hoogma (1998), ‘Regime shifts to sustainability through processes of niche formation: The approach of strategic niche management’, Technology Analysis & Strategic Management, 10(2), 175–95. Marshall, R. (2002), ‘It’s good to talk: The importance of consultation in SIA’, IAIA Business and Industry Series, 1(1), 5. Mason, T.W., A.T. Roper and A. Porter (1999), ‘Integrating environmental consequences and impact assessment into design processes and corporate strategy’, Impact Assessment and Project Appraisal, 17(2), 141–5. Moors, Ellen (2000), Metal Making in Motion, Technology Choices for Sustainable Metals Production, Delft University Press, PhD thesis. Nicholis, H. (2002), ‘Benefits of impact assessment to the mining industry’, IAIA Business and Industry Series, 1(1), 3. Noci, G. and R. Verganti (1999), ‘Managing “green” product innovation in small firms’, R&D Management, 29(1), 3–15. Reinhardt (2001), ‘Spanningen in het milieu’ (‘Tension in the environment’), in Pickford and Alexander (eds), Mastering Risico (Mastering Risk), Amsterdam/ Antwerp: Business Contact Publishing. Rodgers, C. (2000), ‘Making it legit: New ways of generating corporate legitimacy in a globalising world’, in Jem Bendell (ed.), Terms for Endearment: Business, NGOs and Sustainable Development, Sheffield (UK): Greenleaf Publishing. Roome, N. (1994), ‘Business strategy, R&D management and environmental imperatives’, R&D Management, 24(1), 65–82. Scholes E. and D. Clutterbuck (1998), ‘Communicating with stakeholders: An integrated approach’, Long Range Planning, 31(2), 227–38. Schrama, G. (1998), ‘Milieustrategie: inspelen op externe belanghebbenden’ (‘Environmental strategy: Engaging with external stakeholders’), in K. Lulofs and G. Schrama (eds), Ketenbeheer, Jaarboek 1998, Centrum voor Schone Technologie en Milieubeleid: Twente University Press. Tomer, J.F. (1992), ‘The human firm in the natural environment: A socio-economic analysis of its behaviour’, Ecological Economics, 6, 119–38. USEPA (US Environmental Protection Agency) (2000), ‘Valuing potential environmental liabilities for managerial decision-making, a review of available techniques’, in M. Bennett and Peter James (eds), The Green Bottom Line, Environmental Accounting for Management: Current Practice and Future Trends, Sheffield (UK): Greenleaf Publishing, pp. 115–28. Verheul, H. and P.J. Vergragt (1995), ‘Social experiments in the development of environmental technology: A bottom-up perspective’, Technology Analysis & Strategic Management, 7(3). Vickers, I. and M. Cirdney-Hayes (1999), ‘Cleaner production and organizational learning’, Technology Analysis & Strategic Management, 11(1), 75–94. Voges, I. and W. Veerkamp (2002), ‘Corporate needs in environmental and social assessment’, IAIA Business and Industry Series, 1(1), 2. Wheeler and Sillanpää (1998), ‘Including the stakeholders: The business case’, Long Range Planning, 31(2), 201–10.

8. Organizational innovation as an opportunity for sustainable enterprise: standardization as a potential constraint David Wheeler and Michelle Ng INTRODUCTION Despite the sincere efforts of thousands of environmental and corporate social responsibility (CSR) managers in businesses worldwide it is uncontroversial to assert that business, as a global institution, still has a long way to go in fully integrating principles of sustainable development effectively either into strategy or into day to day management. Indeed, despite the progress being made by many large international businesses, frequently exemplified by the membership of a range of enlightened business associations,1 there is little evidence to suggest that the global economy as a whole is becoming more environmentally efficient, socially benign or economically just (Stiglitz, 2002; World Resources Institute, United Nations Environment Program and the World Business Council on Sustainable Development, 2002). Meanwhile, the twin pressures of economic globalization and technological change continue to accelerate the political, social and ecological pressures on corporations, adding to the governance challenges facing boards, top management teams and general management (Wheeler, 2003). On the question of corporate governance Sundaramurthy and Lewis (2003) note that there is now a need to significantly shift the focus of board responsibilities in order to better balance agency theory and stewardship theory. This will require the development of new capabilities to manage complexity and paradox, for example, balancing authority and democracy, discipline and empowerment. Such a shift would be more consistent with a ‘stakeholder approach’ to strategic management (Freeman, 1984). At the level of top management teams there are now a number of texts seeking to explain the relevance of understanding complexity to effective leadership and organizational performance (Beer, 1991; Wheatley, 1994; McMaster, 1996;

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Stacey, 1996). Again this requires the development of new individual and collective capabilities for systems thinking (Senge, 1990) and the encouragement of emergent rather than prescribed order where different stakeholders may enact with the firm to create new possibilities for action. However, in practice we know that in complex, uncertain and rapidly changing environments managers usually do not tolerate complexity and paradox; instead they try to establish predictable system conditions. They often do this citing the need for internal management systems and controls (Stacey, Griffin and Shaw, 2000). Of course, this may be a forlorn task for many managers; it simply may not be possible to achieve stability if changes in the external environment, for example, stakeholder pressures, technological or market shifts, are beyond the control of the firm. This is especially pertinent where organized groups of external stakeholders, for example, labour unions, environmental groups, local communities and so on, are also trying to establish their own stable system conditions in the face of uncertainty (Rowley and Moldoveanu, 2003). In the realm of corporate social and environmental responsibility, the resolution of various actors’ needs to reduce complexity has traditionally been achieved through direct governmental intervention, for example, the imposition of fiscal and legislative penalties and incentives designed to promote the required behaviours from business. Taking a strategic management perspective, Martin (2002) has introduced the notion of the ‘civil foundation’ – to describe the collection of laws and norms that are established in each society and on which may be built discretionary investments and other actions capable of creating value for the enterprise and for society. Martin’s notion of the civil foundation is consistent with previous observations in the business ethics literature (Committee for Economic Development, 1971; Sethi, 1975; Carroll, 1999), which emphasize the difference between (1) corporate acts in response to accepted legal and societal norms; and (2) corporate acts of a more discretionary nature, which organizations may undertake for various purposes, for example, demonstrating social responsibility or responsiveness, or indeed for seeking competitive advantage by shaping the external environment. These boundaries are in constant flux, mainly due to public policy changes related to globalization. For example, in recent decades, governments around the world have sought to deregulate, privatize and generally withdraw from service delivery and state enterprise, without necessarily correcting for consequential gaps created in accountability and governance through legislative controls. Based on research with G8 policy-makers, this trend is unlikely to change (Bell, 2002). Thus, a vibrant debate has emerged on the comparative value of those voluntary and mandatory instruments that may be deployed by

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governments in promoting environmental and social progress (Carraro and Leveque, 1999; Paton, 2000; Gunningham and Sinclair, 2002; ten Brink, 2002; Webb, 2002). However, it is very clear that the governments of the leading economies of the world want to avoid legal or mandatory prescriptions for corporate social responsibility, whatever the pressures of organized labour, environmental organizations and other stakeholders. This is true even in social democratic jurisdictions such as the European Union (Commission of the European Communities, 2001 and 2002). In parallel with the exploration of voluntary and mandatory approaches to corporate social and environmental responsibility, another rich discourse has emerged in recent years exploring (1) the opportunities deriving from greater engagement by business organizations in society; and (2) the need for greater accountability of business to its various stakeholders. In the business ethics literature this has often been presented as a dichotomy of opportunity versus obligations or instrumental versus normative constructions of stakeholder theory (Donaldson and Preston, 1995; Agle, Mitchell and Sonnenfeld, 1999; Jones and Wicks, 1999). Freeman describes these as false dichotomies – divergent thinking sometimes dressed up as convergent theory – that are predicated on a misunderstanding of the choices available to real organizations and real managers (Freeman, 1999, 2000 and 2001; Freeman and McVea, 2001; Wheeler, Colbert and Freeman, 2003). Notwithstanding the playing out of more divergent theoretical commentary in the ethics literature, a more convergent discourse has been pursued by business organizations with a specific interest in reconciling the three dimensions of corporate sustainability: social, economic and ecological (Schmidheiny and the Business Council for Sustainable Development, 1992; Holme and Watts, 2000; Holliday, Schmidheiny and Watts, 2002). This ‘triple bottom line’ perspective (Elkington, 1998) has been echoed by many civil society commentators with a positive view of business engagement with society (Nelson, the World Bank and the United Nations Development Program, 1996; McIntosh, Leipziger, Jones and Coleman, 1998; Hawken, Lovins and Lovins, 1999). And there is now a plethora of popular and academic studies and publications seeking to describe and advocate a ‘business case’ for corporate sustainability, many of which have been compiled and reviewed by the UK business consultancy and think tank SustainAbility (2001). The business case for sustainability has been further reinforced by a reasonably well developed academic literature on the potential linkage of corporate social performance (CSP) and financial performance and the linkage of corporate environmental strategies and actions and financial performance. The CSP financial performance literature has been reviewed exhaustively by Margolis and Walsh (2001) who described 80 empirical

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investigations, approximately half of which provided direct evidence of a correlation between financial performance and CSP (as the independent variable). Perhaps less well explored than the CSP financial links, the environmental strategy–financial performance literature has also provided some empirical evidence for correlations between ‘beyond compliance’ environmental strategies and actions and improved financial performance. These have been summarized in brief by Aragón-Correa and Sharma (2003). It should be noted here that the overwhelming majority of those studies demonstrating correlations do not claim or demonstrate causal relationships between social or environmental performance and financial performance (although they are frequently inferred) and so one must remain open-minded about what might be confounding or common variables. Nevertheless, encouraged by the emerging consensus of a possible ‘win–win’ for business and society, it is now commonplace for business leaders, governments, international agencies and civil society organizations (CSOs) to share platforms and create partnerships in service of sustainable development (Bendell, 2000). The Johannesburg World Summit on Sustainable Development was a notable international landmark for such collaboration. And yet there remain tensions and paradoxes. In the absence of perceived leadership from governments (Environics International, 2003), civil society organizations have been required to play an increasingly active role in defining what corporate engagement and responsibility should look like.2 The Union of International Associations estimated that in 1999 there were more than 40 000 NGOs operating worldwide, a tenfold increase since 1970 (World Resources Institute et al., 2002). Many of these organizations are now actively engaged in dialogue with business and government on issues of corporate responsibility and as a result they are having to seriously re-examine their own assumptions, postures and behaviours (SustainAbility, the Global Compact and United Nations Environment Program, 2003). One of the phenomena associated with CSO engagement with corporate social and environmental responsibility is the increasingly active role nonprofit organizations are playing in the public policy and regulatory environment (Starik and Heuer, 2002). Another is the burgeoning array of normative codes and certified management systems standards – a ‘code-mania’3 that corporations are requested or expected to sign up for. It may be postulated that the normative underpinnings of codes and their associated verification processes and management systems standards are entirely consistent with the desire of CSOs to re-establish formal agreement on what is or is not acceptable behaviour by corporations. The promotion of codes and management systems standards attempts to reduce complexity and uncertainty, just as in former times legislation was designed to do (Jenkins, Utting and Alva Pino,


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2002). And of course there is no shortage of consultants and standardization bodies available to advise on the form and content of such standards.4 In summary, as ever in the field of business and sustainability, one is dealing with a complex, multi-systemic and multi-level challenge (Starik and Rands, 1995). Specifically there is increasing systemic complexity at two levels: (1) the increasing complexity of context – as a result of rapid changes in global economic, social, political, technological and ecological systems; and, (2) the increasing complexity of relationships – as a result of shifts in governance practices and institutional roles between governments, business and civil society organizations. In contrast, there appears to be decreasing complexity on at least one level: an emerging consensus about the importance of corporate engagement in and (shared) accountability for social, economic and ecological questions leading to an increasing interest in defining the ‘civil foundation’ through voluntary codes and certified management systems standards. What remains unclear is: 1.

2.

how the increasing emphasis on certified and non-certified management systems standards and other voluntary initiatives contributes to or hinders corporate transformation to more sustainable business models; and how contextual and relational complexities contribute to or hinder corporate transformation to more sustainable business models.

These two questions will be addressed in the remainder of the chapter. The next section will start with an exploration of the first question and that will inform this chapter’s consideration of the second. It will consider first the evidence for causal relationships between general social and environmental strategies and financial performance or competitiveness. The chapter will then look more specifically at the evidence for and against the potential business and environmental advantages of a specific and well accepted certified management systems standard: ISO 14001. Some of the authors’ own data will be presented that provides evidence for dislocation between certification to that particular standard and progress toward more sustainable business models.

ENVIRONMENTAL AND SOCIAL STRATEGY AND PERFORMANCE Despite the plethora of case material, anecdotal evidence and advocacy for the benefits of proactive social and environmental strategies summarized

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above and the description of correlations between financial, environmental and social performance (including stakeholder orientation) described in the academic literature (noteworthy studies here include Hart and Ahuja, 1996; Klassen and McLaughlin, 1996; Waddock and Graves, 1997; Berman, Wicks, Kotha and Jones, 1999; Roman, Hayibor and Agle, 1999; and Hillman and Keim, 2001), there is as yet no definitive or accepted causal relationship between proactive environmental or social strategy and financial performance or competitive advantage. It is known that organizations adopt proactive environmental strategies for a variety of reasons (Bansal and Roth, 2000). Drivers include regulatory influences, social/stakeholder pressures, market and supply chain opportunities and pressures, competitive advantage and internal cultural and leadership factors (Winn, 1995; Hoffman, 1997; Bansal and Roth, 2000; Sharma, 2001). However, there have been relatively few empirical studies of why and how these drivers operate in different contexts, why and how firms respond to them, and why, how and if the expected benefits arise. Clearly, some companies have generated financial savings whilst introducing pollution prevention and other eco-efficiency measures (Stead and Stead, 1996), just as others have built strong businesses whilst enjoying good stakeholder relations (Wheeler and Sillanpää, 1997 and 1998). And there have been generalized assertions by some distinguished scholars that operational efficiency, and even national competitiveness may be enhanced by the introduction of ‘good’ environmental regulation (Porter and van der Linde, 1995). But even here, the story is not a simple one, with the context and the nature of the lawmaking being important to outcomes. Clearly one cannot simply assume that general advantages can be conferred through widespread adoption of best practices in environmental or stakeholder management. Indeed, some have argued that benefits only accrue when initiatives pass conventional business tests such as meeting criteria for risk management, cost saving and competitive differentiation (Reinhardt, 2000). Similarly, Walley and Whitehead (2000) have explicitly rejected ‘win–win’ thinking in favour of companies operating in the ‘trade off zone’ where all decisions are weighed against likely outcome on economic value. Just as some academic researchers have struggled to establish the generalizability of programmes like total quality management (TQM) and competitive advantage (Douglas and Judge, 2001; Benner and Tushman, 2003), others have found it difficult to make a general case for ‘competitive and green’ theories. For example, Christmann (2000) found little evidence of a correlation between adoption of best practice environmental management activities and competitiveness in the chemical industry, but rather pointed to the importance of complementary resources and capabilities for realizing


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competitive advantage from environmental strategies, for example, the ability to innovate and learn, a point developed by Aragón-Correa and Sharma (2003) with reference to contingency theory and the resource-based view. Prakash (2001) has made similar observations with respect to specific investments in ‘beyond compliance’ measures such as the adoption of the environmental management systems standard ISO 14001. In their empirical study of the impacts of different forms of regulation on the productivity of electrical utilities, Majumdar and Marcus (2001) listed the positive potential impacts of laws, rules and regulations as protection of rights, the ensuring of fairness, equal treatment and predictability. In contrast, the potential negative impacts cited were creation of rigidities, and the erosion of trust, learning and cooperation. Their conclusions, based on the outcome of their study were that ‘better-designed’ regulations set ambitious goals but allow firms flexibility in implementation; such regulations provide for discretion ‘encourage entrepreneurship, creativity and risk-taking’. Given that one cannot claim generalizable, causal relationships between environmental or social strategy and financial performance or competitiveness, perhaps one may discover causal relationships between specific environmental management techniques (such as the adoption of certified environmental management systems standards and so on) and competitive advantage? This is the starting point for the consideration of the potential value of ISO 14001, perhaps the best-known and most widely adopted certified management systems standard in the realm of social and environmental responsibility.

ENVIRONMENTAL MANAGEMENT SYSTEMS STANDARDS AND PERFORMANCE Since its publication in 1996, ISO 14001 has been adopted by a large number of organizations around the world, making it the most widely accepted voluntary, certified environmental management systems standard. In less than six years, the number of ISO 14001 certifications worldwide increased from only 1,491 in December 1996, to more than 36 000 by January 2002 (International Organization for Standardization, 2000; International Organization for Standardization, 2002). The number of countries where ISO 14001 certifications are held increased from 45 in 1996 to 98 in 2000, with Japan, UK and Sweden as the leading countries in terms of the number of certifications (International Organization for Standardization, 2000). According to an ISO survey, 2001 was a record year: ‘Up to the end of 2001, at least 36 765 ISO 14000 certificates had been awarded in 112 countries or economies, an increase of 13 868 (60.57 %) over the end of December 2000

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when the total stood at 22 897 in 98 countries’ (International Organization for Standardization, 2002). Similar to the drivers cited above for proactive environmental strategy, organizations seem to be interested in ISO 14001 for a variety of reasons. These include reduced environmental incidents and liability, improved process efficiency, increased market access, public image and community relations, and as an expression of due diligence (International Institute for Sustainable Development, 1996; Kirkpatrick and Pouliot, 1996; Rondinelli and Vastag, 2000). However, ISO 14001 has been criticized on the grounds of lack of assurance of environmental performance, no guarantee of regulatory compliance and limited requirement of information disclosure and communication to the public (Krut and Gleckman, 1998; Murray, 1999). Some critics argue that ISO 14001 is in some respects the management equivalent of command and control regulations as it prescribes a single solution to environmental management and discourages any attempt to design better solutions beyond the minimum requirements specified by the standard (Colby, 1997). Moreover, the standard may not act as a catalyst for cultural change and innovation within the organization in order to deliver real and significant improvements in environmental performance (Welford, 1996). There have also emerged some criticisms of the variability and the rigour of certification bodies and what this means for environmental performance, most notably in Europe. In the United Kingdom this has been described as a ‘crisis of confidence’ with one prominent figure in the environmental management system certification industry claiming that ISO 14001 is becoming a ‘farcical irrelevance’ (ENDS, 2002). In May 2003, the UK Environment Agency issued a clear warning to the certification bodies: ‘The Agency does not believe there is sufficient consistency in approach between the various certification bodies.’ The Agency believes that ‘not enough of them pay adequate attention to compliance with legislation in their reviews of site performance.’ (ENDS, 2003b). This followed the imposition of a heavy fine on leading German chemical manufacturer Henkel at its Belvedere site in southern England. Despite Henkel’s site being certified to ISO 14001, Environment Agency inspectors described its environmental management as ‘extremely poor’ (ENDS, 2003a). Chapple, Cooke, Galt and Paton (2001) categorized the characteristics of UK firms certified to ISO 14001 and discovered correlations between accreditation and lower profitability. In addition it was found that UK ISO 14001 certified firms tended to be more exposed to international markets and there was a concentration effect in certain industries. It is likely that this concentration effect is an institutional phenomenon. In recent years, large


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automotive companies such as Ford and GM have been especially active in requiring suppliers to adopt ISO 14001 and this has been reflected in largescale take up in international automotive industry supply chains – essentially on a vendor compliance basis. In contrast, the international chemical industry has been slow to adopt ISO 14001. US chemical companies in particular did not respond promptly to the advent of ISO 14001. One factor was probably the existence of Responsible Care as an alternative, but another was the perceived lack of benefits. A survey of larger US Chemical Manufacturers between 1996 and 1998 found that 59 per cent of respondents did not believe Responsible Care or another form of EMS would have prevented incidents of non-compliance in the industry (US Environmental Protection Agency, 1999). A subsequent survey of smaller chemical companies reported by Solomon and Mihelcic (2001) noted that 30 per cent had neither an EMS nor Responsible Care in place, despite this being a condition of trade association membership. King and Lenox (2000) have drawn attention to the opportunism and under-performance problems faced by Responsible Care, perhaps one of the best developed industry-based voluntary environmental management systems standards, but one that (like ISO 14001), lacks serious sanctions for lack of performance. This provides further cause for caution in making claims for the a priori performance-enhancing nature of such standards. Add to this the fact that in most surveys of the relevance and value of environmental management systems the respondents tend to be environmental and safety managers – individuals likely to err on the optimistic side – and it has to be concluded that the case is far from being made for the intrinsic business and environmental value of certified environmental management systems standards. Thus it may be concluded that it is not possible at the present time to make unequivocal and generalizable claims for ISO 14001 – and perhaps environmental management systems standards more generally – on the grounds of business performance, environmental performance or even legal compliance. And clearly, certain industries have struggled to make a business case at all. So it only remains to explore whether there is any deeper potential significance to the sustainability of business from the promotion of such a standard. Could it be argued for example that adoption of an EMS might help an organization navigate complexity and learn or innovate its way into a more effective sustainability strategy, perhaps through catalysing deeper engagement and communication with its employees and other stakeholders on matters of environmental performance? Solomon and Lewis (2002) have examined barriers to corporate environmental disclosure in the UK, concluding that there remain a significant number of disconnects between stated concerns of key actors. Noting these

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observations, it was decided to explore the possibility of a link between ISO 14001 registration and deeper engagement with stakeholders in a small study conducted in Ontario, Canada in 2002. The authors took as their central premise the idea that sustainability, as a societal meta-ideal (Wheeler et al., 2003), implies increased engagement of the organization with society over time and that one possible measure of that increasing engagement is the interest of businesses to share information with their stakeholders on their environmental and social actions, through formal and informal means of communication and dialogue.

A PRELIMINARY STUDY OF ISO REGISTRATION AND ATTITUDES TO STAKEHOLDER ENGAGEMENT In common with many other jurisdictions, there has been a steady increase in ISO 14001 registrations in Canada, where the number of certifications increased from just seven in 1996, to 820 in January 2002. In the province of Ontario alone, the number of certifications reached 380 in 2002 (World Preferred Registry, 2002). In order to assess current environmental reporting practices and the level of willingness to be involved in future reporting and stakeholder engagement among companies that are certified to ISO 14001 in Canada, a fourpart quantitative survey instrument was designed (Ng, 2002). The questionnaire developed for the study adopted some of the elements of instruments used in two prior studies: the Coming Clean report (Deloitte Touche Tohmatsu International, International Institute for Sustainable Development and SustainAbility, 1993) and the Non-Reporting Report (SustainAbility and United Nations Environment Program, 1998). Respondents were asked to report on their current environmental reporting practices, to rate their level of willingness to be involved in reporting to stakeholders in the future, their perceived major obstacles to and benefits of public environmental reporting, as well as motivations that may lead to more public environmental reporting in the future. Neither the International Organization for Standardization nor the Standards Council of Canada (SCC)5 maintains lists of ISO 14001 certified companies in Canada. The sample for this survey was therefore drawn from the World Preferred Registry maintained by WorldPreferred.com Inc,6 a private company that maintains a searchable database of ISO 14001 certified organizations in different countries. As of January 2002, the World Preferred Registry had records of 820 Canadian ISO 14001 certifications; 380 certifications were held in Ontario, and the rest were distributed in eight other


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provinces (World Preferred Registry, 2002). With considerations of time, cost and the fact that the ISO 14001 certified companies were widely dispersed in the country, the authors’ research focused on those certifications held in Ontario, which make up almost half of the total number of certifications in Canada. The 380 certifications held in Ontario were not necessarily a direct reflection of the number of companies obtaining certification because some companies had certification for more than one of their divisions, plants or sites in Ontario. Where a company recorded multiple certified sites, only one site was selected for sampling in order to avoid the possibility of duplication of responses from any one company where a common set of management motivations and policies might apply to multiple certified sites. This approach reduced the sample size to 141 companies. In early January 2002, letters introducing the survey research project were sent to the selected sample of 141 companies. Between February and April 2002, telephone interviews were successfully conducted with management who were responsible for the ISO 14001 EMS in 71 companies. This represented a response rate of 50.4 per cent. About one-third of the respondents were from ‘higher impact’ industries (including forestry, pulp and paper, metals and mining, chemicals, and energy utilities); the remainder were from ‘lower impact’ industries (environmental services, telecommunications, light industrial and retail/consumer goods). Slightly more than half of the respondents were publicly traded companies, and over half of the respondents had more than 500 employees. The majority of respondents (72 per cent) reported that they published environmental performance data to the public. However, only 25 per cent reported that they published data other than those required by regulations. Mandatory regulatory filing was the medium used most often by respondents to communicate environmental performance (85.9 per cent), followed by employee newsletters (78.9 per cent), intranets (60.6 per cent) and websites (57.7 per cent). It may be worth observing here that internal communication is a mandatory requirement of ISO 14001 registration. In terms of external communications, 35.2 per cent of respondents claimed to use press releases, 28.2 per cent used advertising, 19.7 per cent included sustainability information in their annual reports, 18.3 per cent in an environmental report and 2.8 per cent in a sustainability report. Companies in high-impact industries were found to be significantly more likely to publish formal environmental reports than those in low-impact industries (2 5.579, P 0.018). When the authors explored differences between the perceived importance of providing environmental performance data (i.e. not full reports) to particular stakeholders versus the perceived demand, that is, the extent to which it was requested, clear differences emerged (see Figure 8.1).

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Local community

Perceived Demand Perceived Importance

Suppliers Customers Government Regulators Investors Employees 1

2

3

4

5

Note: 1not at all important, 3somewhat important, 5very important.

Figure 8.1 Importance of providing environmental performance data to stakeholders compared with demand: perceptions of environmental managers of ISO 14001 certified companies in Ontario (n71) The environmental managers interviewed had a relatively high appreciation of the need to share environmental data with different constituencies. This is an unsurprising observation given that these respondents were primarily responsible for the generation of such data. What was more interesting was the significant disparities between perceived importance and perceived demand, with requests for information from employees, investors and customers averaging only ‘somewhat important’ on the Likert scale (±0.1) and suppliers and local communities still less. This disparity may go some way to explaining the attitude of these managers to future communications on environmental, social and economic data and reports. Here most respondents exhibited relatively low enthusiasm for going beyond basic data provision for regulatory purposes. The mean responses for issuing formal reports on social, environmental or economic performance averaged ‘somewhat willing’ on the Likert scale (±0.1) with only slightly higher averages for basic data provision. See Figure 8.2. These data present a somewhat different picture to what might be assumed from reading the literature on environmental and sustainability reporting, namely that the history of corporate reporting and the advent of initiatives such as the Global Reporting Initiative represent unequivocal evidence of progress toward more effective stakeholder engagement,

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Reports Data

Econ.

Social

Env. 1

2

3

4

5

Note: 1very unwilling, 3somewhat willing, and 5very willing to provide data or reports.

Figure 8.2 Level of willingness of ISO 14001 certified companies in Ontario to provide basic data or full reports on environmental, social or economic performance in the future (n 71)

establishment of corporate legitimacy and thus (potentially) more sustainable business organizations (Bennett and James, 1999; Hooghiemstra, 2000; Wilmhurst and Frost, 2000; KPMG, 2002; SustainAbility and UNEP, 2000 and 2002). For example, Marshall and Brown (2003) boldly assert: ‘The question of whether to report on environmental issues is no longer relevant’. Undoubtedly this is a perspective formed by looking at leading companies (i.e. those that already report) and perhaps paying uncritical attention to the commentary of leading civil society advocacy organizations such as CERES and GRI (Global Reporting Initiative, 2000 and 2002). However, such broad assumptions were called into question by Wheeler and Elkington (2001) who drew attention to the danger that corporations were not reaching their direct stakeholders very effectively at all through their corporate reporting processes. The evidence presented in the authors’ small study of 71 firms in Ontario adds weight to that contention. Respondents to the survey cited a range of obstacles to future provision of more social, environmental or economic data or reports to their stakeholders, the most important of which was doubts about advantages to the company. In contrast, the main factor that would stimulate more public reporting among Ontario-based ISO 14001 registered firms was regulatory compulsion, that is, compliance with the law. These data confirmed that it would be unwise to make assumptions that companies automatically view ISO 14001 as a mechanism to further their engagement with stakeholders and broader society on questions of

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sustainability, or indeed that ISO 14001 registered firms are universally committed to such engagement. Some are; most are not. To demonstrate whether this phenomenon is any different for registered and nonregistered firms would require a larger study of matched ISO 14001 registered versus non-registered firms, controlled for industry type, company size, stakeholder orientation and reporting history. Such a study has not yet been done to the authors’ knowledge. The chapter will now return to the second fundamental question raised earlier, viz, how contextual and relational complexities contribute to or hinder corporate transformation to more sustainable business models.

STAKEHOLDER ENGAGEMENT AS AN ORGANIZATIONAL CAPABILITY FOR NAVIGATING COMPLEXITY IN THE EXTERNAL ENVIRONMENT Various authors have noted the importance of external context (including stakeholder and institutional influences), organizational culture and the interpretations of senior managers to the successful championing of sustainability and CSR actions by businesses and by individual managers (Henriques and Sadorsky, 1999; Hoffman, 1999; Anderson and Bateman, 2000; Cordano and Frieze, 2000; Sharma, 2000; Rugman and Verbeke, 2000). It is also known that external influences, including why and how particular stakeholder groups decide to act, may be more complex than hitherto assumed (Rowley and Moldoveanu, 2003). All of these observations serve to emphasize the likely importance of organizations developing capabilities to navigate complexity at both the contextual (external environment) and relational (stakeholder) levels. Wheeler (2003) categorized the literature on organizational capabilities that have emerged as strongly associated with (environmental) sustainability performance. The three main categories of capability were: 1.

2.

leadership (e.g. Egri and Herman, 2000), which here might include the importance of creating a global and institutional context and culture for the organization (Welford, 1997), legitimation of a sustainability vision or frame (Zietsma and Vertinsky, 2002), an appropriate level of pluralistic behaviour (Jones, 2000) and permission for sustainable actions (Ramus and Steger, 2000); learning, including adaptation and innovation (e.g. Hart, 1995; Sharma and Vredenburg, 1998; Boons and Berends, 2001; Senge and Carstedt, 2001), that is, capabilities for double and triple loop learning (cf. Argyris and Schön, 1978; Argyris 1990 and 1993); and


3.

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stakeholder inclusion and network building or ‘boundary spanning’ (Wheeler and Sillanpää, 1997 and 1998; Sharma and Vredenburg, 1998; Clarke and Roome, 1999; Madsen and Ulhøi, 2001; Sharma, 2001).

Based on this analysis and a number of observations on the changing context for business of the global external environment, Wheeler (2003) concluded that promising areas of management research for exploring effective business approaches to sustainability might include complexity theory and paradox, because both of these approaches allow for iterative enactment between the firm and its stakeholders in delivering radically different and innovative organizational outcomes (Stacey, 1993; Lewis, 2000; Stacey et al., 2000). Indeed, introducing a special research forum on new and evolving organizational forms in the Academy of Management Journal, Child and McGrath (2001) concluded that ‘Paradox is likely to be a core theme of post-modern organizational design . . . Effectively navigating paradox appears to require conscious, ex ante attention to structure and process. In particular, simplifying complex situations appears to be an essential adaptive skill’. A number of the articles in the forum went on to develop and reinforce the notion of dynamic capabilities required to navigate uncertainty in complex, changing environments (Galunic and Eisenhardt, 2001; Rindova and Kotha, 2001). Elsewhere, for example, in the political science literature (Axelrod and Cohen, 2000) it has been suggested that complexity can be ‘harnessed’ through a complex adaptive systems approach, for example through specific interventions to promote variation and interaction. Hart and Sharma (2004) make a similar point with respect to interaction of the firm with diverse ‘fringe’ stakeholders in order to secure strategic insights, knowledge and creativity, that is, competitive imagination, to the organization through a capability they term ‘radical transactiveness’. This effectively embraces capability categories (2) and (3) described above in a single ‘meta-capability’ in service of innovation. This builds on Hart’s longer-standing interest in transformation of business strategy ‘beyond greening’ (Hart, 1995 and 1997) and the development of neoSchumpeterian notions of ‘creative destruction’ (Hart and Milstein, 1999), which may be especially relevant in the emerging and developing economies (Prahalad and Hart, 2001). It also echoes the practices of companies like Shell, which in the 1970s, actively sought out disparate, challenging voices for the purpose of scenario planning (de Geus, 1997). Innovation itself has also started to feature more prominently in the environmental management literature (Foster and Green, 2000; Larson, 2000), further reinforcing the case for linking strategic innovation and sustainability at the organization level.

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So the authors wish to posit the possibility that Hart and Sharma’s ‘meta-capability’ for learning and network-building with key stakeholders may be more relevant to corporations responding to external drivers associated with globalization and transitioning to more sustainable strategies and behaviours than codes, management systems standards or other compliance-based prescriptions. The case is based partly on the empirical evidence presented earlier – that in the case of one well-known certified management systems standard (ISO 14001) there is no demonstrable causal relationship between accreditation and environmental performance, business performance or even a strong desire to engage with external stakeholders on issues of social and environmental concern; on the contrary, it appears that regulators in the UK and elsewhere are beginning to lose confidence in such management systems standards even as a predictor of legal compliance. Similar to Aragón-Correa and Sharma (2003) the authors also wish to make a theoretical argument based partly on complexity theory, that innovation and corporate transformation may be linked directly to the possession of requisite organizational resources, routines and capabilities that permit the navigation of uncertain external environments. Thus it would be unwise to place undue reliance on prescriptive or compliance-based processes and standards in the realms of environmental and social sustainability – especially where they risk reducing the potential for innovation – for example, in the absence of leadership or cultural empathy. Earlier the conclusion of Christmann (2000) was noted: that the availability of complementary organizational resources and capabilities may actually be more relevant to securing environmental gains from the adoption of environmental best practice approaches, for example, environmental management systems, than the practices themselves. The same was noted in a study of TQM and competitive advantage (Douglas and Judge, 2001). Thus it is the contention of this chapter that the ability of firms to develop multiple appropriate relationships with key stakeholders: workers, suppliers, business partners, etc. in value-based, generative relationships (Wheeler et al., 2003), over time and across changing contexts (economic, technological, ecological, political, social, cultural and geographic) may be central to corporate transformation to more sustainable strategies and operations. In order to be effective, codes and certified management systems standards and compliance-based prescriptions imported into the ‘civil foundation’ must allow for the emergence of organizational resources and capabilities that enable sustainable strategies. As noted by McGrath (2001), where there is a high level of uncertainty or complexity and a requirement for high levels of exploration, documented, standardized behaviours are inhibitory to innovation. And as Benner and Tushman assert (2003): ‘Process management and its associated technologies


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and philosophies are conservative and resistant to anything but incremental or competence-enhancing innovation.’

CONCLUSIONS AND IMPLICATIONS FOR FUTURE RESEARCH This chapter has sought to address two fundamental questions: 1.

2.

how the increasing emphasis on certified (and non-certified) management systems standards such as ISO 14001 contributes to or hinders corporate transformation to more sustainable business models; and how contextual and relational complexities contribute to or hinder corporate transformation to more sustainable business models.

On the first question the authors simply observe that there is no strong evidence that certified management systems standards such as ISO 14001 or non-certified standards such as Responsible Care either contribute to or hinder corporate sustainability. However, there is both theoretical and empirical evidence to suggest that other variables, for example, the presence of leadership, culture, organizational resources or capabilities may be a prerequisite for the generation of value from the implementation of environmental or social management systems standards. On the second question, it has been seen how contextual (external environment) and relational (stakeholder-related) complexity led the authors to conclude – based primarily on theoretical arguments – that the possession of resources and the development of appropriate dynamic capabilities for stakeholder engagement may be central to the question of organizational innovation, learning and thus transformation to more sustainable business models. Based on their theoretical reasoning the authors might even postulate that increasing complexity in context and relationships may promote the conditions for transformation, but that is a hypothesis for future testing. Integrating and summarizing these observations, the authors are suggesting that: 1.

2.

There is little or no evidence that certified and non-certified management systems standards per se deliver enhanced performance: financial, environmental, social or competitive. In the fields of TQM and environmental management, complementary organizational resources and capabilities may be more powerful determinants of business value arising from adoption of formalized processes and management systems standards.

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3.


And it is possible that standardized business processes and routines may be inhibitory to exploratory learning and innovation in uncertain, complex environments.

Consequently, it is entirely appropriate that the thrust of current research in organizations and sustainability is increasingly focused on opportunities for strategic innovation and transformation linked to key capabilities that address complexity at the contextual and relational levels (such as leadership, learning and stakeholder engagement). So, based on their discussion of organizational capabilities, stakeholder engagement, complexity and paradox, the authors would like to raise some general questions for future research with respect to current and proposed sustainability-related certified management systems standards: 1.

2.

3.

4.

Do certified management systems standards promote organizational capabilities for transformational change for sustainability at the level of the firm, for example, through delivering novel product and services ideas with significant changes in sustainability performance? Or in contrast, do certified management systems standards detract from the possibilities of developing organizational capabilities for transformational change at the level of the firm, for example, through diverting the resources of managers and stakeholders with the insight and energy for sustainability? Do certified management systems standards contribute to the development of individual capabilities for transformational change, for example, through the development of skills in leadership, double and triple loop learning, stakeholder engagement, management of paradox? Or, in contrast, do certified management systems standards constrain the development of individual capabilities for transformational change, for example, by reinforcing technocentric paradigms of incremental systems change and adaptation?

It could be possible to go further, to reflect on the impact of a range of specific sustainability standards and related initiatives, for example, Natural Step (Nattrass and Altomare, 1999), ISO 14001 and the proposed ISO CSR standard (COPOLCO, 2002) and consider whether they will encourage the sort of radical organizational transformation that many advocates of sustainable development believe is necessary. Three specific further questions that might reasonably be made the subject of empirical research are: 5.

Does Natural Step, with its rationalist set of ‘system conditions’, provide for responsive processes of engagement with stakeholders, or


6.

7.

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do those conditions constrain the very interactive social processes that would be required to bring hoped for transformations into being? Does ISO 14001, with its explicitly defined technical steps and processes, provide for sufficient freedom of action with respect to the motivations of workers and external stakeholders to allow for complex, transformational conversations and actions, or does it reduce the possibilities for such enactment? Will the proposed ISO CSR standard allow for organizational, cultural and geographic diversity and complexity or will it assume universal standards of corporate responsibility regardless of direct firm–stakeholder enactments in different environments?

In all cases it would be hard to fault any of the management systems standards from a conventional systems perspective (Senge, 1990). All are in that sense scientifically sound, with requisite feedback loops and control mechanisms inserted for non-conformance with the desired system conditions. All of these approaches pay some attention to possibilities for incremental organizational learning and even adaptation through stakeholder engagement. And they would in that sense be consistent with normal managerial approaches to benchmarking, goal setting and continuous improvement, that is, human control of a complex system. However, being raised here is the teleological choice described by Stacey et al. (2000) between assumptions of incremental versus transformational change – in the latter case perhaps transcending the traditional boundaries of organization altogether. And the authors are suggesting that ultimately the attainment of higher levels of corporate sustainability may be more about the latter than the former. So following their own logic the authors see another rich potential seam of future research in the realm of organizational transformation, where external drivers may necessitate new organizational designs, as postulated by Child and McGrath (2001) in the context of globalization. In the field of sustainable enterprise these may include social mission enterprises operating within explicit stakeholder frameworks, hybrids of business, government and civil society organizations, and value-based networks of for-profit and not-for-profit actors (Wheeler et al., 2003). There are many more such innovations emerging in the realm of sustainable enterprise and it may be through qualitative, grounded research of these new organizational forms that some completely new patterns of sustainable organization may start to emerge. These forms are attempting to navigate complexity through explicit stakeholder-inclusive business models that transcend previous conceptions of organization. That alone makes them worthy of study. The fact that they also have the creation of economic,

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social and environmental value as their central purpose adds further to their likely interest to scholars of business and sustainability.

NOTES 1. For example, the World Business Council for Sustainable Development, the UN Global Compact, CSR-Europe, Empresa, Business for Social Responsibility (US), Business in the Community (UK), and the International Business Leaders Forum. 2. In 2002 Environics International explored attitudes of 36 000 citizens in 47 countries to the question of legitimacy of different actors to act in a socially responsible manner. The poll demonstrated continued relatively high trust in non-governmental organizations (NGOs) to operate in the best interests of society: 59 per cent of respondents confirming a lot or some trust versus 32 per cent saying they had little or no trust in NGOs. This compared with only 50 per cent who placed trust in government, 39 per cent in global companies and just 38 per cent who placed trust in parliament/congress. 3. This term was coined by Chris Pinney of the Imagine Program of the Canadian Centre for Philanthropy. 4. There is now a long list of environmental management systems standards promulgated by the International Organization for Standardization (ISO) under its ISO 14000 series. Although not subject to certification, there are other proprietary environmental management systems prescriptions, for example, the Natural Step (Nattrass and Altomare, 1999). In addition, but with only limited take up, we have seen the emergence of stakeholder management systems standards such as AA1000S (from the UK-based organization AccountAbility) and SA8000 (from the US-based Council on Economic Priorities). Meanwhile, ISO is proposing a certified CSR standard (COPOLCO, 2002). 5. The Standards Council of Canada (SCC) is the Canadian ISO 14001 accreditation body, which operates accreditation programmes for registrars in Canada. 6. The World Preferred Registry was recommended by the SCC when it was asked by the researcher for a list of ISO 14001 certified companies in Canada.

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9. Contributions of product-oriented environmental management to corporate sustainability1 Frank G.A. de Bakker INTRODUCTION Over the past 15 years, the concept of sustainable development has become a significant political and social issue, causing much debate in society, and finding its way into governmental and corporate policies. The role of business has been important in these discussions (for example, Walley and Whitehead, 1994; Hart, 1995; Bansal, 2002; Sharma, 2002). Dealing with issues of sustainable development and corporate sustainability is a relevant, yet difficult, issue for firms. It requires them to develop new capabilities and to look beyond their traditional business scopes to address a wider range of issues, interests and stakeholders. Many directions can be considered in working towards corporate sustainability and an increasing amount of research is aimed at understanding the complex interplay between economic, social and ecological aspects of sustainability (Elkington, 1997; Bansal, 2002; Dyllick and Hockerts, 2002). To understand these developments from a firm’s point of view, it is useful to turn to current thinking about the relationship between firms’ resources and capabilities and issues of environmental management and sustainability (Hart, 1995; Russo and Fouts, 1997; Sharma and Vredenburg, 1998). In a conceptual paper on the natural resource-based view of the firm (N-RBV), Hart (1995, p. 1001) suggested that competitive advantage be viewed as based on a firm’s relationship with the natural environment, stating that ‘[f]irms that adopt product-stewardship strategies will evidence inclusion of external stakeholders in product-development and planning processes’. Adding to Hart’s line of reasoning, Sharma and Vredenburg (1998) confirmed that a stakeholder integration capability could be important for firms that engage proactively in environmental management. Looking for ways to involve different stakeholders in 212

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environmental management thus could be beneficial for firms. In this chapter, a specific focus is chosen to address such stakeholder integration. This chapter focuses on environmental management concerning products and the way stakeholders are influencing, or being influenced by, products’ environmental impact across their life cycles. The concept of Productoriented Environmental Management (POEM), therefore, is examined, defined as ‘a systematic approach to organizing a firm in such a way that improving the environmental performance of its products across their product life cycles becomes an integrated part of operations and strategy’ (de Bakker, 2001, p. 12). Within this definition, products also include services. The objective of this chapter is to explore how insight on the systematic and integrated character of POEM could contribute to considering the role of stakeholders in corporate sustainability. To explore the concept in greater detail, in the next section, POEM is introduced. This introduction also underlines the selection of theoretical perspectives applied in Section three to discuss central motives for firms to engage in POEM. Following earlier remarks on the N-RBV and stakeholders, specific attention is given to the capabilities to address stakeholder interests, and issues of competitiveness in firms’ dealing with products’ environmental aspects. Section four addresses methodology, followed by a section on the results of empirical research on POEM within five large, proactive firms. In Section six these results are reflected upon in terms of corporate sustainability. In the final section, the discussion is broadened towards the theme of this volume, corporate sustainability and stakeholder involvement, and directions for further research are examined.

PRODUCT-ORIENTED ENVIRONMENTAL MANAGEMENT: AN OVERVIEW POEM is rather new. Although calls for incorporating environmental considerations into product development and design date back several decades (Papanek, 1972), the increasing attention paid to product-related environmental activities within firms is quite a recent development. Different aspects of products’ environmental characteristics have already been addressed, for instance through approaches such as ‘ecodesign’ or ‘design for environment’ (for an overview, see Zhang, Kuo, Lu and Huang, 1997; Baumann, Boons and Bragd, 2002). Yet, little attention has been paid to the organizational aspects within a firm of dealing with a product’s environmental characteristics throughout its life cycle (Lenox and Ehrenfeld, 1997). The definition of POEM presented earlier emphasizes

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precisely these organizational aspects. In related studies, similar concepts have been applied, sometimes under different headings, such as ‘life-cycleoriented environmental management’ (Sharfman, Ellington and Meo, 1997). Although there are differences in emphasis, these concepts all focus on integrated, organizational issues in dealing with products’ environmental characteristics. This growing attention for products’ environmental characteristics can be understood from the broadening context of corporate environmental management over the past decades. In brief, environmental problems are increasingly accepted as serious societal concerns instead of as mere technical issues; environmental regulations are increasingly emphasizing actors’ own initiatives; and sustainable development involves, and addresses, a wider array of stakeholders, business being a prominent one (de Bakker, 2001). Following these changes, attention in corporate environmental management is extending from a focus on processes and their pollution towards products and services and, increasingly, corporate sustainability, thus gradually taking into account a broader set of stakeholders. With the increasing emphasis on firms’ own initiatives, the more proactive firms especially can be expected to engage in paying attention to their products’ environmental characteristics in an integrated manner. In their environmental management, this type of firm is going beyond what is required through environmental regulation. Taking into account a wider range of stakeholders concerning products usually goes beyond legal requirements so POEM is likely to be addressed by this type of firm. Berry and Rondinelli (1998) identify four forces that drive proactive environmental management: regulatory demands, a stakeholder focus, cost factors and competitive requirements. In essence, these forces can be brought under two headings: competitive requirements and stakeholder requirements. Regulatory demands can be seen as a specific stakeholder demand since firms often consider regulators as an important category of stakeholders (Henriques and Sadorsky, 1999). Cost factors can be related to competitive requirements as getting a better view on its cost structure can improve a firm’s competitive position. Firms thus can be expected to engage in proactive environmental management, such as POEM, because of anticipated stakeholder requirements or because of an expected competitive advantage (de Bakker, 2001). Ideally, these reasons coincide. If stakeholders show a growing environmental concern, being able to address such demands better than competitors do might lead to an improved firm performance and a competitive advantage. Taking a closer look at this relationship among the issues of environmental management, stakeholders and competitiveness is therefore useful.


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RESOURCES, STAKEHOLDERS AND CAPABILITIES In this section, theoretical insights that examine POEM as a way of addressing stakeholder interests include the resource-based view of the firm and stakeholder theory. After this examination, a discussion follows the development and maintenance of organizational capabilities to address these stakeholder demands. The Resource-based View The resource-based view (RBV) of the firm (Wernerfelt, 1984; Barney, 1991) argues that differences in competitive positions of firms are based on firm-specific resource endowments. In the RBV, firms are considered as ‘bundles of resources’ (Wernerfelt, 1984). Resources are often defined widely, for instance as ‘those (tangible and intangible) assets which are tied semi-permanently to the firm’ (Wernerfelt, 1984, p. 172). For resources to constitute a source of sustainable competitive advantage, they must meet several criteria, such as being valuable, rare, difficult to imitate and hard to substitute (Barney, 1991). An increasing number of publications follow Hart (1995) in applying ideas from the RBV to the field of corporate environmental management (for example, Russo and Fouts, 1997; Judge and Douglas, 1998; Sharma and Vredenburg, 1998; Aragón-Correa and Sharma, 2003; Buysse and Verbeke, 2003), translating the concept into the natural-resource-based view (N-RBV). The central idea in Hart’s application is that a firm’s dealing with environmental management can constitute a sustainable competitive advantage. Within this N-RBV, Hart (1995) distinguishes three interconnected strategies: pollution prevention involves reducing pollution during the production process; product stewardship aims at integrating environmental concerns in product development and design; and finally sustainable development broadens a firm’s scope to include negative links between economy and ecology, also considering the developing world. These strategies fit in with current developments in thinking about corporate environmental management. Given the interconnectedness among these strategies, studying business organizations’ interactions with their stakeholders within a corporate sustainability context might well be informed by understanding product stewardship. Hart (1995) described product stewardship as a strategy in which including external stakeholders in product development and manufacturing processes is crucial. In his view, a product stewardship strategy is preceded by a pollution prevention strategy, and builds upon the more integrative strategy of sustainable development. Each strategy requires a

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specific set of resources and capabilities, but to accomplish a strategy of sustainable development, resources and capabilities required to fulfill the other two strategies can be helpful. Seeing this interconnection of strategies as a result of path dependencies and embeddedness is an important contribution of the N-RBV (Buysse and Verbeke, 2003), explaining through which mechanisms corporate environmental management could contribute to a sustainable competitive advantage. Within these strategies, authors working in the N-RBV explicitly identified the relevance of considering stakeholders and ways to address them (Hart, 1995; Sharma and Vredenburg, 1998; Buysse and Verbeke, 2003). Before discussing the capabilities that a firm could need to deal with stakeholder issues, this chapter will therefore turn to stakeholder theory. Stakeholder Theory Stakeholder theory forms another relevant theoretical perspective for this research, because products involve many stakeholders during their life cycle. According to Freeman’s (1984, p. 46) classic definition, a stakeholder is ‘any group or individual who can affect or is affected by the achievement of the organization’s objectives’. Similarly, a broad range of stakeholders involved over a product’s life cycle can affect, and be affected by, products’ environmental characteristics. In corporate environmental management, Polonsky (1995), for instance, distinguishes among different stakeholders, including customers, competitors, employees, government, suppliers, special interest groups and the media. Organizing POEM means that a firm tries to get an overview of its products’ impacts throughout their life cycles, of the stakeholder demands involved, and then decides how to balance, weigh and address these. According to Donaldson and Preston (1995, p. 67): ‘stakeholders are persons or groups with legitimate interests in procedural and/or substantive aspects of corporate activity’. Mitchell, Agle and Wood (1997) view power, legitimacy and urgency as central attributes of stakeholders. A stakeholder’s power, for instance, can be seen as depending on the nature and the level of threat a stakeholder poses to a firm, and the stakeholder’s perceived legitimacy (Fineman and Clarke, 1996). Based on these attributes, stakeholders thus can be identified and their salience can be determined (Mitchell et al., 1997). The role of managerial decision-makers thereby is central. Identifying different stakeholder demands, and balancing their interests in a continuous effort, is influenced by interpretations of managers (Fineman and Clarke, 1996; Henriques and Sadorsky, 1999; Sharma, Pablo and Vredenburg, 1999). Because managers give priority to competing stakeholder claims in a dynamic way, ‘stakeholder salience can vary over


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time and depends on the issue considered’ (Buysse and Verbeke, 2003, p. 458). Continuously dealing with stakeholder demands on products’ environmental characteristics is seen as increasingly important, also in the light of the N-RBV. As Hart (1995, p. 1002) put it: ‘over time, a productstewardship strategy will extend beyond the pre-emption of firm-specific resources and use of LCA to become a stakeholder-oriented (legitimacybased) process’. A focus on the role of managers in firms’ handling of stakeholder demands could reveal further insights into the motivation and capabilities of firms to engage in POEM. This leads up to the final part of this theoretical discussion: how could an organization develop and maintain the required resources and capabilities? Organizational Capabilities Collis (1994, p. 145) defines organizational capabilities as ‘the socially complex routines that determine the efficiency with which firms physically transform inputs into outputs’. The composition and quality of a firm’s resource and capability base need to be maintained in a continuous effort to remain in line with frequently changing influences such as varying stakeholder demands or changing levels of knowledge. Sharma and Vredenburg (1998), for instance, found that firms proactively engaged in environmental management developed capabilities for stakeholder integration, learning and continuous innovation. Organizational capabilities thus need to be developed and maintained to deal with POEM, as this concept involves aspects that are relatively new to many firms. Literature on product development as seen from a resource-based perspective (Iansiti and Clark, 1994; Verona, 1999) could contribute here. Iansiti and Clark (1994) developed a ‘capability building process model’ in which they distinguish two phases. The concept development phase deals with problem framing, comparing different possible solutions to perceived problems. The required capability base is compared with the present one to find out which capabilities require renewal, or new development, to solve the problem experienced. In the following implementation phase, solutions are developed and implemented, aimed to lead to the needed new, or renewed, capabilities. As capability building involves a continuous process, de Bakker and Nijhof (2002) transformed this model into a four-step ‘capability cycle’, similar to the plan–do–check–act cycle known from quality management. Communicating with stakeholders and interpreting their interests then involves the conceptualization stage, while translating plans into products and processes, and evaluating and reporting upon a firm’s activities comprise the implementation stage. Each step in this cycle requires specific capabilities. An important distinction can be made between internal and external

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integrative capabilities (Verona, 1999), needed to balance external demands and internal activities. Similarly, Sharma and Vredenburg (1998) pointed out that environmental stakeholder integration could be an important organizational capability for organizing corporate environmental management. Underlying this capability, they saw a firm’s abilities to collaborate with stakeholders, to communicate with them, and to steer new developments effectively through public consultation processes. Being able to explain, or justify, one’s activities thus also is important in stakeholder-related issues such as POEM. Where do these observations leave POEM? Following this discussion, it is likely that firms develop their own idiosyncratic modes of organizing POEM, depending on the way they perceive a problem, assess their present capability base, and the ways new capabilities can be developed, implemented and legitimized to solve that problem. The proactive, not directly regulated character of POEM might stimulate various responses. Together, this could contribute to justifying the motives to engage in POEM: gaining a competitive advantage and/or addressing stakeholder demands. AragónCorrea and Sharma (2003, p. 72) underline the applicability of the three theoretical perspectives for this research, noting that the N-RBV ‘provides a theory to explain competitive advantage as an outcome of the development of valuable organizational capabilities, such as continuous innovation, organizational learning, and stakeholder integration, associated with a proactive environmental strategy (Hart, 1995; Sharma and Vredenburg, 1998)’. These theoretical insights formed the input for the empirical research, aimed to explore the organization of POEM.

METHODOLOGY Data Gathering The empirical part of this research was conducted through five case studies. In three ‘full’ case studies, attention focused on the entire organization of POEM within the studied firms, while in two ‘mini-cases’ attention was given to a specific organizational initiative regarding POEM. Case selection was based on several criteria. First, given the focus on POEM, a firm had to develop and make products. Furthermore, the research focused on large and proactive firms. In large firms a stronger diversity of functions and departments can be found, which facilitates the study of interactions between them concerning POEM. Case companies also had to have a proactive attitude towards POEM, showing an active approach to environmental management that goes beyond environmental


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regulation. The cases were drawn from two types of industry: the chemical industry and the electronics and electrical industry. In both industries, initiatives concerning POEM were under development (product stewardship and several product take-back initiatives). Finally, by making this selection, different stages in the product chain were included. The two firms in the chemical industry – parts of DSM – produce intermediary products that form a resource for other products. The electronics and electrical companies – Xerox and IBM – produce end products for consumer and business-to-business markets. Finally, 3M operates within a diverse manufacturing industry, including both chemical and electrical and electronics industries. Data Sources Case study procedures were usually fine-tuned in consultation with a key person regarding the organization of POEM. A list of possible interviewees was drawn up, focusing on both the aims of the research and the case specifics. This selection of interviewees was later confirmed through crossreferencing during the interviews. Interviewees were selected on the basis of their direct or indirect involvement with POEM and typically were in senior or middle management positions, such as product managers, R&D managers, or managing directors. The information gathered through the interviews was supplemented with a range of other data, including annual reviews, internal documents, and the scientific and professional press. This entire dataset collected provided input for analysis, both within and across the cases. Data Analysis Through data displays, interview data were compared. Supplemented with the additional data sources, this resulted in case analyses per firm. The outcomes were reported in several forms to the contact persons to allow for verification. Case reports, for instance, were built up analogously to the interview guides: a general overview of the case study firm, followed by a characterization of the products involved. Then attention focused on (product-oriented) environmental management and the role of the interviewees. Finally, the author’s interpretation of the findings was presented. In other instances, presentations or conference papers were used to report on the outcomes. Building on the findings of the individual case studies, the cross-case analysis looked for more general findings across the cases. Possible relationships with theory thus were examined and salient points of attention were

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highlighted. The results presented in this chapter specifically address this level of analysis, rather than discussing results at the individual firm level.

RESULTS To understand the different ways of organizing POEM encountered, it is useful to consider the main stimuli and barriers observed to engaging in this concept. These aspects have been derived from re-labeling interview responses, combined with additional data sources. Based on these outcomes and relating to the theoretical discussion before, then key issues in the organization of POEM are presented, relating them to the theoretical concepts sketched out before. Stimuli and Barriers Five main stimuli were retrieved from the case studies, as presented in Table 9.1. The fact that, in all cases, corporate environmental policies were important in guiding the process of organizing POEM is no surprise, as cases were selected for having a proactive attitude towards environmental management. Having a clear environmental policy then is quite logical, emphasizing the firm’s own initiatives in environmental management. Developing the capabilities to deal with those stakeholder pressures thus was important. The expectation derived from theory that both an expected competitive advantage and stakeholder pressure stimulate firms to engage in POEM was confirmed by the case studies. Competitive advantages of engaging in POEM could include both cost reductions and gaining a better market position, possibly through stronger bonds with chain partners. Important stakeholder pressures included customer, legislative and industry requirements. Gaining a competitive advantage, delivering customer value, and meeting legal and industry standards were often mentioned as objectives, triggered by stakeholders such as shareholders, customers or regulators. To organize POEM, cooperation with various chain partners was often necessary to determine a product’s environmental characteristics across its life cycle. Table 9.1

Main stimuli for engaging in POEM

Corporate environmental policy and guidelines Gaining a possible competitive advantage Addressing stakeholder pressures Learning about one’s own products and the concept of POEM Demonstrating responsibility/concern for the company’s image


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A related motivation for POEM participation was to get better insight into the concept itself, and into one’s own products – to learn about this approach to environmental management. The investigated firms acknowledged the relevance of the concept, and were looking for ways to further incorporate it in their organizations. This included looking at which capabilities would be required to anticipate changing demands, establishing cross-functional cooperation, assuring sufficient management support and guidance, and looking for ways to identify relevant stakeholders and balance their demands. One way to do deal with these issues was by developing and applying specific guidelines, tools and processes. Links with more general processes, such as ISO 14001 certification and quality management, were also investigated by some of the companies studied. A final stimulus to engage in POEM was to demonstrate corporate responsibility, and to work on the company’s image as being an environmentally benign manufacturer. Some firms expected that dealing actively with responsibility issues might contribute to better stakeholder relationships, and possibly to a competitive advantage. Aspects of POEM could, for instance, be used as a qualifier for suppliers in purchasing decisions. In addition, several interviewees claimed to see their personal moral norms as an important driving force in working actively on such issues. In addition to stimuli, barriers to engaging in POEM were also identified (see Table 9.2). Important barriers are the costs involved, which makes it harder to get sufficient support to initiate initiatives in POEM. Allocating resources to environmental issues is sometimes viewed with suspicion. On the other hand, if environmental initiatives can be demonstrated to be financially viable, they stand a good chance of getting implemented. A way of dealing with this is to link responsibility for POEM within the organization directly to that for profit and loss. Such operational links between financial and environmental performance are investigated and established within some of the firms, although the longer payback time of several environmental initiatives remained a problem. A second barrier was the difficulty of convincing people, both inside and outside the company, of the need for POEM, and its usefulness. For instance, financial communities do not always value a firm’s involvement in Table 9.2

Main barriers to engaging in POEM

Costs Convincing people inside and outside the company Company dynamics and structure Legislation

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environmental issues, and customers’ appreciation of using refurbished parts or recycled materials also varies. Also, many people within firms needed to become convinced about POEM and the benefits of applying a product life cycle perspective. Further development of instruments such as performance measurement, management systems or training on POEM could assist here. A cross-functional team that supports the organization of POEM, as present in most of the case study firms, seemed useful in both convincing people and propagating the concept within their organization. Related barriers are a company’s dynamics and structure. It sometimes appeared to be difficult to organize and implement POEM across the many different parts of large companies, convincing people in different functions of the need to pay attention to these issues, and not letting the organization of POEM get dominated by other topics. Ensuring sufficient priority for POEM within these dynamics is important. Because POEM involves this many functions, structural aspects of the firm could also form an obstruction. If, for instance, organizational processes are applied too rigidly, they can impede the further development of POEM because organizational flexibility to respond to changes in the product life cycle is necessary. Legal requirements are a final barrier. Although such requirements can support the proactive approaches taken by firms, they can also hinder the further propagation of POEM. An example, indicated in some cases, is the problem of transporting products and materials in their end-of-life stages across country borders, and thus across different jurisdictions. Also, for firms operating in many countries, as were the ones investigated here, the many different laws and regulations in all these countries can cause coordination problems. One way of dealing with these is to apply single compliance criteria throughout the firm worldwide, complying with the most stringent regulations. Again, this requires organizational flexibility. Key Issues From a further comparison of the case studies, three key issues for the organization of POEM emerged, relating both to the theoretical discussion and the stimuli and barriers mentioned above. Firstly, the use of crossfunctional teams or networks is important when organizing POEM. Because POEM concerns a product’s entire life cycle, many different functions within a firm are involved. A team or network can then help in setting up and spreading the concept within the firm. Not only are these issues covered more broadly within the firm – as opposed to only through a staff office – but team structures could also assist in obtaining relevant information from the perceived relevant stakeholders such as suppliers or customers. These contacts can also be used to inform stakeholders directly of the firms’ initiatives, and


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potentially to develop firmer stakeholder relationships. Such stakeholder contacts could make a firm’s approach harder to imitate by competitors and could thus contribute to competitive advantage: these contacts then could be seen as a valuable resource for the firm. In terms of the capability building process model, such a team structure then feeds into both the concept development and implementation phases, achieving a balance between external and internal integration. Secondly, gaining a competitive advantage appeared to be a strong driver for engaging in POEM. Such an advantage could be achieved through stronger bonds with customers, suppliers and wider stakeholders; through a better insight into one’s own products and processes; through earlier anticipation of new legislation; or through an improved company image. Competitive advantage is also closely linked to assuring sufficient (senior) managerial support for POEM. Such support is needed to apply a broader view on costs and benefits, beyond short-term financial criteria alone. After all, next to this financial perspective, issues of legitimization could incur other criteria on which to assess competitiveness, such as the advantage associated with a capability to deal with stakeholder demands. An ability to relate efforts in POEM to issues of competitiveness, possibly on a longer time horizon, thus is another key issue. Finally, POEM can be seen as part of a social development process, which firms are involved in, and which they need to anticipate. POEM is an issue that could be part of a larger development, which could include a drive towards corporate sustainability, or giving increased attention to a firm’s social responsibility. The growing attention in society for firms’ accountability illustrates this point and the investigated firms were aware of this. To be able to view POEM in such an evolutionary perspective, a firm requires sufficient flexibility to develop and maintain the capabilities required to adjust to changing stakeholder demands, product characteristics, and broader societal concerns. In the next section, some implications of POEM for corporate sustainability are addressed.

FROM POEM TO CORPORATE SUSTAINABILITY Before several potential contributions are traced from these findings on POEM to guide the organization of corporate sustainability, some remarks must be made. This was an exploratory research project and its results should be considered with caution. No strong claims can be supported concerning any causal relationships, but the findings of the five case studies seem to fit in well with the presented combination of theory. Therefore, the author considers it useful to report these results and think about their

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implications for corporate sustainability. Based on the case studies, a firm’s efforts to balance its products’ environmental characteristics over their life cycles can be seen as a continuous, dynamic capability building process, which is influenced by various stakeholders, and stimulated by a firm’s desire to achieve a competitive advantage. Two central lessons can be drawn from these findings: (1) the broader focus on environmental management provides another perspective on stakeholders and functions involved, and (2) combining different theoretical perspectives offers a rich account of reasons to engage in POEM and of ways to build relevant capabilities. Broadening the focus in environmental management from processes towards products implies changing the way corporate environmental issues are defined. The need to deal with different stakeholders throughout the products’ life cycle becomes much clearer, as does the role of different functions within firms. Stakeholder consultation on POEM-related issues is gradually developing, partly due to mutual dependence; suppliers, for example, need to know what firms’ environmental requirements are, while firms need information from suppliers to determine their own products’ environmental characteristics. As a wider range of stakeholders is involved in these processes, they play an increasingly important role in shaping managerial and organizational understanding of products’ environmental characteristics, and of firms’ possibilities to influence these. Meanwhile, involving stakeholders is also important to show oneself to be a responsible player in the market, and in dealing with issues of responsibility in general. The integrated and systematic character of POEM thus shows a clear link to corporate sustainability, as the organizational activities needed to develop and maintain capabilities for corporate sustainability are quite like the ones needed for POEM. Main differences are the even wider variety of stakeholders that need to be addressed and the longer time horizon of corporate sustainability. Analogous to the Brundtland Report, Dyllick and Hockerts (2002, p. 131) define such sustainability ‘as meeting the needs of a firm’s direct and indirect stakeholders (such as shareholders, clients, pressure groups, communities etc.), without compromising its ability to meet the needs of future stakeholders as well’. Identifying stakeholders, determining their salience, and taking a broader scope than products and their environmental properties alone, is thus needed for corporate sustainability – think about effects in developing countries or regarding future generations. Yet, the experiences gained through a focus on products instead of on processes can help firms in establishing this broader perspective on stakeholders, as discussed below. Combining insights on the natural-resource-based view of the firm, stakeholders and capabilities resulted in proposing the capability cycle (de Bakker and Nijhof, 2002), which describes and relates capabilities that firms require


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to handle stakeholder-led issues in a continuous effort. The activities of the investigated firms concerning POEM can be described in terms of this cyclic approach, continuously gathering information from stakeholders, translating this into internal organizational demands and communicating the results. From discussing the N-RBV, it follows that the same applies to corporate sustainability. Corporate sustainable development has been identified as a process to achieve a state of sustainability (Bebbington and Gray, 2001), which also needs continuous attention, which is new to many firms, and for which new capabilities need to be built and maintained. In this process, taking responsibility opposite stakeholders is important. Hart’s (1995) interconnected strategies of pollution prevention, product stewardship, and sustainable development again are visible here. Being able to engage stakeholders and develop and maintain the capabilities for corporate sustainability may be dependent on earlier experiences (and capabilities) in POEM. Further developments on POEM, or on pollution prevention, could also benefit from obtaining more insights in corporate sustainability. As Hart (1995, p. 1007) proposed, ‘a sustainable-development strategy facilitates and accelerates capability development in pollution prevention and product stewardship’. Yet, to work towards corporate sustainability, its different dimensions (economic, social and ecological) need to be made more visible, and is agreement is needed on its operationalization and measurement (Bebbington and Gray, 2001). Once a shared set of norms on the measurement and operationalization of corporate sustainability (Bansal, 2002) is established it might also become easier to organize for such sustainability. Experiences gained through organizing POEM then could contribute.

CONCLUDING REMARKS This volume concentrates on stakeholders, environment and society. In this chapter, attention focused mainly on the first two elements of this theme, starting from a firm’s point of view. Here, an outlook towards broader societal implications is presented, suggesting some directions for further research. According to Roome (1998, p. 272): ‘Studies are required on how industry and its managers understand and operationalize the integration of economic, environmental, and social aspects of choice and how those choices impact industrial activities.’ In the literature, a relationship among a capability perspective, stakeholder integration, learning and continuous innovation has been suggested (Sharma and Vredenburg, 1998). In this research on POEM, several of these aspects have been integrated. Five case studies provided insights on the way firms tried to shape POEM, develop

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capabilities and involve stakeholders around POEM. Since continuity in building and maintaining capabilities to organize POEM appeared to be highly important, research might have focused more on a longitudinal approach to capture the actual development of capabilities (for example, Iansiti and Clark, 1994). Yet, the subject of POEM is quite recent and many proactive firms are in the middle of developing such capabilities. Keeping track of these developments over time might result in more detailed accounts of these organizational processes and changes in strategies. For instance, considering the N-RBV: under which circumstances does a firm switch from a product stewardship strategy towards a sustainable development strategy and which additional stakeholders are involved? AragónCorrea and Sharma (2003) propose a contingent resource-based view of proactive environmental strategy. They combine insights from the N-RBV, dynamic capabilities and the contingency perspective ‘to propose how dimensions of the general competitive environment of a business will influence the development of a dynamic, proactive corporate strategy’ for environmental management (Aragón-Correa and Sharma, 2003, p. 71). Although it is likely that a similar approach to POEM would be useful for studying corporate sustainability as contingent upon competitiveness, the clear emphasis on stakeholders in organizing POEM also points at a need to consider a broader perspective, in which both firms and stakeholders are addressed directly. After all, the operationalization of corporate sustainability and its measurement occur in interaction between firms and their social environment. This pleads for research on corporate sustainability that considers firm–stakeholder interactions and addresses the wider social environment within which corporate sustainability is established. This brings the discussion back to what corporate sustainability encompasses. Sustainable development ‘defines a new position for industry in society, a new industrial structure and new understandings of the responsibilities and skills of managers’ (Roome, 1998, p. 259). One way to study the definition of new societal positions within society would be through processes of institutionalization. To become incorporated within firms, corporate sustainability must be institutionalized: ‘[o]nly when sustainable development is valued and accepted as the norm by organizational stakeholders will organizations subscribe to its principles’ (Bansal, 2002, p. 131). Studying the dynamics that surround such stakeholder-led issues, and the way firms cope with them could be a fruitful direction for further research on the interaction between stakeholders, society and the environment. For instance, linking perspectives on organizational and institutional dynamics concerning corporate environmental management (Hoffman, 2001; Bansal, 2002), could be an alternative explanation for the establishment and organization of POEM, and can thus be helpful to get


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a further insight into multifaceted organizational processes such as corporate sustainability. Understanding mechanisms through which a firm tries to make sense of stakeholders’ demands and replies by building new capabilities is one side of the medal. Stakeholders themselves also are actively engaged in trying to influence firms. Looking at stakeholder influence strategies (Frooman, 1999) therefore might be another relevant angle to further understand the process of shaping corporate sustainability. Research on stakeholder identification (Mitchell et al., 1997) and stakeholder management (Buysse and Verbeke, 2003) from a firm’s point of view could complement this approach. Not the institutionalization of corporate sustainability then is the research topic, but firms’ stakeholder relationships and the strategies employed by different stakeholders to accomplish certain objectives (which could be, indeed, to achieve corporate sustainability). So, in conclusion, several lessons can be learned from the POEM research, both on understanding the interrelatedness of issues and functions, and on the applicability of combining different theoretical perspectives in addressing these. Looking at motives to engage in POEM, at stakeholders involved, and at the capabilities required, provides insight in ways proactive firms handle these issues. In both POEM and corporate sustainability, the interaction between firms and their broadening social environmental is crucial. Involving a variety of different functions then seems to be helpful. Using combinations of theories to understand the processes at hand is therefore almost required. As Sharma (2002, p. 4) noted, this type of research ‘integrates theoretical perspectives from non-business and business disciplines in attempting to answer questions about a complex problem domain’. The change in viewpoint by looking at products in environmental management could be a valuable step in enabling firms to address issues of corporate sustainability. The directions sketched out in this section provide some suggestions to unravel these processes of sustainable development.

NOTE 1. This contribution partly builds on the author’s PhD thesis (de Bakker, 2001). Thanks to the editors for their suggestions on an earlier version of this chapter.

REFERENCES Aragón-Correa, J.A. and S. Sharma (2003), ‘A contingent resource-based view of proactive corporate environmental strategy’, Academy of Management Review, 28: 71–88.

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Bansal, P. (2002), ‘The corporate challenges of sustainable development’, Academy of Management Executive, 16(2): 122–31. Barney, J.B. (1991), ‘Firm resources and sustained competitive advantage’, Journal of Management, 17: 99–120. Baumann, H., F. Boons and A. Bragd (2002), ‘Mapping the green product development field: Engineering, policy and business perspectives’, Journal of Cleaner Production, 10: 409–25. Bebbington, J. and R. Gray (2001), ‘An account of sustainability: Failure, success and a reconceptualization’, Critical Perspectives on Accounting, 12: 557–87. Berry, M.A. and D.A. Rondinelli (1998), ‘Proactive corporate environmental management: A new industry revolution’, Academy of Management Executive, 12(2): 38–50. Buysse, K. and A. Verbeke (2003), ‘Proactive environmental strategies: A stakeholder management perspective’, Strategic Management Journal, 24: 453–70. Collis, D.J. (1994), ‘How valuable are organizational capabilities?’, Strategic Management Journal, 15: 143–52. de Bakker, F.G.A. (2001), Product-oriented Environmental Management. A Study of Capability-building, Stakeholder Orientation and Continuous Improvement in Firms Concerning Products’ Environmental Characteristics, Enschede: Twente University Press. de Bakker, F. and A. Nijhof (2002), ‘Responsible chain management: A capability assessment framework’, Business Strategy and the Environment, 11: 63–75. Donaldson, T. and L.E. Preston (1995), ‘The stakeholder theory of the corporation: Concepts, evidence, and implications’, Academy of Management Review, 20: 65–91. Dyllick, T. and K. Hockerts (2002), ‘Beyond the business case for corporate sustainability’, Business Strategy and the Environment, 11: 130–41. Elkington, J. (1997), Cannibals with Forks. The Triple Bottom Line of 21st Century Business, Oxford: Capstone. Fineman, S. and K. Clarke (1996), ‘Green stakeholders: Industry interpretations and response’, Journal of Management Studies, 33: 715–30. Freeman, R.E. (1984), Strategic Management: A Stakeholder Approach, Boston: Pitman. Frooman, J. (1999), ‘Stakeholder influence strategies’, Academy of Management Review, 24: 191–205. Hart, S.L. (1995), ‘A natural-resource-based view of the firm’, Academy of Management Review, 20: 986–1014. Henriques, I. and P. Sadorsky (1999), ‘The relationship between environmental commitment and managerial perceptions of stakeholder importance’, Academy of Management Journal, 42: 87–99. Hoffman, A.J. (2001), ‘Linking organizational and field-level analyses. The diffusion of corporate environmental practice’, Organization & Environment, 14: 133–56. Iansiti, M. and K.B. Clark (1994), ‘Integration and dynamic capability: Evidence from product development in automobiles and mainframe computers’, Industrial and Corporate Change, 3: 557–605. Judge, W.Q. and T.J. Douglas (1998), ‘Performance implications of incorporating natural environmental issues into the strategic planning process: An empirical assessment’, Journal of Management Studies, 35: 241–61. Lenox, M.J. and J. Ehrenfeld (1997), ‘Organization for effective environmental design’, Business Strategy and the Environment, 6: 187–96.


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Mitchell, R.K., B.R. Agle and D.J. Wood (1997), ‘Toward a theory of stakeholder identification and salience: Defining the principle of who and what really counts’, Academy of Management Review, 22: 853–86. Papanek, V. (1972), Design for the Real World, London: Thames and Hudson. Polonsky, M.J. (1995), ‘A stakeholder theory approach to designing environmental marketing strategy’, Journal of Business and Industrial Marketing, 10: 29–46. Roome, N.J. (1998) ‘Conclusion. Implications for management practice, education, and research’ in N.J. Roome (ed.), Sustainability Strategies for Industry. The Future of Corporate Practice, Washington DC: Island Press, pp. 259–76. Russo, M.V. and P.A. Fouts (1997), A resource-based perspective on corporate environmental performance and profitability, Academy of Management Journal, 40: 534–59. Sharfman, M., R.T. Ellington and M. Meo (1997), ‘The next step in becoming “green”: life-cycle-oriented environmental management’, Business Horizons, 40(3): 13–22. Sharma, S. (2002), ‘Research in corporate sustainability: What really matters?’, in S. Sharma and M. Starik (eds), Research in Corporate Sustainability. The Evolving Theory and Practice of Organizations in the Natural Environment, Cheltenham, UK and Northampton, US: Edward Elgar, pp. 1–29. Sharma, S. and H. Vredenburg (1998), ‘Proactive corporate environmental strategy and the development of competitively valuable organizational capabilities’, Strategic Management Journal, 19: 729–53. Sharma, S., A.L. Pablo and H. Vredenburg (1999), ‘Corporate environmental responsiveness strategies. The importance of issues interpretation and organizational context’, Journal of Applied Behavioral Science, 35: 87–108. Verona, G. (1999), ‘A resource-based view of product development’, Academy of Management Review, 24: 132–42. Walley, N. and B. Whitehead (1994), ‘It’s not easy being green’, Harvard Business Review, 72(3): 46–53. Wernerfelt, B. (1984), ‘A resource-based view of the firm’, Strategic Management Journal, 5: 171–80. Zhang, H.C., T.C. Kuo, H. Lu and S.H. Huang (1997), ‘Environmentally conscious design and manufacturing. A state-of-the-art survey’, Journal of Manufacturing Systems, 16: 352–71.

10. Institutional pressure and environmental management practices Magali A. Delmas and Michael W. Toffel INTRODUCTION Why do some firms adopt environmental management practices that go beyond regulatory compliance? Is the adoption of these practices driven by potential performance outcomes or by institutional pressures? Several articles have reported the findings of surveys that have asked firm managers what motivated them to adopt environmental practices (e.g., Florida and Davison 2001; Lawrence and Morell 1995). For example, Lawrence and Morell found that environmentally proactive firms were motivated by regulations, reducing costs, avoiding being targeted by environmental nongovernmental organizations, and critical events. Florida and Davison showed that facilities that have adopted environmental management systems (EMSs) are motivated by the bottom-line quest to increase productivity as well as by government regulation. However, these articles did not provide a clear understanding of the conditions under which these various pressures impact firm behavior. As others recently pointed out, ‘our understanding of factors that foster strong environmental management practices within a firm, particularly with operations at the plant level, still remains limited’ (Klassen 2001, p. 257). Some research has analyzed specific factors driving the adoption of environmental strategies such as competitive forces (Aragón-Correa 1998; Christmann 2000; Dean and Brown 1995; Hart 1995; Nehrt 1996; Nehrt 1998; Russo and Fouts 1997; Sharma and Vredenburg 1998), the influence of organizational context and design (Ramus and Steger 2000; Sharma 2000; Sharma, Pablo and Vredenburg 1999) and organizational learning (Marcus and Nichols 1999). Other analyses have focused on the individual or managerial level, examining the role of leadership values (Egri and Herman 2000), environmental champions (Andersson and Bateman 2000), managerial attitudes (Cordano and Frieze 2000), management 230

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interpreting environmental issues as threats or opportunities (Sharma 2000; Sharma et al. 1999) and managerial risk propensity (Sharma and Nguan 1999). While each has provided a piece of the puzzle, this chapter offers a more comprehensive perspective that not only evaluates the relative influences of external stakeholders exerting institutional pressures on firms but also depicts how firm and industry effects moderate these pressures. Two theories provide insight on why firms adopt environmental management practices. The economic approach suggests that firms adopt management practices based on their anticipated performance outcome. Assuming that managers exhibit rational behavior when they adopt ‘beyond compliance’ practices, this line of research seeks to identify the circumstances when it pays to be ‘green’ (King and Lenox 2001; Konar and Cohen 1997; Russo and Fouts 1997). A second line of research, rooted in institutional sociology, proposes that firms respond to institutional pressures. The institutional sociology framework emphasizes the importance of regulatory, normative and cognitive factors that affect firms’ decisions to adopt a specific organizational practice, above and beyond the practice’s technical efficiency. Institutional theory emphasizes legitimation processes and the tendency for institutionalized organizational structures and procedures to be taken for granted, regardless of their efficiency implications (Hoffman and Ventresca 2002). Building on the institutional framework, this chapter argues that firms adopt heterogeneous sets of environmental management practices for two main reasons. First, because they face varying levels of institutional pressures exerted by external stakeholders. Second, because they interpret these pressures differently due to plant and parent company characteristics. In the authors’ model, managers of different plants are subject to the same level of institutional pressures but they are expected to perceive these pressures differently due to disparities in their parent companies’ organizational structure, strategic position and financial and environmental performance. This difference between ‘objective’ and ‘perceived’ pressure leads to different calculations and responses. The adoption of environmental management practices by firms varies therefore not only due to different levels of institutional pressures but also because of the process that transforms objective pressures into perceived pressures.

INSTITUTIONAL THEORY Institutional theory emphasizes the role of social and cultural pressures imposed on organizations that influence organizational practices and

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structures (Scott 1992). DiMaggio and Powell (1983) argue that managerial decisions are strongly influenced by three institutional mechanisms – coercive, mimetic and normative isomorphism – that create and diffuse a common set of values, norms and rules to produce similar practices and structures across organizations that share a common organizational field (DiMaggio and Powell 1983).1 Jennings and Zandbergen (1995) were amongst the first to apply institutional theory to explain firms’ adoption of environmental management practices. They argue that because coercive forces – primarily in the form of regulations and regulatory enforcement – have been the main impetus of environmental management practices, firms throughout each industry have implemented similar practices (Jennings and Zandbergen 1995). Consistent with most institutional theorists, Jennings and Zandbergen claim that firms that share the same organizational field are affected in similar ways by institutional forces that emanate from them. They cite the examples of how the Three Mile Island crisis undermined the legitimacy of all firms in the US nuclear power industry, and how the discovery that chlorofluorocarbons (CFCs) depleted stratospheric ozone undermined the legitimacy of manufacturing and using those products and soon led to institutional coercive forces via the establishment of the Montreal Protocol to phase out the manufacture of CFCs. Delmas (2002) proposed an institutional perspective to analyze the drivers of the adoption of the international environmental management system standard ISO 14001 in Europe and in the United States. She describes how the regulatory, normative and cognitive aspects of the institutional environment within a specific country affect the costs and potential benefits of ISO 14001 adoption, and therefore explain differences in adoption rates across countries. Other researchers have explored how companies operating in different organizational fields are subject to different institutional pressures. As a result, different practices become commonplace. For example, distinct levels of coercive pressures are exerted upon different industries, which may lead to different environmental strategies (Milstein, Hart and York 2002). Oliver notes that institutionalized norms and practices can erode ‘when organizational constituents become more geographically dispersed, noninteracting, or autonomous’ (1991, p. 577), such as when firms enter new markets or diversify into new products. While such studies examine dynamic and cross-industry institutional forces, they avoid the question more fundamental to strategic management: why do organizations within the same organizational field pursue different strategies, despite experiencing isomorphic institutional pressures? In other words, how might institutional forces lead to heterogeneity, rather than


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homogeneity, within an industry? Hoffman (2001) argues that while organizations do not simply react to the pressures dictated by the organizational field, they also do not act completely autonomously without the influence of external bounds. Institutional and organizational dynamics are tightly linked. A few researchers have begun to investigate this question empirically (D’Aunno, Succi and Alexander 2000; Levy and Rothenberg 2002). Levy and Rothenberg describe several mechanisms by which institutionalism can encourage heterogeneity. First, they argue that institutional forces are transformed as they permeate an organization’s boundaries because they are filtered and interpreted by managers according to the firm’s unique history and culture. Second, they describe how an institutional field may contain conflicting institutional pressures that require prioritization by managers. Third, they describe how multinational and diversified organizations operate within several institutional fields – both at the societal and organizational levels – which expose them to different sets of institutionalized practices and norms. D’Aunno et al. explore the circumstances under which organizations are more likely to abandon institutionalized structures or practices in favor of new ones, such as by diversifying into new services. They find that market forces (proximity to competitors), institutional forces (poor compliance with government regulations, being a member of a multidivisional firm), and mimicry of changes observed in other organizational fields each encourage strategic change that diverges from institutional norms. It is hypothesized here that organizational structure, strategic positioning and performance will affect how firms perceive institutional pressures and how they decide to respond. Individuals in organizations focus on different aspects of the firm’s external and internal environments, depending on the cognitive frame through which they look at the world (Hoffman 2001). Cognitive frames are mental representations of a particular aspect of the world that are used by individuals to interpret and make sense of their world. Frames can come to be collectively held within organizations, especially through the influence of the organizational leader (Barr, Stimpert and Huff 1992; Weick and Roberts 1993).

INSTITUTIONAL PRESSURES This section describes a model that links institutional pressures to organizational characteristics to explain the adoption of environmental management practices at the plant level. Figure 10.1 illustrates the model. This figure shows that plant-level managers’ perceptions of institutional pressures are a function of stakeholders’ actions but are moderated by the

234 Institutional Pressures Parent Company Level: • Shareholder pressure • Competitive pressure • Industry association pressure • Political pressure • Regulatory pressure • Consumer pressure • Activist pressure

Stakeholders, the environment and society Parent Company Characteristics: • Firm competitive position • Level of internationalization • Corporate EHS pressure • Corporate EHS organization (functional pressure from legal, public affairs, etc.)

Plant’s Adoption of Environmental Management Practices: • Comprehensiveness of the EMS • Management of stakeholder relations

Plant level: • Political pressure • Regulatory pressure • Consumer pressure • Community pressure

Plant Characteristics: • Plant size • Sources of knowledge of environmental management practices (industry associations, regulators, NGOs, customers, suppliers)

Historical Environmental Performance: • Regulatory compliance • Pollution levels relative to neighbors and competitors

Figure 10.1 A model of institutional pressures moderated by parent company and plant characteristics organizational characteristics of the plant and the parent company as well as the strategic positioning of the parent company. This approach complements institutional theory as it encompasses the diversity of both external and internal institutions exerting environmental pressures on the organization and the corresponding organizational responses developed within each company. The authors describe how these coercive and normative pressures can affect the adoption of environmental management practices by plants, and focus on a subset of the institutional actors identified by Hoffman (2001) who they believe are most likely to directly influence environmental practices at the plant level: politicians, regulators, customers, competitors and local communities. The actors focused upon are important to consider when assessing a firm’s environmental performance (Lober 1996). Political and Regulatory Pressures Perhaps the most obvious stakeholders that influence firms’ adoption of environmental practices are various government bodies. Legislation authorizes agencies to promulgate and enforce regulations, a form of coercive power. Many researchers have focused on the influence of enforced legislation and regulations on firms’ environmental practices (Carraro, Katsoulacos and Xepapadeas 1996; Delmas 2002; Majumdar and Marcus 2001; Rugman and Verbeke 1998). In particular, Delmas (2002) found that governments play an important role in firms’ decision to adopt the international EMS standard ISO 14001. First, governments can act as a coercive force by sending a clear signal of their endorsement of ISO 14001 by, for example,


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enhancing the reputation of adopters. Second, government can help reduce information and search costs linked to the adoption of the standard by providing technical assistance to potential adopters. In this chapter, political pressure is referred to as the level of political support for broader or more stringent regulations. Regulatory pressure represents the extent to which regulators threaten to or actually impede a company’s operations. Customer and Competitive Pressures In addition to government actors, firms may facilitate coercive and mimetic isomorphism. For example, multinationals are widely recognized as key agents in the diffusion of practices across national borders by transmitting organizational techniques to subsidiaries and other organizations in the host country (Arias and Guillen 1998). Firms may also mimic the practices that successful leading firms have adopted. In addition, firms respond to customer requirements. The customer–supplier relationship is perhaps the primary mechanism through which quality management standards have diffused (Anderson, Daly and Johnson 1999). Several studies have found that firms that have adopted environmental management practices are motivated by customer concerns. A survey of the largest Canadian firms showed that customer pressure was the most cited source of pressure to adopt an environmental management plan just after government pressure (Henriques and Sadorsky 1996). Khanna and Anton (2002) found that US companies that sell final goods adopt more comprehensive EMSs than companies that sell intermediate goods. This suggests that retail consumers exert more pressure on companies to adopt environmental management practices than commercial and industrial customers. Christmann and Taylor (2001) showed that customers in developed countries have influenced companies in China to improve their environmental compliance and adopt the ISO 14001 Environmental Management System (EMS) standard. Community and Environmental Interest Group Pressures Local communities can also impose coercive pressure on companies through their vote in local and national elections, through their environmental activism within environmental non-government organizations (NGOs), and through citizen lawsuits. Several studies have found that company decisions to adopt environmental management practices are influenced by the desire to improve or maintain relations with their communities. The majority of 200 corporate general counsels surveyed in 1993 indicated that ‘pressure from community activists had affected their companies’ conduct – sometimes forcing a reduction in pollution’ (Lavelle 1993).

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Another study found that community group pressure influenced companies to adopt an environmental plan (Henriques and Sadorsky 1996).2 Florida and Davison (2001) investigated why facilities had adopted EMSs and instituted pollution prevention programs. They found that the adoption of EMSs and pollution prevention programs was positively correlated with firms’ active engagement with community stakeholders. Another study based on a survey of ISO 14001 certified companies across 15 countries found that one of the strongest motivating factors to pursue certification was the desire to be a good neighbor (Raines 2002). Some communities may be better able than others to encourage facilities to adopt environmental practices. Communities with larger minority populations, lower incomes and less education have greater exposure to both criteria pollutants3 and toxic emissions (Arora and Cason 1999; Brooks and Sethi 1997; Khanna and Vidovic 2001).4 Greater declines in toxic emissions have been observed among facilities located in communities with higher voting rates (Hamilton 1999) and in states with higher membership in environmental interest groups (Maxwell, Lyon and Hackett 2000). Hamilton asserts that voting rates are a proxy for the propensity of residents to pursue collective action. Toxic emission exposures declined in communities with falling proportions of minorities and growing proportions of voter turnout (Brooks and Sethi 1997). Maxwell et al. (2000) assert that higher environmental interest group membership levels indicate a community’s pro-environmental stance and greater propensity to use these organizations to lobby for more stringent regulation. As such, the authors conclude that higher membership rates provide a credible threat of increased regulation, which in turn drives firms to self-regulate. Some researchers have begun examining whether socioeconomic community characteristics are associated with facilities’ decision to adopt environmental management practices. One study examined facility-level adoption of a United States Environmental Protection Agency (US EPA) voluntary program, and found that adoption was more likely in communities with higher median household income (Khanna and Vidovic 2001). Many of the firms studied by Lawrence and Morell (1995), especially the larger ones, were motivated to improve their environmental performance by their concern over ‘environmental organizations that had aggressively publicized firms’ lapses in environmental responsibility’ (p. 111). There are many examples where companies have amended their environmental practices in response to environmental group pressures. For instance, after Mitsubishi Corporation was subject to a protracted consumer boycott led by Rainforest Action Network (RAN), Mitsubishi announced it would no longer use old-growth forest products (World Rainforest Movement 1998). After a grassroots campaign that included hundreds of demonstrations,


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thousands of postcards and phone calls to Staples corporate headquarters and regional offices, local and national media attention, and a shareholder’s resolution, a coalition of environmental groups persuaded the company to cease buying paper products made from wood harvested from endangered forests and to increase sales of recycled products (Lazaroff 2002). Industry Pressure Market concentration within an industry may also affect the rate of diffusion of environmental management practices. If an industry is dominated by a few big players that require their suppliers to adopt particular environmental management practices, this is likely to lead to a greater diffusion of these practices than if the industry were more fragmented. This partially explains the particularly high adoption of common quality and environmental practices among automotive suppliers in the United States. Institutional researchers have also argued that organizations are more likely to mimic the behavior of other organizations that are tied to them through networks (Guler, Guillen and MacPherson 2002). Several studies have found that industry associations have motivated firms to adopt environmental management practices. Kollman and Prakash (2002) examined why the United Kingdom, Germany and the United States have such different rates of EMS certification. They found that the decision of whether to pursue certification, and which standard to certify against (ISO 14001 or the European Union’s Eco-Audit and Management Scheme) was strongly influenced by stakeholder pressures from industry associations in addition to regional chambers of commerce, suppliers and regulators. The Moderating Effects of Firm Characteristics Within the same industry, firms may be subjected to different levels of institutional pressures. For example, multinational corporations are often held to higher standards for social and environmental responsibility than national companies because they are subject to the additional pressure of stakeholders from foreign countries (Zyglidopoulos 2002). Furthermore, the visibility of leading firms often subjects them to more pressure. For example, Nike, McDonald’s, Starbucks and Home Depot have been targeted by social and environmental activists partially because of their market leadership position. Furthermore, firms with historically poor environmental records are often subjected to more scrutiny by their local communities and regulators. Thus, multinational companies, market leaders and firms with poor environmental records may have more to gain by developing sophisticated

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mechanisms to anticipate and manage external pressures. Firms that operate many facilities have more to gain by maintaining a reputation for good relations with governments and communities, since such reputations may spill over to affect these relations in other locales (Delmas 2002; DiMaggio and Powell 1983). Interactions The interaction between these institutional pressures is likely to moderate their individual influence on company practices. For example, the pressure from environmental groups may encourage the formulation of more stringent regulations. This, in turn, can induce industry leaders to encourage laggard firms to adopt environmental practices. Following the 1984 Bhopal chemical accident and facing mounting pressures to create more stringent safety and environmental regulations, the chemical industry developed the Responsible Care program. Following the Three Mile Island accident, the nuclear power industry created the Institute of Nuclear Power Operations (INPO) to develop standards, conduct inspections and investigate accidents. INPO was created to prevent laggards from endangering the legitimacy of the entire US nuclear power industry (Gunningham and Sinclair 2002) and has subsequently played a significant role in improving the safety of nuclear power plant operations (Rees 1994).

PERCEPTION OF PRESSURE Firm and plant characteristics can affect not only the level of institutional pressure exerted on a plant but also how plant managers perceive institutional pressures. This is important because, even if institutional pressures were exerted at the same level on two facilities, these two plants may well perceive and respond differently. First, institutional pressures are exerted at various levels of a firm. For example, community pressures are often directly targeted at a particular plant, while shareholder pressures target the corporate level. Second, organizations channel these institutional pressures to different subunits, each of which frames these pressures according to their typical functional routines (Hoffman 2001). For example, legal departments interpret pressures in terms of risk and liability, public affairs does so in terms of company reputation, environmental affairs in terms of ecosystem damage and regulatory compliance, and sales departments in terms of potential lost revenues. Consequently, the pressure is managed according to the cultural frame of the unit that receives it: either as an issue of regulatory


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compliance, human resource management, operational efficiency, risk management, market demand, or social responsibility (Hoffman 2001). One implication of this process is that the internal organization of the firm matters because it influences how institutional pressures are perceived. Plant managers may perceive these external pressures more intensively (and respond to them accordingly) in firms where they have more open channels of communications with the immediate receptor of pressures (corporate functional areas responsible for finance, law, strategy, communication and the environment). Information sources may also play a role in cultural framing. Environmental managers may learn about management practices from a variety of sources. For example, a plant may learn in an industry association meeting about a pending boycott of a competitor because of its environmental performance. The source from which managers get their information on environmental management practices can also influence their decision to adopt environmental management practices. A firm’s historical environmental performance may also influence both how it perceives stakeholder pressures and how it responds to them. Firms whose reputations have suffered from pollution accidents may be more sensitive to environmental issues than other companies (Prakash 2000). After major accidents, firms may rearrange their organizational structure to prevent recurrences and to facilitate more rapid responses. Such reorganizations may also begin actively engaging with those stakeholders from whom the firm expects more scrutiny (e.g., regulators, environmental activities). These reorganizations may also occur within competing firms if heightened institutional pressures spill beyond the firm that experienced the accident. For example, the disclosure of environmental information in the annual reports of oil companies increased significantly in the years following the Exxon Valdez oil spill (Patten 1992). Similarly, following its chemical disaster in Bhopal, Union Carbide along with other large chemical companies developed and promoted the Responsible Care program to chemical industry associations in Canada and the United States. This set of environment, health and safety (EHS) management practices was meant to relieve pressure for more stringent regulations that could adversely affect the entire chemical industry (Prakash 2000). Industry associations across Europe and Asia have subsequently adopted the program.

FIRM RESPONSES TO INSTITUTIONAL PRESSURES Firms can adopt various types of environmental management practices in response to institutional pressures. Sharma (2000) distinguished between

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environmental strategies of conformance and voluntary environmental strategies. Conformance strategies involve complying with regulations and adopting standard industry practices, while voluntary environmental strategies seek to reduce the environmental impacts of operations beyond regulatory requirements (Sharma 2000). Several examples are presented in Appendix 10.1. Voluntary strategies involve creative problem-solving and collaborative interactions with stakeholders (Sharma and Vredenburg 1998). For example, firms adopting voluntary approaches can implement EMS elements by creating an environmental policy, developing a formal training program, or instigating routine environmental auditing. In addition, management can choose to have the comprehensiveness of their EMS validated by a third party by pursuing ISO 14001 certification. Management can also convey the importance of environmental management by including it as a criterion in employee performance evaluations (Nelson 2002). Companies can also seek to improve relations with regulators and signal a proactive environmental stance by participating in government or industry sponsored voluntary programs. Indeed, the US EPA, some industry associations and several non-governmental organizations (NGOs) have recently created voluntary standards to provide incentives for firms to go beyond minimal regulatory requirements. For example, the US EPA has developed several voluntary agreements between governmental agencies and firms to encourage technological innovation or reduce pollution while providing relief from particular procedural requirements (Delmas and Terlaak 2001, p. 44). Industry programs include Responsible Care and Sustainable Slopes, while NGO programs include the Natural Step and the Global Reporting Initiative Guidelines. Companies can also work directly with customers and suppliers to improve their environmental performance. Furthermore, they may engage in ‘systematic communication, consultation and collaboration with their key stakeholders . . . (and) host stakeholder forums and establish permanent stakeholder advisory panels at either the corporate level, the plant level, or to address a specific issue. BT, Unilever, DuPont, Dow and the Suez Group all offer examples of such advisory structures’ (Nelson 2002, p. 18).

CONCLUSION This chapter provides a model that describes how stakeholders including regulators, customers, activists, local communities and industry associations impose institutional pressures on plants and their parent companies. It also


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suggests how a variety of plant and parent company factors moderate how managers perceive and act upon these pressures. Moderating factors include historical environmental performance, the competitive position of the parent company and the organizational structure of the plant. The approach in this chapter complements institutional theory as it suggests that both institutional pressures and organizational characteristics influence organizations to adopt environmental management practices. Firm and plant characteristics are viewed as moderating factors, as they are expected to magnify or diminish the influence of institutional pressures. Testing the model in both the American and international contexts presents an opportunity for future research. In the American context, information about compliance strategies is readily available at the plant level. Data on voluntary strategies, however, would have to be gathered directly from companies. Although there are empirical studies analyzing the impact of coercive pressures (such as government pressure) on firm strategies, the field is open to empirical studies investigating the role of normative pressures on firm strategies.

APPENDIX 10.1 EXAMPLES OF ENVIRONMENTAL MANAGEMENT PRACTICES ●

●

● ● ●

Environmental communication. Includes incorporation of the environmental policy into an annual report, publication of an environmental report that may adhere to the Global Reporting Initiative guidelines and that may be verified by a third-party organization. EMS comprehensiveness. Includes a written environmental policy, internal environmental audits, third-party environmental audits, various levels of formality and comprehensiveness of environmental training programs, ISO 14001 certification. Employees evaluation. Includes environmental management as an element of performance evaluation criteria. Product design. Includes consideration of energy efficiency, recyclability and toxicity as product design attributes. Stakeholder engagement. Includes extent to which concerns of various stakeholders (e.g., customers, community, activists) are addressed via ad hoc ongoing meetings, development of effective processes to receive and respond to stakeholder concerns about environmental issues, procedures to identify key issues of concern to stakeholders. Also includes participation in US EPA voluntary programs such as Green Lights, Climate Wise, Waste Wise, Energy Star, Environmental Leadership Program, Green Buildings, Design for Environment,

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●


Project XL, Commonsense Initiative. Also includes extent to which environmental management is viewed as an important criterion for selecting suppliers. Green accounting. Includes extent to which regulatory compliance costs and potential liability (e.g. fines, clean-up costs) are included in managerial decision-making.

NOTES 1. An organizational field is defined as ‘those organizations that. . .constitute a recognized area of institutional life: key suppliers, resource and product consumers, regulatory agencies, and other organizations that produce similar services or products. The virtue of this unit of analysis is that it directs our attention. . .to the totality of relevant actors’ DiMaggio and Powell (1983). 2. On the other hand, another study failed to find any relationship between community pressure and the likelihood that a firm would be the target of an environmental lawsuit brought by US EPA or the Department of Justice (Kassinis and Vafeas 2002). 3. Criteria pollutants are regulated by the US Clean Air Act and include ozone, carbon monoxide, nitrogen dioxide, sulfur dioxide, particulate matter and lead. 4. Whether this correlation is better explained by moral hazard, where companies pollute more in communities that are less able to respond by exerting institutional pressures, or adverse selection, where disproportionate numbers of wealthier and white households flee from these communities once facilities locate there, is a subject of debate.

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11. Environmental management systems and sustainability: a framework for understanding stakeholder influence Deborah Rigling Gallagher INTRODUCTION Stakeholders influence businesses to ‘go green’ (Bansal and Roth, 2000), to respond to community ecological concerns. Environmental management systems (EMSs) have been described as a tool to promote business greening (Hillary, 2000; Rondinelli and Vastag, 2000; Darnall, Gallagher and Andrews, 2001). Stakeholder theory has been applied to examine impacts of multiple actors on strategic environmental management decisions (Winn, 2001), such as those incorporated in EMSs. Researchers have explored what stakeholders expect from EMSs and the link between stakeholder involvement in EMS design and competitive advantage (Bouma and Kamp-Rowlands, 2000; Delmas, 2001). They have examined implementation within specific industries such as printed circuit board manufacturing, plastics and electronics (Chin and Pun, 1999; Corbett and Cutler, 2000; Russo, 2002) and in specific regions (Chan and Li, 2001). They have considered motivations for developing EMSs (del Brio et al., 2001; Florida and Davison, 2001; King and Lenox, 2001; Nakamura et al., 2001; Khanna and Anton, 2002; Morrow and Rondinelli, 2002). However, the important role of stakeholders such as employees, community members, regulatory agents and customers in EMS design has not yet been clearly defined. This study begins to define that role. By some estimates, American businesses are governed by over 100 000 requirements (Rondinelli, 2000). Business resources are stretched to develop protocols and procedures, invest in pollution control technology, capital and labor, and to provide documentation of environmental compliance, often thwarting efforts to develop creative solutions. In response, facilities have increasingly created EMSs to achieve compliance and work toward 246

Environmental management systems and sustainability

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environmental sustainability (Bansal, 2002; Freimann and Walther, 2002; Morrow and Rondinelli, 2002). During EMS development, facilities undertake a detailed process to identify activities that create environmental impacts and develop specific goals, objectives and targets to address significant impacts. The EMS articulates the facility’s strategic environmental management objectives. Stakeholders, ‘any group or individual who can affect or is affected by the achievement of the organization’s objectives’ (Freeman, 1984: 46) are involved in designing EMSs. Studies have shown that certain types of stakeholders are more influential (Mitchell, Agle and Wood, 1997). Regulators or corporate staff may exert more influence on EMS design than floor level employees. Facilities involve both internal and external stakeholders in EMS design. A group of environmentally focused employees may singularly design the EMS or, alternatively, a group of employees and managers may design the EMS with input from external stakeholders such as community members or customers. Internal (e.g., employees and managers) and external (e.g., regulators and community members) stakeholders may affect and be affected by EMS outcomes. In this study institutional theory is used to explain how stakeholders influence organizational change. Institutional theory proposes three types of influences operating on organizations: mimetic, normative and coercive (DiMaggio and Powell, 1983). In this study mimetic influences, rooted in shared organizational experiences, and normative influences, rooted in social obligations (Scott, 1991), such as those exerted by employees and community members are considered cooperative forces on facilities undergoing organizational change. Influences rooted in expedience, such as those exerted by regulators and corporate managers, are considered coercive. Institutional theory has been used to describe how environmentally sustainable practices have evolved (Jennings and Zandbergen, 1995). Prior studies have applied an institutional theory framework to describe the evolution of environmentalism in the US chemical industry (Hoffman, 1999) and corporate decisions to adopt EMSs (King and Lenox, 2001). This study proposes an institutional theory framework incorporating both cooperation and coercion, to describe stakeholder influence on EMS design outcomes. Both types of influence are evident: some are cooperative, as when employees work together or when government environmental agencies provide technical assistance. Others are coercive, such as when regulators, customers or corporate offices institute explicit requirements. Coercive and cooperative influences combine to propel facilities to develop specific types of EMSs.

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EMS design is an example of first-order change. First-order organizational change occurs when incremental modifications in operating systems and processes are made without wholescale modification of culture and strategy (Dutton and Dukerich, 1991; Fox-Wolfgramm, Boal and Hunt, 1998). Facilities building EMSs identify environmental management priorities and develop new operating procedures to address them. EMS design processes can be considered both as organizational learning, in which new competencies are gained by collecting and using information (Lant and Mezias, 1992; Miller, 1996; Fisher and White, 2000) and as responses to institutional pressures such as cooperation and coercion (Newman, 2000). Facilities react to coercive pressures and enact organizational change by developing acceptable processes and practices (Mezias, 1990; Deephouse, 1996; Hoffman, 1999). This study incorporates concepts from organizational change and institutional theory to explain stakeholder influence on EMS design. It develops a model to explain how mimetic and normative influences, collectively termed cooperative influences, and coercive influences of stakeholders affect the types of EMSs that facilities build.

METHODS A grounded theory methodology is used to examine EMS design at 41 facilities located in the United States and to predict why some facilities develop far-reaching, visionary and sustainability-oriented EMSs, while others develop EMSs centered on efficient use of resources such as water and energy, and still others design systems focused on basic compliance and pollution prevention. Data Sources Survey data As part of the National Database on Environmental Management Systems (NDEMS) research project (NDEMS, 2003) during the years 1997 to 2002, data from 83 facilities in 17 states were gathered. In this study, environmental managers were asked to respond to a set of detailed surveys. The surveys were administered in three phases: pre-EMS development, during EMS design and post-EMS implementation. Many of the questions in these surveys were open-ended, which allowed respondents to describe EMS design experience in detail. Primary data on environmental policy, activities, aspects, impacts, objectives and targets were also collected. Individual electronic and paper files were maintained on most of the facilities. Ten state environmental agency pilot program managers and EPA


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regional office managers recruited facilities to participate in the NDEMS study. Due to the efforts of some states to recruit exemplary facilities environmental management practices at these facilities are likely to be more advanced than in the general population, contributing to an upward bias in the sample. In this study, data from 41 NDEMS facilities, for which complete data was available at the time, were used. Of the 41 facilities in this study, 10 percent were small facilities with between 20 and 49 employees, 34 percent were medium-sized, with between 50 and 300 employees, and 56 percent were considered large facilities employing over 300 people. Thirty-four percent were privately held, 49 percent were facilities owned by publicly traded companies and 17 percent were facilities managed by a governmental body. These 41 facilities encompassed the electronics, metal finishing, chemical manufacturing, government operations and energy sectors. Additional information on the NDEMS research program can be found on the project web site (http://ndems.cas.unc.edu/). Case study data Data were acquired from seven facilities chosen to provide a cross-section of those participating in the NDEMS research effort in terms of facility size and geographic location. A case study protocol was employed in which key informants, employees at multiple levels within the facility representative of a specific step in the facility hierarchy, responded to a detailed set of interview questions. Informants were encouraged to elaborate on their responses to protocol questions and provide additional details illustrative of their EMS design experience. As interviewers sequentially reviewed case study data and gained experience in interviewing informants, protocol use was modified to emphasize specific topics of interest. Facilities also provided EMS documentation, such as training manuals and progress reports. Participant observations The author attended two training seminars sponsored by state agency EMS development pilot programs. EMS design consultants conducted both seminars. One seminar was held early in the NDEMS research program to introduce a group of ten facilities to the EMS design process. Another was held towards the end of the study in which a group of 12 facilities were coached on how to incorporate sustainability principles into their EMSs. Participants were not systematically interviewed during or after the training sessions, but informal discussions about the usefulness of the training and follow up telephone conversations regarding the influence of the training sessions on EMS design were documented in facility files.

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Data Analysis A grounded theory methodology (Corbin and Strauss, 1990) provided a mechanism to build theory inductively from review of qualitative and quantitative NDEMS data, case study and participant observation data. In contrast to other modes of theory development, in which concepts and relationships between them are set out a priori, and data are used to confirm or deny their plausibility, a grounded theory building approach is guided first and foremost by data. Beginning with a budding theoretical framework a researcher employing grounded theory is guided by qualitative data to complete the theory. A grounded theory approach is suitable for this study because, while few studies have used institutional theory to explain stakeholder influence on environmental management outcomes, there is abundant qualitative data on this topic in NDEMS. Grounded theory methodology has been used effectively in qualitative studies of organizational phenomena such as rule breaking (MacLean, 2001), purchasing’s role in environmental management (Carter and Dresner, 2001) and implementation of technological change (Prasad, 1993). Survey data, case study data and participant observation data from each of the 41 facilities were entered into a qualitative database using QSR N5 software (Richards and Richards, 1994). Data were first examined using an open coding approach (Fisher, 1997) in which codes were designated as qualitative data ‘nodes’. This provided each data component with a logical address within the database. The node creation and coding process began with data from a single facility case study and preceded through additional case study, survey and participant observation data as needed to describe the evolving theory. Initially, more than 40 nodes were designated to describe influences on the 41 facilities that were developing EMSs. These nodes included, for example, ‘supply chain’, ‘professional peer relationships’, ‘employee cooperation’, ‘environmental knowledge’, ‘management directives’, ‘company-wide involvement’, ‘corporate requirements’ and ‘public acceptance’. Identification of nodes continued through examination of data from subsequent facilities until no new concepts were apparent and theoretical saturation was reached. Nodes were then examined and organized using a node search and node tree building process to identify overall concepts, which described key influences, such as fellow employees, customers, corporate management, regulators and facility culture. These concepts were then associated with two overall categories of influence, which were increasingly evident: cooperation and coercion. Finally, relationships between the key influences within the categories were outlined and existing literature was reviewed to elicit constructs to describe these relationships. This approach is the cornerstone


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of grounded theory methodology: the researcher is guided both by data and extant theory (Locke, 2001) in eliciting constructs. For example, as it became apparent that boundary spanning employees (Aldrich, 1979) and characteristics of learning organizations (Miller, 1996) were important factors that interacted with coercion and cooperation, constructs such as social networking and continual improvement were engaged. Ongoing, iterative review of data elicited a framework in which categories and relationships were supported by multiple observations. Conceptual categories and relationships derived directly from the data and supported by existing theory formed the building blocks of the emergent framework. Table 11.1 presents evidence of the varied influences that operated on NDEMS facilities designing EMSs. Table 11.1

Key influences on facilities designing EMSs

Key Influences

Facility Experiences

Customers

Some customers said that they were investigating requiring their suppliers to be ISO certified. Customers are interested whether the facility has an EMS, not necessarily what is in it, but only that an EMS exists. We view this inquiry as a prerequisite to some requirement down the road. We are getting questions from big corporate buyers asking about aspects and impacts. It is increasingly becoming a screen of the people to whom we are vendors.

Fellow employees The biggest cheerleader was an hourly person who was involved early on in one of the process improvement teams. He was in maintenance. You need a program champion. Non-management employees participated. About once per month we would get together; we picked people with experience, such as a line operator with 10 years’ experience, rather than a new manager. Community

We wanted to develop rapport with environmental groups and departments in state and town. Village officials, POTW, Fire department helped in design process. We have a community advisory group. They interface with the government and the citizen groups, NGOs. We worked with the federal government and community group to decide how much solid waste to recycle.

Corporate

[It was] driven from Corporate, we had a letter from corporate office. Can’t tamper with a corporate policy letter.

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Table 11.1


(continued)

Key Influences

Facility Experiences It was a cooperative effort between the corporate and site development teams. The certification process was corporate-driven, and corporate staff helped to write the EMS.

Facility leadership Jim [the environmental VP] and his managers started out down the trail, how to roll what’s in the environmental department into the standard. Have got to have management buy-in, they set the tone. Without management support, you don’t find support from the people. Consultants

Consultant played referee. He assigned primary responsibility of each part of the standard to one team member to write the procedure/policy for their department for what actually was done. There was much debate about what was really done. Consultant was a very good process navigator and standard interpreter. He helped us stay focused and to interpret the standard. Consultant was very instrumental in writing the procedures and completing the documentation development. We used him to review the procedures we wrote, to see if they met the needs for 14000 or EMS.

Regulators

No one at the facility knew how to approach EMS adoption until the state came along. The state provided the structure that we needed to start. [A] new regulator said it was wrong, so we got slapped on the wrist. An EMS provides us with the documentation that the state needs.

Facility culture

[We were] going beyond regulations to do what’s best for the environment globally. We are really into teams and having consistent environmental processes. The results-driven result was a smaller environmental footprint. Overall, we wanted to be a good member of the community. We certainly wanted to get a lot of mileage out of the certification, but really were motivated by values [of employees]. We have personal satisfaction in doing the right thing.


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RESULTS The data in Table 11.1 show how cooperative forces, such as employee involvement, assistance from the community and management support, affect the EMS design process. Coercive influences, such as customer and corporate demands and regulatory requirements, are also described. However, facilities did not experience coercion in absence of cooperation, or simply cooperation as they designed EMSs. Some facilities faced both coercion and cooperation from corporate leaders who placed specific requirements on EMS design and provided technical assistance. Other facilities were coercively influenced by memories of past enforcement actions while working cooperatively with community members to design the EMS. Coercive and cooperative forces combined to influence facilities to develop specific EMS types that incorporated a variety of environmental management goals, from compliance to sustainability. Three discrete types of EMSs emerged: compliance and pollution prevention-focused, eco-efficiency-focused and sustainability-focused. EMS Types Environmental management researchers have used typologies as a tool to describe business environmental strategies in general terms. For example, Tilley’s typology (1999) illustrates small firm environmental strategies. Roome (1992) describes non-compliance, compliance and complianceplus strategies. Schot and Fischer (1993) propose four business environmental strategies: crisis-oriented, cost-oriented, enlightened and innovative. Welford (1994) depicts ostriches, laggards, thinkers and doers. Finally, Hall and Roome (1996) update Roome’s initial business environmental strategy typology to include compliance, eco-efficiency and environmental approaches. However, none of these typologies adequately describe the EMS as a strategic management tool. They focus on broad environmental strategies, such as compliance, cost orientation and innovation, but do not include dimensions to describe stakeholder involvement and environmental management goals, which are important EMS components. The typology used in this study (Gallagher, 2002), describes a path dependent progression whereby facilities must acquire resources to master the first step on a continuum before moving to the next (Hart, 1995). It builds on Hall and Roome’s typology to incorporate two specific EMS-focused dimensions: locus of involvement, representing organizational progressions toward greater stakeholder involvement and systems goal, which illustrates the advancement of environmental management goals. When NDEMS data were examined according to these

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typological dimensions, three distinct EMS types emerged. These are described below. EMS type 1: compliance and pollution prevention focus Compliance and pollution prevention-focused EMSs concentrate on achieving and maintaining strict regulatory compliance, minimizing air and water emissions and decreasing hazardous and solid waste generation. They include explicit objectives and targets to promote these overarching goals. For example, one manufacturing facility included an objective to decrease the inventory and use of hazardous chemicals in its research and development laboratory paired with a target to first determine which chemicals could be reduced or eliminated. Another paired an objective of obtaining a zero water pollution permit violations rate with a target of increased self-inspections. Facilities that designed this type of EMS were influenced by state regulators and consultants providing technical assistance, regulator enforcement, customer pressures for increased environmental stewardship and management pressure to focus on compliance and cost savings: a combination of cooperation and coercion. At these facilities, the cooperative efforts of state environmental agency technical assistance personnel, consultants and mid-level employees played out against a backdrop of coercion from customers, agency regulators and facility management. Designed by facilities with little experience in environmental management, these EMSs leveraged the energy of facility environmental personnel in designing systems to provide a structure for compliance and pollution prevention efforts while satisfying customers, senior managers and regulators. Compliance and pollution prevention-focused facilities were coerced to re-examine environmental management practices. For example, one facility employee related, ‘Incidents have occurred in the past, maybe a handful of (compliance) issues. The state thought that an EMS would prevent them from re-occurring’. Another stated, ‘a primary customer was considering requiring an EMS’. Finally, a facility senior manager emphasized that ‘sister facilities had already developed EMSs and [we] should implement one, too’. The experiences of regulatory enforcement actions and customer and management coercion catalyzed change in environmental management practices. These facilities possessed limited expertise in systematically managing environmental impacts. Few had conducted compliance audits before designing EMSs; for most that did (26 percent of the group as a whole) it was a relatively new practice, begun just a year or two before beginning EMS design. The design and implementation of an EMS was a significant change.


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Coercion and cooperation served dual roles in pushing facilities with limited experience and resources to more systematically manage environmental impacts. Coercion, supplied by regulators, customers and senior managers, provided the initial impetus. Facility environmental staff responded predictably by seeking ways to adapt the organization to minimize further coercion and senior management provided leadership (Tushman et al., 1986; Egri and Herman, 2000). Facility environmental managers described benefits of an EMS, coercion from customers and the role of senior management: If you have a very active, well-defined EMS, the regulatory agency will whack you less hard. Customers are interested in whether we have an EMS…and we view this inquiry as a prerequisite to some requirement down the road. Ken [the Vice President] had a lot of experience with EMSs in his last position so was willing to get serious about implementing one.

EMS type 2: eco-efficiency focus Eco-efficiency-focused EMSs are centered on efficient processes to minimize the waste of resources such as water and energy in production. While considerations of maintaining strict compliance and preventing pollution are evident in these EMSs, they focus on the efficient use of resources. For example, one EMS paired an objective to ‘reduce energy use based on annual budgets’ with a target of a 10 percent reduction in the engineering budget. Another facility’s EMS included an objective to ‘properly use natural resources’ by targeting natural gas usage through increased use of excess steam rather than boilers in the summer months. Stakeholder influences on design of eco-efficiency-focused EMSs included those of technical, engineering-oriented EMS core design team members, corporate officers and customers. Most of these facilities did not report being significantly influenced by community members, nor by technical assistance from state environmental agencies. However, core team members did possess knowledge and skills gleaned from participation in colloquia outside of the facility. Eco-efficiency-focused EMSs were less influenced by stakeholder coercion than were compliance and pollution prevention-focused EMSs. Pressure from regulators was rare. However, coercion from customers and corporate officers was evident. As one facility’s environmental manager put it, ‘there was a corporate desire from Japan that all facilities become ISO 14001 certified. The corporation. . .wanted all worldwide [facilities] certified, started with domestic’. Another facility described coercion from customers, ‘We got the idea to go along with ISO 14001 from the big three [automakers]. When we began to design the EMS there was a perceived pressure from them.’

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These facilities were inspired to focus on eco-efficient processes by the cooperative efforts of technical managers and members of the facility’s core EMS team. One EMS core team member described her team’s efforts, ‘they [corporate] asked me to promise that our work would spur on all the other facilities to develop an EMS. I worked with technical staff from US and Europe to make it happen. But at [the facility], the biggest cheerleader was an hourly person who was involved early on in one of the process improvement teams.’ These employees applied knowledge gained from professional interactions within and outside the facility to design the EMS. A small amount of coercion was combined with larger cooperative influences on mid-level managers who obtained information externally. This pushed facilities to design EMSs that satisfied customers, complied with corporate directives and moved beyond compliance and pollution prevention to seek ecoefficiency. Prior to building their EMSs, these facilities possessed expertise in managing environmental impacts. Over 50 percent reported routinely conducting compliance audits prior to developing EMSs; most facilities had been conducting them for over ten years. Half of the facilities reported using materials accounting techniques. Over 80 percent of the eco-efficient facilities had been using waste minimization techniques for over eight years, had pollution prevention plans in place and produced annual environmental reports. Coercive stakeholder influences caused these facilities to develop acceptable process and practices. Eco-efficient facilities addressed customer and corporate manager coercion predictably by building ISO 14001 certified EMSs in conformance with their desires. Facilities building eco-efficiency-focused EMSs harnessed the cooperative influence of highly knowledgeable technical staff. EMS design leaders at eco-efficient facilities were primarily environmental or chemical engineers with years of experience in managing environmental affairs. These employees turned to a network of professional peers for advice and counsel. They were the facility’s boundary spanners, crossing the organization’s external boundary to perform duties within the organization (Kahn, Wolfe, Quinn, Snoek and Rosenthal, 1964). Professionals playing boundaryspanning roles exert influence on the creation of specific practices (Lozada and Calantone, 1996; Rao and Sivakumar, 1999; Johnson and Chang, 2000) and communicate new ideas throughout the organization. Information acquired externally and dispersed internally by boundary spanners through social networking is an important resource in the process of organizational learning (Powell, 1990; Liebeskind, Oliver, Zucker and Brewer, 1996), which leads to first-order organizational change. Boundary-spanning


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employees use resources of social networks rooted in professionalism to learn and apply knowledge of new technologies. Facilities that build ecoefficiency-focused EMSs are likely to depend on a task system balanced between reliance on boundary spanning and the organization’s existing technical core (Egri and Herman, 2000). One employee described how professional relationships outside the facility helped his design team in building their EMS: One of our corporate VPs is on the USTAG [advisory group on ISO 14001]. He goes to a lot of meetings and brings in a lot of ideas. Customers also have provided us information. I had an early copy of the standard and just got going on it. Now I participate in local industry groups and professional association roundtables.

EMS type 3: sustainability focus Sustainability-focused EMSs attend to compliance, pollution prevention and eco-efficiency, but are also engaged in product stewardship and sustainable practices. These EMSs consider environmental impacts beyond production, such as employee commuting patterns. For example, one sustainability-focused EMS included an objective to reduce air emissions by scheduling operations based on ten-hour shifts to reduce commutes by ten percent. Another facility included a commitment to the USEPA native landscaping program in its EMS. A third included the implementation of life cycle analysis into product design. Community members and collegial relationships with state environmental agency staff influenced these EMSs. They were also influenced by employees from senior management to hourly workers, visionary leadership of staff-level employees, middle, senior and corporate-level managers acting as champions, and a company culture that emphasized going beyond compliance. As one employee at a sustainability-focused facility described the EMS design process: It would always be cheaper not to do any environmental protection, so it’s not a cost savings, and we can’t really quantify the cost savings resulting from the partnership with the city. It’s about going beyond the regulations to do what’s best for the environment globally.

Organizational cultures that welcomed broad employee participation influenced EMS outcomes at these facilities. An organization’s culture, its ‘system of shared values defining what is important, and norms, defining appropriate attitudes and behaviors that guide attitudes and behaviors’ (O’Reilly and Chatman, 1996), is a factor in catalyzing organizational change (Hatch, 1993; Denison and Mishra, 1995) like EMS design. Researchers examining the link

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between organizational culture and first-order change (Detert et al., 2000) posit that cultural values such as internal and external cooperation and collaboration, a shared vision and high levels of employee involvement are essential to successful implementation of such efforts. The culture in evidence at facilities designing sustainability-focused EMSs was characterized by cooperation between internal and external groups, openness to new ideas and the participation of all levels of employees. These are the cultural characteristics of a learning organization (Fiol and Lyles, 1985). Learning organizations employ processes in which employees work continuously and cooperatively on problems with help from both internal and external social and professional networks (Daft and Marcic, 1998; Fisher and White, 2000). These processes were evident at sustainability-focused facilities. For example, employees described the EMS design at one facility: An environmental committee was formed consisting of a member or members from each department and from the operator level to the manager level. There was a majority of operators, engineers and staff people rather than managers and foremen. The operators and other people brought up some great points about the facility’s operations. We do round robins to bring in outside blood, people that see other corporations. We’re doing a lot of benchmarking with other companies, trying to understand why or why not, how they’re implementing, and lessons learned.

These processes enabled EMS designers to move beyond compliance, pollution prevention and eco-efficiency to sustainability. Coercion did not play a significant role in sustainability-focused EMS design: cooperation was the primary influence. While EMS designers acknowledged that regulatory compliance was an important component of their EMSs, encounters with regulators were mutually beneficial. Facilities designing sustainability-focused EMSs did not describe coercive relationships with corporate managers, which included specific EMS design requirements. Instead, managers encouraged creativity. The cooperative influences at these facilities were a mixture of collegiality and vision. Collegiality operated amongst employees, between facility personnel and state agency personnel and also between employees and community members. Participants from hourly employees to corporate managers shared a clear vision of how the EMS should look. This vision was reinforced by ambitious facility environmental goals. Cooperation among diverse actors within a culture of learning was the major stakeholder influence on facilities building sustainability-focused EMSs. The cooperative efforts of a varied group of employees within the facility combined with the efforts of external stakeholders provided a knowledge base and energy to design a forward-looking and inclusive EMS.


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DISCUSSION In the three types of EMSs described above, facility culture and experience mediated the effect of coercive and cooperative stakeholder influence during EMS design. Employee knowledge and experience particularly influenced EMS design efforts. Knowledge acquisition and information distribution are critical components of organizational processes that influence successful organizational change (Templeton, Lewis and Snyder, 2002). Eco-efficiency and sustainability-focused facilities with significant experience in systematically managing environmental impacts were more likely to benefit from the cooperative influence of professional peer groups. Facilities that designed compliance and pollution prevention-focused EMSs possessed less environmental management experience and were more likely to be affected by coercion. Closed cultures that depended only on facility environmental staff or alternatively those that supported boundary-spanning employees’ efforts to network with peers or emphasized an organizational learning approach had a profound effect on EMS design. For example, sustainability-focused facilities benefited from a culture in which problem-solving processes engaged cooperative influences of multiple stakeholders with varied perspectives and far-reaching environmental management goals. Facilities with more insular cultures did not rely on boundary-spanning employees or engage multiple internal stakeholders in collective learning, but were influenced by stakeholder coercion from regulators and facility management to build compliance and pollution prevention-focused EMSs. Facility cultures may be open or closed. Organizational members may have historically adopted methods for processing information, which welcome or reject information from stakeholders. Thus, facilities, given their unique culture, may reject or welcome the participation of external parties’ employees in EMS design. External stakeholders who view the EMS as a vehicle to address issues beyond the facility site boundary may be invited to work with employees in identifying environmental impacts. Alternatively, design efforts may be confined to a small group of environmental professionals and managers who focus on internal facility production processes and regulatory compliance. Cooperative influences from internal and external stakeholders are more positively received by facilities with open cultures, which incorporate boundary-spanning employees and organizational learning processes. Coercive stakeholder influences play a larger role in propelling facilities whose closed cultures do not value external interactions, to initiate EMS designs that focus on explicitly addressing the nature of the coercion, rather than learning how to create positive external relationships.

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The Interaction of Facility Culture and Experience with Stakeholder Influence A continuum of stakeholder influence from coercion to cooperation exists only as an ideal: in reality the continuum begins with an amalgam of coercion and cooperation. For example, a coercive action such as regulatory enforcement may initiate the EMS design process, but cooperation in the form of technical assistance may help facilities progress. When coercion or cooperation acts on facilities designing EMSs, culture and experience influence whether it is embraced or rejected. Facility culture and experience interact with coercive and cooperative pressures from stakeholders to influence the design of specific types of EMSs. Figure 11.1 below shows how culture and experience may interact with coercive and cooperative stakeholder influences on facilities designing EMSs. Stakeholder influences may operate in three forms: a mixture of cooperation and coercion, cooperation dominant and coercion dominant. In the NDEMS sample, only two of these forms were present, as shown. When a mixture of cooperation and coercion exists, cooperation originates in collegial relationships among internal stakeholders and between internal and external stakeholders. This may include diverse groups of employees designing EMSs and leaders reaching out to community groups for input. Coercion originates in requirements placed on facilities by regulators, customers and corporate or facility leadership. In the second category, cooperation dominant, implicit coercion from regulatory requirements exists but stakeholder cooperation generally dominates. The third form, coercion dominant, was not present in the 41 NDEMS facilities studied. In this case both implicit regulatory requirements and explicit corporate, customer and corporate demands provide coercive influence while cooperative influences remain in the background. Facility culture and experience also exist in two forms. Facilities may exhibit open or closed cultures or low or high levels of environmental management experience. This leads to the possibility that facilities designing EMSs may possess an open culture with either a high or low level of experience or alternatively a closed culture with either a high or low level of experience. In the NDEMS sample, however, facilities either exhibited closed cultures with a low level of systematic environmental management experience or open cultures in which boundary-spanning employees contributed to a higher level of environmental management knowledge and experience. Figure 11.1 shows the conditions under which the 41 NDEMS facilities designed compliance and pollution prevention, eco-efficiency or sustainability-focused EMSs. When a closed and inexperienced NDEMS


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FACILITY CULTURE AND EXPERIENCE* STAKEHOLDER INFLUENCE

Closed/ Low

Open/ Low

Coercion/Cooperation

C/P 2

Cooperation Dominant

CP 2 , E 2

E2, S

C/P 2

C/P 2

Coercion Dominant

Closed/ High

C/P 2 , E2 C/P 2 , E2 E2

Open/ High E2 S

C/P 2 , E2 C/P 2 , E2

C/P 2 = Compliance/Pollution Prevention Focus E 2 = Eco-efficiency Focus S = Sustainability Focus

Note: *EMS types in bold were present in the NDEMS sample.

Figure 11.1 Effect of stakeholder influence, facility culture and experience on facility EMS design facility was influenced by an amalgam of coercive and cooperative pressures from stakeholders such as regulators, customers, corporate management, employees and consultants, it designed a compliance and pollution prevention-focused EMS. When a more open and experienced facility was acted on by a similar amalgam of coercion and cooperation, an ecoefficiency-focused EMS resulted. When facilities with open cultures were acted upon by cooperative stakeholder influences, regardless of their experience level, a sustainability-focused EMS was created. In this study there were no facilities influenced by purely cooperative pressures from stakeholders that exhibited closed cultures and had limited environmental management experience. Nor were there facilities influenced by purely coercive pressures. While it is likely that either a compliance and pollution prevention or eco-efficiency-focused EMS would be designed under these circumstances, a specific outcome was not supported by data from these 41 facilities. Data from the 41 NDEMS facilities show that the type of EMS designed in response to coercive and cooperative stakeholder pressures is contingent both on facility culture and experience. The framework depicted in Figure 11.1 presents both the specific results from the 41 NDEMS facilities and generalizes about stakeholder influences on EMS design. This framework leads to a series of propositions about facility-level environmental management behavior. These propositions suggest how environmental management experience, organizational culture and the coercive and cooperative influences of stakeholders may operate to propel facilities to design specific types of EMSs.

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Facility Environmental Management Experience Facilities with experience in systematic environmental management and an open culture conducive to networking and learning will benefit from the cooperative influences of stakeholders. A collaborative effort between employees, community members, regulators, suppliers and customers would enable such facilities to design EMSs to incorporate environmental goals far beyond compliance and pollution prevention and ecoefficiency to address issues such as sustainable practices and product stewardship. Proposition 1. An experienced facility with an open culture, when influenced primarily by stakeholder cooperation, will design a sustainability-focused EMS.

Facilities with experience in systematic environmental management and an open culture conducive to networking and learning will benefit from the cooperative influences of external contacts engaged by boundary-spanning environmental staff. However, when boundary spanners’ knowledge is subject to the coercive influences of customers and corporate partners who impose specific requirements such as emphasis on efficient resource use, facilities will stop short of designing sustainability-focused EMSs and focus on eco-efficiency. Proposition 2. An experienced facility with an open culture, when influenced by a mixture of stakeholder cooperation and coercion, will design an ecoefficiency-focused EMS.

Organizational Culture Facilities with closed cultures have few opportunities to engage in outside learning and networking. Those that also lack experience in systematic environmental management will be cooperatively influenced by relationships with stakeholders such as state environmental agency technical assistance and consultants, and coercively influenced by regulatory enforcement. Limited opportunities to engage external stakeholders will impede facility efforts to design EMSs with far-reaching goals. This results in EMSs focused on compliance and pollution prevention. Proposition 3. An inexperienced facility with a closed culture, when influenced by a mix of stakeholder coercion and cooperation, will design a compliance and pollution prevention-focused EMS.


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Facilities with closed cultures, but with significant environmental management experience will leverage the knowledge of their environmental staff and the cooperative influences of technical assistance from regulators. They will build EMSs that reach beyond compliance and pollution prevention. A closed culture would not impede a facility from reaching beyond compliance, but interactions with external stakeholders would be limited to consultants and state technical assistance providers, who focus on pollution prevention and eco-efficiency. Community members would have little influence, thus inhibiting the creation of sustainability-focused EMSs and emphasizing efficient use of resources. Proposition 4. An experienced facility with a closed culture, when influenced primarily by stakeholder cooperation, will design an eco-efficiency-focused EMS.

Stakeholder Influence Facilities with open cultures conducive to networking and learning will benefit from a combination of cooperative influences from a variety of external stakeholders. They will be exposed to positive interactions with professional peers to consider goals beyond compliance and pollution prevention. However, coercive influences from stakeholders who emphasize specific attributes, such as ISO 14001 certification and efficient resource use, will limit the focus of these facility EMSs to eco-efficiency. Proposition 5. An inexperienced facility with an open culture, when influenced by a mixture of stakeholder cooperation and coercion, will design an ecoefficiency-focused EMS.

Facilities with open cultures but limited environmental management experience will benefit from a combination of a learning orientation and exposure to cooperation-dominant interactions with stakeholders such as corporate staff, regulators, customers, community members and facility employees. Cooperative influences will propel open-cultured facilities to focus on goals beyond compliance and pollution prevention. If the culture is sufficiently open to ensure a high-level dialogue with external community stakeholders and to incorporate significant learning from interactions with professional peers, the facility may look to product stewardship and sustainability goals and design a sustainability-focused EMS. Proposition 6. An inexperienced facility with an open culture, when influenced primarily by stakeholder cooperation, will design either an eco-efficiencyfocused or a sustainability-focused EMS.

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CONCLUSIONS AND IMPLICATIONS This study, in which data from 41 US facilities participating in the National Database on Environmental Management Systems (NDEMS) project were examined, showed that stakeholder influence on facility EMS design is not monolithic. Stakeholder influence interacts with facility culture and environmental management experience to propel facilities to design specific types of EMSs. Cooperative and coercive pressures from stakeholders will influence facilities in similar ways only if they possess similar levels of environmental management experience or if their organizational cultures are alike. For example, in response to regulatory coercion, a facility with an open culture and limited experience may focus its EMS on compliance, whereas a facility with an open culture and significant experience may focus its EMS on eco-efficiency. EMS outcomes cannot be predicted solely by the nature of the influences that are exerted on facilities designing them. In a quest to understand how those influences may be leveraged to promote improved environmental protection behavior it is important to consider the heterogeneous nature of facility culture and experience. Some facilities, because of their experience level and culture will be more influenced by coercion from regulators, managers or corporate partners; other facilities will be more strongly affected by the cooperative influences of teamwork or external stakeholders. This study provides several implications for stakeholders, environmental managers and policy-makers interested in using the EMS to promote sustainable practices. Internal stakeholders, such as employees involved in EMS design efforts, must be aware of the level of environmental management experience and culture of their organization. Employees working to design EMSs within closed cultures should consider seeking training programs to assist them in leveraging existing expertise to move beyond basic compliance and pollution prevention. Employees designing EMSs within an organization with an open, learning-oriented culture should take advantage of opportunities to reach out to external stakeholders and work with boundary-spanning employees to incorporate sustainability goals. External stakeholders such as government environmental agencies, customers and corporate managers must develop appropriate resources and motivational tools. For example, environmental agencies should provide technical assistance and training programs to assist closed and inexperienced facilities in incorporating sustainability concepts into EMSs. They should also provide networking opportunities for open-cultured facilities to learn from each other and from external stakeholders such as community members. Corporate managers and customers seeking to implement


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specific EMS design outcomes should offer both training and rewards. For example, one NDEMS facility reported that after participating in a corporate EMS training program their EMS was showcased by both customers and corporate managers. The design team leader was then asked to lead the company’s efforts internationally, which was a source of pride for the small US-based facility. Environmental public policies focused on EMS design and implementation must be sufficiently flexible to address a variety of facility settings and consider a variety of influences from stakeholders. Well-designed policy frameworks will guide productive application of the EMS by leveraging both cooperative and coercive influences on facilities designing them and accommodating the diversity of facility cultures and experience. In conclusion, this study is limited by its use of EMS design types as environmental performance outcomes. It focused on how EMS design efforts may be influenced by a variety of stakeholders to incorporate business greening goals. However, it is not sufficient to say that because a facility incorporated sustainability goals into its EMS, that its environmental performance will be based on sustainable practices, or that its overall environmental performance will be paramount. Future research should extend this framework beyond the EMS type as outcome to examine the ultimate influence that stakeholders may have on overall environmental performance. If the EMS is to be used productively as a management and public policy tool, it is crucial to determine whether cooperatively influenced, open cultured, experienced facilities designing sustainability-focused EMSs do indeed produce superior environmental performance.

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12. The ecological modernization of organizational fields: a framework for analysis Renato J. Orsato1 INTRODUCTION The Organizations and the Natural Environment (ONE) literature has generically labeled stakeholders as any individuals or organizations capable of influencing a focal organization (see, for instance Bansal and Roth 2000; Scott and Lane 2000). Indeed, a multiplicity of variables, ranging from the structure of the industry and characteristics of the market, to the geographic location of industrial facilities, influences the definition of stakeholders. This results in a concept that is very indistinct and of limited relevance for theorization or practice. In other words, the indistinctiveness of the stakeholder approach provides little help for those trying to understand the reluctance of firms to invest in environmental protection, as well as for normative actions towards a more proactive behavior. Moreover, because stakeholders’ influence on the greening of organizations has a contingent character, their identification needs to be complemented by the scrutiny of the dynamics between them. The specialized literature also tends to focus on the (positive) influence stakeholders exert on organizational change towards more ecologically sustainable industries and societies. Reviews such as the ones of Berry and Rondinelli (1998) and Bonifant et al. (1995) focus mainly on external stakeholders, such as consumers, governments and competitors, which have the potential to foster the internalization of ecological issues into organizational strategies and practices. Less emphasis, however, has been given to the inhibiting character of contingent stakeholder action. The availability of cleaner technologies, for instance, may not be sufficient for a firm to move away from those technologies that pollute. Companies may have significant sunk investments in existing systems of production as well as with the skills associated with such systems; industrial competition might not reward environmental investments, or consumers might be unwilling to buy 270

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products that perform differently to those they already know (Kemp 1994; Kemp et al. 1998). Reinhardt (1998) emphasized that the environmental policies and strategies developed by firms depend on the structure of the industry in which they operate, the position of the firms within that industry, as well as their organizational capabilities. In simple terms, stakeholder influence on the greening of organizations is a contingent matter. The problem faced by both researchers and practitioners is, therefore, to find ways of ‘grasping’ such reality. More precisely, if all the above is fundamental for the greening of organizations, how can one describe such a context? According to Giddens (1984), because structures within an organizational field are constantly modified, one can only refer to the process of structuring structures, or ‘structuration’ – in the concept of the theory that deals with such a phenomenon. In these terms, the dynamic process shaping the relationships among actors would define the structure of the industry. Similar to the lines formed by the tail lights of cars caught in long exposure photography, structuration will be defined by the dynamics of relationships happening in a specific organizational field (DiMaggio and Powell 1983; Haugaard 1998). Metaphorically, this is what this chapter tries to portray: a systematic study of the particular phenomenon of ecological modernization under way in the specific setting of the European automobile industry.2 By focusing on the factors fostering or inhibiting the greening of an entire industrial sector, it grounds the generic concept of stakeholder in a specific organizational field. The description of such structuration processes results in the design of an analytical framework, encompassing factors that influence the ecological modernization of the European auto industry. Because the framework is expected to be useful in informing the research design and analysis of other industrial settings, the main objective of the chapter is, therefore, to present the framework and exemplify its use, adopting the automobile industry as a demonstration case only. In other words, the chapter borrows data from the extensive research developed by the author to exemplify how the phenomenon of the greening of organizations can be grasped in a systematic manner (see Orssatto 2001). In this respect, even though anecdotal data provides explanations for current levels of environmentally sound investments in the automobile industry, the data serves the main purpose of explaining the elements of the framework. The next two sections provide justification for the choice of both the phenomenon and the object of analysis. The remaining sections of the chapter present and discuss the ecological modernization framework (EMF). A discussion on implications for theory, practice and research concludes the chapter.

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SUSTAINABLE DEVELOPMENT OR ECOLOGICAL MODERNIZATION? Since most of the debate in Organizations and the Natural Environment (ONE) field relates to ‘sustainability’, one may wonder why this chapter adopts the term ‘ecological modernization’. The answer is straightforward: the concept of ‘ecological modernization’, when compared with terms such as ‘ecological sustainability’ or ‘sustainable development’, expresses more accurately the phenomenon undergoing in many sectors of modern economies, such as the European automobile industry. In simple terms, while there is still a lack of consensus about whether current strategies and practices are conducive to the ecological sustainability of corporations, industries or entire societies (Tibbs 2000), the phenomenon of ecological modernization can be justified in both empirical and theoretical grounds (Mol 1995; Mol and Spaargaren 1993; Young 2000). Ecological modernization assumes that the current destruction of natural ecosystems is a result of design faults that could be reformed by further extension of the reflexive knowledge that characterizes modern thinking.3 In this perspective, proactive environmental management practices in organizations constitute an extension of the same historical continuum that ‘produced’ modernity (Giddens 1990). They are part of the phenomenon characterizing the political as well as managerial efforts to overcome ecological crises faced by Western European countries. Rather than instances of proactive environmental management in focal firms, ecological modernization involves the institutionalization of practices in the entire community of organizations (Spaargaren 1997). For this reason, instead of questioning whether strategies and practices are ecologically sustainable, the study presented in this chapter focuses on the interpretation of these practices as an emergent, indeed empirical sociological phenomenon happening in a specific industrial setting: the European4 automobile industry.

THE AUTOMOBILE FIELD AND THE ENVIRONMENT An analysis of organizational practices within the context of the automobile industry (such as the ones of Nieuwenhuis and Wells 1997, 2003) strongly suggests that ecological modernization principles have undeniably been internalized in the practices of the sector. As Cohen (1997) indicated, ecological modernization presupposes the intensification of: (1) organizational internalization of ecological responsibility, (2) the implementation of anticipatory planning practices, (3) the implementation of strict governmental


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regulation, and (4) the dissemination of ‘hyper-industrialization’: the intensification of industrial innovation and the consequent switch over to cleaner, more efficient and less resource-intensive technologies, leading to the overall lowering of environmental impact of industries. In broad terms, such strategies are happening to different degrees in the context of the European auto industry. But if there is little doubt whether the automobile industry is undergoing ecological modernization, it is still necessary to identify the main factors influencing such a process, as well as the particular characteristics they assume in the context of the sector. Moreover, the enduring reliance of the industry on internal combustion engine technology (and its dependence on fossil fuels), the relatively low investments in battery electric vehicles technology, and the low rates of recycling of non-metallic parts of end-of-life vehicles all indicate the limits of the auto industry in respect to environmental protection. In other words, it is necessary to explain why ecological modernization assumed a specific nature in the context of the European auto industry. As this chapter will explain, instead of focusing on the strategies of single car assemblers, answers for these questions require the analysis of developments occurring within the organizational field. In the context of this study, this ‘field’ represents the meso level of analysis merging the traditional concepts of ‘industry’ and ‘organizational field’ – originally proposed by DiMaggio and Powell (1983) – for the study of the socio-technical context in which automobiles are embedded. In simple terms, it establishes a link between the product (the automobile) and the field embedding the former in its systems of production and consumption. Such an approach associates the intrinsic (mostly technical) properties of the product with the social context surrounding the scope of actions of the existing industrial sector.

BACKGROUND AND METHODS The research reported in the following sections was exploratory in its essence, since it asked ‘what are the variables involved’ – in the greening of organizations? The exploratory character of the study implied that the most adequate research procedures were of a qualitative nature (Perry 1994). Because exploratory qualitative research tends to be multi-method in focus, reflexive methodology was used to orient the overall research process (see Alvesson and Sköldberg 2000). The adoption of such a perspective implied a constant reflexive consideration of alternative interpretations of the data, and its potential alternative meanings.

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The orientation of the research towards reflexive methodology implied that the incoming data was played against the theory, which was then reinterpreted. In other words, the processes of collecting and analyzing data, rather than being developed separately, were both iterative and interactive. According to Eisenhardt (1989), a clear separation between the collection and analysis of qualitative data reflects a didactic representation of the research process, rather than its factual development. The data representing a specific reality comprehends not only its analysis but also the process that gathered such data (Stablein 1996). For this reason, there is no clear separation between collection and analysis of data in this study. Hence, the identification of the stakeholders influencing organizational greening and the design of the framework is an outcome of the analysis of five environment-related case studies developed in the socio-technical context of the European automobile industry. The iterative collection, analysis and interpretation of primary and secondary data were organized in two data groups. The first group comprised two case studies concerning battery electric vehicle (EV) trials in France and Norway. The second encompassed case studies on end-of-life vehicle (ELV) schemes, developed in Germany, France and Italy.5 Limitations The scope of the study is undoubtedly the source of its main limitations, since the study was very broad in theoretical and empirical grounds. Theoretically, the multi-disciplinary character of the research imposed limitations resembling those of multi-level theory-building (see Klein et al. 1999). The study enquired into a considerable number of approaches and theorists drawn from (parent) disciplines, ranging from organizational theory, sociology, environmental engineering, to political science. The use of such a broad theoretical spectrum made it difficult to satisfy experts in each of these disciplines. Mirroring the limitations of multi-level theorybuilding, where the audience may find ‘too little of the macro, or too much of the micro’ (level of analysis), multi-disciplinary research faces the problem of presenting ‘too little of the generic and too much of the specific’ (discipline). This is certainly a limitation of the study presented here. The extensive scope of the research also resulted in a challenging task of data collection, as well as analysis and interpretation. In simple terms, the vast array of environment-related issues involved in a complex product (the automobile), and its corresponding socio-technical context (field) required that the main source of data would have to be secondary. There was simply no manner in which an adequate primary data collection could have been encompassed within the frame of the study. To reduce the frame so that


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only primary methods of data collection were supported would have been both methodologically timid and theoretically constricted: hence, extensive use was made of secondary, besides primary data. Nonetheless, in order to enhance the quality of the analysis and interpretation of the data, a novel triangulation process was employed. In qualitative research, triangulation refers to the use of multiple methods to reflect back upon each other in their various ways of illuminating the data, constituting an effort to secure an in-depth understanding of the phenomenon in question (Stake 1994). The use of such prerogatives for the particular case of this research resulted in the triangulation being obtained by interviewing the authors of the research reports and other sources of secondary data used in the study. Some second order accounts by specialists in automobile and transport technologies were incorporated in the analysis, and these were synthesized in a third order of accounting. Hence, the ecological modernization framework (EMF), presented in the next section, represents the systematization of knowledge resulting from this interplay between empirical data and theory-building for the particular case of the European automobile industry.

QUALIFYING STAKEHOLDERS: ENVIRONMENT-CONTINGENT FACTORS The identification of environment-contingent factors – or ‘eco-factors’ for short – can be seen as a classification criterion for the generic concept of stakeholders; they represent the influences fostering and inhibiting the ecological modernization of a specific organizational field. Increasingly stringent regulations, consumer demand for cleaner industrial processes and products, the influence of related businesses, interest groups and competition, all may be determinants of greening. These factors range from the voluntarism of some ecologically-driven practices by particular carmakers to the will of government to regulate phenomena such as the emission levels of air pollutants or the rates of car recycling. Within this framework, ecofactors should be seen as interdependent components that might sensitize agents to the probable sources of innovation and resistance that are likely to occur in a specific organizational field. The examples used to explain each eco-factor are, obviously, selective. The vast number of environmental issues associated with environmental impacts caused by automobiles creates multiple scenarios involving ecofactors, which simply could not be portrayed here. Therefore, the examples should be seen, primarily, as ways of introducing the components of the ecological modernization framework (EMF).

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Stakeholders, the environment and society Organizational Commitments, Competences & Constraints

Market Demand & Patterns of Utilization

Social Integration

Environmental Policies & Programs

Circuits of Political Ecology Competitive Forces & Collaboration

System Integration

Interest Groups & Organizations

Industrial Ecology Conditions

Positioning of Related Businesses Organizational Field

Figure 12.1

The ecological modernization framework (EMF)

Finally, the use of the term ‘ecological modernization’ in the framework should not be understood as a prescription of eco-modern practices in corporations. Rather, it represents the analytic-descriptive scheme used to reveal the practices under development in the automobile industry. Such practices are expected to assume a particular character. As mentioned earlier, they represent the ongoing process of the ‘emancipation’ of ecology in specific spheres of modern societies; thus, the concept of ecological modernization. Hence, in the EMF the term ecological modernization represents a specific sociological phenomenon that is expected to facilitate the transition to more sustainable forms of organizing. Organizational Commitments, Competences and Constraints Environmental activities in the transport equipment industry are influenced by a series of factors. Legislation, the demand for environmentally compatible products, the competitive situation and public opinion are the most important external forces. Just as important, however, are a company’s sense of inner conviction and capacity for technical innovation. (Volvo 1998: 8; not italicized in the original)

This statement, quoted from the environmental report of the Swedish automaker Volvo Car Corporation (VCC, now owned by the American Ford), opens the section explaining the environmental programs of the company. The commitments that some organizational leaders have towards


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ethical principles for the preservation of nature have the potential to motivate other members of the organization and shareholders to commit to environmental protection (Egri and Herman 2000; Weaver, Treviño and Cochran 1999). Many automakers have claimed they have been driven by similar values. They communicate their intention to protect the natural environment mainly through the publication of corporate environmental reports, open speeches and generic media releases. Media releases are also used to communicate organizational commitments oriented to ecological protection. The Japanese automaker Toyota presents a good example of such practice. In 1997 Toyota publicized their strategic commitment towards organizational change that integrated environmental goals into business processes. Toyota took practical actions in the direction of its environmental commitment regarding new propulsion systems (or, in the technical jargon, ‘powertrains’). In December of the same year, the company officially launched the Prius – the first commercial hybrid car for a mass market. A hybrid vehicle consists of the combination of two powertrains – an internal combustion engine (ICE) and one or more electric motors. Using a parallel or serial system, a hybrid car operates by using the powertrains (electric and ICE) concurrently or independently.6 The technology itself is not new and most automakers have developed hybrid ‘concept cars’.7 What is new about Toyota’s initiative is the transformation of the hybrid concept into a market reality (Maruo 1998). The launch of the Prius was supported by an intensive marketing campaign promoting the determination of Toyota ‘to go green’. Toyota representatives also emphasized the importance of motivating other members of the organization towards environmental goals. Below are the statements of Hiroshi Okuda, Toyota President and Akiro Wada, Toyota Vice-president for Research and Development (R&D), respectively, publicized in a special section of Time Magazine, Australia (Time, November 1997): We’re changing the car, changing our business model. I spend a lot of time preaching change. I’ve been telling everyone at Toyota that anything and anyone that does not change – that resists change – is going nowhere. We get a head start in putting greener cars onto the road through simultaneous engineering. At Toyota that means more than working concurrently on different phases of projects, like engines and bodies. It means swapping ideas constantly as if everyone was on one big team.

Such claims can obviously be influenced by specific managerial interpretations of threats and opportunities on the environmental front, as suggested by Henriques and Sadorsky (1999), Sharma (2000), and Sharma and Nguan (1999), or simply by what Max Weber called ‘instrumental

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rationality’ (see Kalberg 1980). Organizational leaders may justify investments in ecologically sound industrial processes and products on the prerogatives of good citizenship but the main reason for such initiatives may lie, fundamentally, in the potential reduction of financial risks or the generation of financial returns (Reinhardt 1999b). Many other reasons, rather than ethical and environmental commitments by the company’s president, could explain Toyota’s move. The Prius is expected to comply easily with the most demanding standards on emissions regulation in Europe (EU IV), to be in effect in 2005 (Maruo 1998). Moreover, the launch of a hybrid vehicle represents an important competitive edge based on ‘first-mover advantage’ prerogatives. The eventual market success of Prius certainly put the company ahead in the race for hybrid cars. In an interview for the Automotive News Europe,8 Mr Steve Settle, the Director of Customer Service at Toyota Motor Europe in Brussels said: ‘We would not be frightened to see others offer a hybrid platform as well. But Toyota should always be associated with hybrid systems because we were the first to the market’. Since the chances are that Toyota will reach the break-even point for its hybrid vehicle ahead of its competitors, the investment will satisfy both economic and environmental pre-requisites.9 In this perspective, Toyota’s move simply makes business sense (Reinhardt 1999b). Toyota has not been the only auto assembler claiming that environmental responsibility is a key factor influencing organizational action. In early 1999, the expectations of environmentalists were raised by the appointment of William (Bill) Clay Ford Jr as the Chairman of the Ford Motor Co. In two public speeches Bill Ford Jr (in Motavalli 1999: 18) declared: While my great-grandfather (Henry Ford) was a leader in the first industrial revolution, I want Ford Motor Company to be a leader in the second industrial revolution – the clean revolution. . .Our social obligation is much bigger that just supporting worthy causes. The responsibility to consumers – and society – of a company our size is defined in very broad terms. It includes anything that impacts people and the quality of their lives. A favorite example of mine is the environment.

Since the appointment of Bill Ford as the company’s Chairman, Ford acquired VCC, the Swedish automaker regarded as Europe’s most environmentally proactive manufacturer. In another bold move, in early 2000, Ford withdrew from the Global Climate Coalition – a lobbying group formed by auto and oil companies to oppose the Kyoto climate treaty – which represented a significant shift in the environmental policy of the company. In 1998 Ford was also the first automaker to have all its plants certified according to ISO 14001, showing its commitments to beyondcompliance environmental practices. Such practices, however, have not yet changed the general profile of Ford. The company still lags behind most


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automakers in terms of its overall green performance.10 Ford has three out of the 12 worst vehicles ranked by the Green Guide, having the Excursion, an SUV (Sport Utility Vehicle), championing the list for the worst fuel consumption in its class (23 liters/100 km). The alleged commitment of Ford’s Chairman may result in better corporate environmental performance in the future but it seems that his commitments alone will not be enough to make the company a leader of the ‘clean revolution’. The decision to invest in environmentally sound technology is rarely a result of personal or organizational commitment alone. Indeed, studies using the resource-based view perspective (RBV), such as the ones of Aragón-Correa and Sharma (2003), Hart (1995), Russo (1997), and Sharma and Vredenburg (1998), claim that the scope of actions towards environmental protection is a function of specific competences. Nieuwenhuis and Wells (1997) have convincingly showed the current core competences of automakers, and the limitations imposed by those competences on their possibilities to implement radical innovations. In simple terms, the current competence for the production of all-steel car bodies and internal combustion engines has little use for the production of lightweight vehicles powered by electric motors and controlled by a vast array of electronics. Overall, in order to transform ethical commitments or market opportunities into pragmatic actions, firms also need to have the appropriate skills, capabilities or competences (Sharma and Vredenburg 1998). Organizations may possess competences but their size, complexity and culture, among other factors, can limit the possibilities of implementing greener strategies and practices (Griffiths 2000). Broadly, structural and behavioral constraints establish the basis of investment decisions and limit the scope of choices available to firms. For instance, the size of car assemblers makes communication difficult between divisions and departments. By extension, the lack of dialogue between the various organizational areas may hinder the development and implementation of innovative approaches to material specification (Hall 2000). Obviously, the chances of implementation of design for the environment (DfE) principles are not restricted to structural elements. The design principles based on DfE also depend on the perception organizational actors have of their context as well as their own capabilities. Some automakers, for instance, may not consider the substitution or elimination of hazardous chemicals as an objective to be pursued by them. They may simply ‘interpret’ the automobile field in such a way that environmental investments may not become a significant influence in the firm’s decision-making processes. Hence, besides the intra-organizational commitments, competences and constraints, what constitutes the external environment encompasses the other environment-contingent factors, presented in the next sections.

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Environmental Policies and Programs The generic role that governments played in imposing obligations on organizations to conform to regulatory measures and to achieve minimum levels of environmental performance has been widely explored by the specialized literature (see, for instance Majumdar and Marcus 2001; Nehrt 1998). In the specific case of the automobile industry, improvements in the processes involved in manufacturing cars as well as their environmental performance during the other phases of the life cycle have also been strongly influenced by environmental regulations. Grasping the importance of regulations as a factor triggering better environmental strategies and practices in corporations is, therefore, straightforward. Requiring further explanation, however, are the controversies surrounding the development of regulations for the particular case of the automobile industry. Orssatto and Clegg (1999) emphasized the negotiated nature of most regulations involving the automotive industry. The economic importance of the sector motivates governments not only to subsidize the installment of manufacturing facilities in developing countries but also restrains them from imposing demanding regulations (see also Calmon 1999; O’Brian 1999). Political economy factors are also present in the design of regulatory frameworks that aim to restrict emission levels of pollutants during automobile use. Carmakers have used the subtleties involved in the trade-offs between types and sources of pollutants, as well as competing goals between emission and safety standards, to protect their interests and to negotiate regulations that would not increase costs or hinder the overall viability of their business. The dispute involving the auto and oil industries and the European Commission is a didactic case of such behavior. At the dawn of the 21st century, cars powered by internal combustion engines (ICEs) were much cleaner than they were two decades earlier (Graedel and Allenby 1998). But such improvements did not occur without extensive resistance and disputes among automakers, the oil industry and governments. Oil companies were forced to bring lead-free fuel to the market, enabling the use of catalytic converters. As a result, automobile emissions have allegedly been reduced by 90 percent11 in the last 20 years (Crosse 1999). The EU IV Emission Standards, to be in effect by the year 2005, require even further reductions in levels of oxides of nitrogen (NOx) that can only be achieved by reducing the amount of sulfur in gasoline.12 Manufacturers of catalytic converters and car engines are demanding that the oil industry invest in new refining processes. The oil industry, on the other hand, argues that changing refining processes to cut down on sulfur will add carbon dioxide (CO2) to the atmosphere13 – a chemical molecule allegedly associated with global warming (Peake 1997). Additionally, CO2


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emissions from ICEs are directly related to fuel consumption, and regulatory demands for the use of safety systems and catalytic converters have increased vehicle weight and consequently both fuel consumption and CO2 emissions (Nieuwenhuis and Wells 1997). The example demonstrates that regulating emission levels from ICEs involves several trade-offs. These trade-offs are between: (1) types and sources of pollutants – when lower emission levels are aimed for (sulfur from vehicles and CO2 from refineries) and (2) competing goals (standards of safety versus emission standards). In technical terms, these disputes lead to environmental regulations based on acceptable levels of pollutants, since the core ICE technology has not been challenged. The ‘negotiated’ characteristic of environmental regulations seems to have become considered as an acceptable, indeed desirable, practice by governments. Such understanding is, among other factors, one of the rationales behind the development of the Auto Oil Program – a collaboration involving the European Commission and the European oil and vehicle industry associations.14 In fact, the disputes mentioned previously are, in essence, part of the ongoing process of defining future regulations on vehicle emissions. Because the Auto Oil Program links the evolution of vehicle emissions standards to requirements to meet air quality goals, it constitutes a new approach to environmental policy. Such linkage, fundamentally, requires the automobile and oil industries to collaborate – a goal that is not always easily achieved, as the case has shown. Collaborative research and development (R&D) programs involving industry, governments and other interest parties, which aim to achieve environmental targets at the same time as they promote the development of new technologies, seem to have increasingly become common practice in highly industrialized countries. Referring to the new regulatory trend in the automobile industry, Nieuwenhuis and Wells (1997: 15–16) assert that: Regulation and collaborative R&D programs will go hand in hand…The character of government intervention is changing, from limited and essentially punitive control, towards a much more pro-active and collaborative stance…The combination of such R&D programs with new regulatory instruments will have important effects at all levels in the automotive industry.

Hence, the concept of environmental policies and programs embraces not only traditional mandatory policies and regulations but also collaborative programs established between automakers, related industries and governmental bodies, among other possibilities. In the USA, the Partnership for a New Generation of Vehicles (PNGV) constituted a didactic example of such collaborative schemes established between industry and the US government, undertaken during the 1990s. One of the three main goals of this program was to develop a vehicle that could achieve significantly higher fuel efficiency

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than the average vehicle of the late 1990s (see Baukus Mello 2000) – thus, maintaining the ICEs as the main technological choice for automobile propulsion systems. Voluntary agreements, such as those developed between the auto industry and the French, German and Italian governments, setting targets for recycling rates of automobiles, constitute another example of such programs, explored in detail by Orsato, den Hond and Clegg (2002). Finally, environmental policies and programs also encompass indirect subsidies and taxation, such as those commonly adopted by governments in relation to the price of petrol (Roodman 1998). Summarizing, it is clear that environmental policies influence the ecological modernization of the automobile industry. However, as it has been addressed in this section, regulating environmental performance of vehicles is an extremely complex task; thus, it requires cautious examination. Besides the fact that environmental impacts take place in all phases of the life cycle of automobiles, trade-offs may occur in and between different phases. As the disputes between the auto and oil industries exemplify, regulating levels of automobile air emissions is far from a straightforward activity. The definition of what constitutes an ‘issue’ and what is not is normally at stake (see Bachrach and Baratz 1970): what should be regulated: sulfur or CO2 emissions? Technical subtleties provide scope for a good deal of negotiations among interested parties. They become stakes in political disputes between those who are going to be affected by regulatory measures. The negotiated rule-making in the area of vehicle manufacturing, use and disposal is, in essence, a result of the use of technical arguments to support the political standpoints of various players. Influencing the positioning of the players is the supreme stakeholder of a commercial enterprise: the consumer. Market Demand and Patterns of Utilization Market demand can be generically divided into industrial (or business) markets and (final) consumer markets (Reinhardt 1998). In both circumstances, however, it is the final consumer who influences the developments in the value chain of car manufacturing. In other words, from a commercial point of view, consumers are the ultimate stakeholders of car assemblers. In this respect, the eco-factors representing ‘market demand’ consist of an obvious influence on ecological modernization practices developed in the automobile field. Less straightforward, however, is the behavior of consumers when confronted with choices involving performance, aesthetic preferences, self-image and political rectitude, among many other variables.15 The extensive research of Schafer and Victor (1997) about mobility patterns showed that personal income and traffic volume grow in tandem


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throughout the world. As income rises, automobiles replace slower public transport modes. This happens mainly because ‘around the world, one of the first things people buy when they can is a car’ (Pusher in Gibbs 1997: 35). Cars help people to fulfill common human desires for mobility, space and status (Freund and Martin 1993). Put simply, most people want cars. One could question, however: what kind of cars do people want to buy? The answer is certainly not a simple one. Many conflicting signals jostle for the consumer’s attention. The market is an economy of significations that mobilizes consumer subjectivities (Lash and Urry 1994). Car designs, colors or sizes can have as much to do with the unconscious mind as with demands for functionality. The consumer of cars is certainly a complex ‘creature’. The complexities involved in the activity of purchasing a car cause one to question whether the environment is a meaningful issue for the consumer. MacShane (in Gibbs 1997: 32), for instance, asserts that ‘drivers seem less interested in cleaner vehicles than in safer ones: a third of the cars today are larger than any auto on the road in the 1950s’. Such preoccupation with safety has long been a variable taken into account in the design of cars by VCC (Volvo Car Corporation) and Saab. VCC has also demonstrated itself to be a leader in terms of its commitments towards ecologically sound industrial processes and vehicle technology. But the success of the company in selling relatively large cars, which have low fuel economy when compared with smaller models, indicates that safety requirements remain most important for consumers buying Volvo cars.16 Although what type of cars consumers want remains controversial there is an apparent consensus about what performance people expect from cars. In his study of the Toyota Prius, Coup (1999: 261) asserted: ‘Customers do not want to sacrifice performance for environmental benefits. They want durability, performance in adverse weather, significant drive range between “fuel ups”, and enjoyable driving’. In many respects, the success of the experimental phase of Prius can be attributed to the fact that the vehicle satisfied these requirements. It is important to avoid oversimplifications of consumer preferences in relation to environmental prerogatives. Consumers constitute inherent stakeholders of most business organizations but understanding how they respond to new alternative vehicle technology, for instance, still requires a great deal of research. Moreover, the development of new transportation regimes depends not only on market demand for more environmentally sound vehicles but also requires the transformation of those technological systems in which existing consumers and organizations are embedded (Schot et al. 1994). Within such regimes, specific patterns of utilization have been developed. For instance, most consumers have historically considered individual ownership as an attribute inseparable from car use. This

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constitutes one, among many other reasons, why initiatives such as car sharing are still restricted to very specialized contexts of Western Europe. Overall patterns of system and social integration may favor a specific type of utilization of a vehicle and its disposal. Finally, the ever-increasing industrial rivalry among auto assemblers in the last decades has also intensified the degree to which consumers have been exposed to marketing campaigns. The promotion to launch the 1998 model of the VW Golf illustrates the level of expenditure of such campaigns: in Germany alone, Volkswagen spent approximately 100 million on the marketing campaign. Such efforts address issues ranging from lifestyle and self-image, to the advantages of private car ownership. From the emergence of General Motors in the 1930s as a company that could provide a wider range of models than Ford – its main rival at that time – to today’s intensive battle to maintain margins in saturated markets, competition has evolved in tandem with market demand and patterns of utilization. In the last two decades, industrial rivalry has also influenced the pace of the ecological modernization in the realms of the automobile field. Competitive Forces and Collaboration Rivalry, which has been widely addressed by the specialized literature, constitutes another eco-factor inducing automobile assemblers to accept green imperatives. Intense industrial rivalry required carmakers to optimize the resource productivity of production processes. In the context of automobile assembling, organizational survival has demanded constant efforts applied to cost saving in industrial processes, but the rationalization of systems of production became an imperative for car assemblers not because they intended to obtain competitive advantage out of such practices. They did so simply to remain competitive. The pressure to cut costs in every possible manner has driven assemblers to minimize waste and to optimize the use of resources. Platform consolidation and modular assembly have been adopted by automakers as attempts to increase the overall resource productivity of automobile assembling (Chapman 1999; Wells 1999). Nonetheless, such optimization is still attached to systems of production designed to assemble internal combustion engines in all-steel car bodies. Mainly because significant gains in resource productivity have already been achieved within this concept of system of production, further gains are expected to be more difficult to achieve. Since the optimization of systems of production also involves the simultaneous reduction of waste and by-products, competition has also influenced the development of beyond-compliance practices. For the specific case of auto assembling, such practices can be seen as encompassed in the


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concept of ‘lean production’, prescribed by Womack et al. (1990). Although the relationship between the adoption of lean production and environmental performance of industrial processes still requires research, the study of Maxwell et al. (1998) showed that lean production facilitated the process of improving the overall eco-efficiency of Honda factories in both Japan and in the USA. By the same rationale, the endorsement of principles proposed by CERES17 and the WBCSD18 by some automakers may represent an extension of practices already pursued by them, irrespective of the principled decision involved. While ethical commitments might explain why some firms voluntarily adopt these principles, it is possible that the search for a competitive edge may also influence such actions. If eco-efficiency was largely being pursued in car assembly plants (processes) around the world during the last quarter of the 20th century, environmental strategies focusing on automobiles (products) have been substantially less ambitious. Overall, the vast majority of innovations have been developed without challenging the fundamentals of modern cars: powertrains based on internal combustion engines (ICEs), and car bodies made of steel (Nieuwenhuis and Wells 1997). The use of alternative materials, such as aluminum19 and plastics20 has increased during this period – even though the environmental benefits of such innovations are questionable (Morton 1997). Only from the early 1990s onwards has competition become an increasingly decisive influence in the development of relatively more radical innovations, such as the use of aluminum for structural car parts21 and alternative powertrains (Crosse 1999). Considerable resources have been invested in hybrid powertrains and fuel cell technologies but the majority of these developments are still in the concept phase (Atkin and Storey 1998; Crosse 2000). Although many automakers have presented their concepts for hybrid vehicles in Motor Shows during the 1990s, by the year 2000 the Prius – the hybrid sedan launched by Toyota, mentioned previously – was the only vehicle of its category available in the marketplace (later followed by the Honda Insight). In this respect, Toyota’s car can be considered the only successful strategy focusing on alternative powertrains in the strict context of the automobile industry (thus, not including potential new entrants in the automobile field). Although most carmakers say they intend to launch hybrid cars in the next few years, there is still a high degree of uncertainty about the reliability of this technology, and the possibilities of such objectives becoming a market reality (Crosse 2000). The concept hybrid cars are normally advertised in Motor Shows on the basis of their fuel economy and low levels of emission; in other words, it is the environmental prerogatives of these vehicles that are marketed. But most (concept) hybrids consist of ‘converted’ models that formerly used powertrains powered exclusively by

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ICE engines.22 The question triggered by such characteristics refers to the future vision of automakers with the commercialization of hybrids: is the development of hybrid powertrains in all-steel bodies an attempt to prolong the life of the traditional car concept? A central element influencing the answer to this question relates to the players who currently are ‘outside the borders’ of the auto industry (but inside the automobile field). Today, there are a significant number of commercial alternatives to the current ICE-powered car. Potential new entrants in the industry have long been producing lightweight electric vehicles (Cronk 1995). A wide range of options in terms of size and models is available in locations such as Switzerland (Lovins 1995). Since new entrants have historically challenged the dominance of the traditional players in industrial sectors (Porter 1985), one could question why new entrants have not yet become major players in the automobile field. A partial answer for the question refers to the close relationship between competition and collaboration within a specific industrial sector. As the recent history of the auto business has shown, when external forces threaten the industry as a whole, competition is likely to be transformed into coalitions and collaborative schemes. For instance, competition from Japanese manufacturers was the main reason for European automakers to engage in R&D partnerships, such as the European Council for Automotive Research and Development23 (EUCAR) in 1994. EUCAR has one of the eight thematic groups dedicated to the development of electric-hybrid vehicles. It is an ad hoc group for the study of recycling technology, but ‘the close link with [the] European Automobile Manufacturers Association (ACEA) suggests that the main focus may be on providing information for lobbying the European Commission and other governmental organizations in a “defensive” role’ (Nieuwenhuis and Wells 1997: 63). In the terrain of end-of-life vehicles, Orsato, den Hond and Clegg (2002) showed how the political ecology of auto recycling in Europe has delayed the implementation of practical solutions for at least ten years. The possibility of competitive forces assuming a collaborative character justifies the use of the word ‘collaboration’ in the definition of this ecofactor. In fact, the analysis of the case studies showed that this is a fundamental element defining the pace of environmental innovation of the automobile field. Although strategic alliances and networks constitute a practice both widely adopted by firms as well as being an established area in organization studies and management, their importance in the process of the greening of industrial sectors still requires extensive research. Indeed, this is where this study represents a distinct contribution to the emerging field of organizations and the natural environment.


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When confronting similar problems, such as market saturation and low profitability, firms fiercely compete in the marketplace but they also contemplate collaborative schemes as a strategic asset that can benefit the industry as a whole.24 Such collaborative schemes are certainly not limited to the context of car assemblers. Other related businesses exert crucial importance in the process of ecological modernization of the automobile field. Positioning of Related Businesses The economic value of the automobile industry amplifies its value chain beyond the frontiers of the industry complex. Changes in car design can have significant implications for an extensive number of actors directly or indirectly involved with this sector. A network of related and supporting industries supply the approximately 10 000 to 15 000 components of a car, effectively amplifying the sector across other economic areas (Nieuwenhuis 1998). This high degree of interdependency can cause organizational inertia, since automakers’ innovations in design and material specification require time and resources for related business to adapt accordingly. Moreover, relatively long cycles of model life also make it difficult to change the specification of materials. It takes five years to produce an original design for a car, which may undergo as many as five facelifts, over a period of 15 years, resulting in an average life cycle of 20 years for a model (Wittenberg 1992). Automakers can certainly influence suppliers’ technological choices. Since 2002 Ford, General Motors and Toyota, for instance, have virtually made it mandatory for their suppliers to be ISO 14001 certified.25 The certification might not have represented a first mover advantage for the suppliers; however, not having it could generate a disadvantage. Conversely, the possibility of auto assemblers implementing changes also depends on the ‘state of art’ of supporting technologies, and the overall willingness of related business to cooperate with ecologically oriented strategies. In this sense, there is no doubt that related businesses constitute key stakeholders in the context of the auto industry. Significant attention needs to be paid to the choice of each material to be used in the automobile. The entrenched position of the steel industry makes it difficult to move towards lighter materials such as aluminum, plastics and carbon fiber (Peck 2003). Steel-makers have the advantage of the automobile industry being firmly adapted to the manufacture of car bodies based on steel. Sunk investments in systems of production adapted to this technological option imply that the substitution of lighter materials for steel in car bodies will not happen without considerable upheaval and disputes between suppliers.

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Commenting on the problems associated with the substitution of aluminum for steel in car making, Chuck Risch (in Morton 1997: 16) – the Technology Manager for Ford’s input into the American PNGV program (Partnership for a New Generation of Vehicles) – emphasized a central element in the interdependencies of the current systems of production in the automobile industry: The decision to switch to aluminum is too big for anyone to take…While you have the futurists who say we should all drive lighter cars, the industry has a responsibility for decisions on which the employment of thousands depend. There are engineers making aluminum cars in every corner of the industry, but engineering is not the regime. The question of confidence and business responsibility are bigger than the engineering aspect.

In essence, although focal firms can propose and indeed implement radical changes, the possibility of them becoming economically viable seems to depend on the positioning of related business. A substantial number of organizations are adapted to the current structure of the industry and its ‘way of doing things’.26 The existing conditions in that industrial context satisfy their organizational structures and processes. Such conditions are themselves another environment-contingent factor. Industrial Ecology Conditions Automobiles are congruent systems, or systems of systems. They involve intricate processes for the transformation of design concepts into physical products. The use of cars requires the congruence of other systems such as refueling stations and expert maintenance firms. The recovery of car parts involves a network of organizations for collection, dismantling, shredding and recycling. Technically, the ecological modernization of this intricate web of interdependencies demands what one can refer to as industrial ecology conditions – the conditions in the organizational field that facilitate the minimization of environmental impact associated with the full life cycle of a product.27 In many respects, industrial ecology conditions replicate the ‘factor conditions’ proposed by Porter (1990). But while factor conditions influence the competitiveness of a specific industry, ‘industrial ecology conditions’ refer to the specific concern of environmental performance of both focal firms and industrial clusters. Within the discipline of industrial ecology, industrial systems are seen as integrated parts of the natural environment, and the total cycle of materials aims to be optimized in terms of resources, energy, environmental impact and capital. From an industrial ecology perspective, firms are conceptualized in terms of their position in the chain of materials and must


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consider the flux of energy and resources not only inside the firm but also in the overall industrial system. The cycle of industrial ecology extends its scope from supply (production) to demand (consumption). Similarities between the technical approach of industrial eco-cycles and the thesis of the ecological modernization of production and consumption are obvious in this regard. Because both approaches place industrialism in similar terms, they are also complementary: industrial ecology conditions can be seen as technically-oriented prerequisites for the more extensive development of ecological modernization in industries. Industrial ecology conditions can be thought of in terms of infra- and socio-structures.28 The infrastructure comprises the overall conditions (mainly physical) surrounding the firm that facilitate the adoption of industrial ecology principles. For instance, the pipelines extending from the Danish Trya Field in the North Sea to the Torslanda plant of Volvo in Sweden allow the company increasingly to substitute natural gas for oil to heat the ovens in the paintshop, as well as to produce heat at the central energy unit. The use of natural gas makes it possible for the company to further reduce the emissions of sulfur dioxide by some 90 percent, while also significantly reducing discharges.29 The Italian automaker Fiat Auto has also increased the use of natural gas – a primary source of energy with comparatively low environmental impact – for the co-generation of electricity and heat in its new factories. When operating at full load, a backpressure steam turbine transforms 82 percent of the energy content of the fuel into heat and electricity.30 In this case, the company’s investment in (internal) infrastructure allows the recovery of heat produced in power generation, increasing the overall efficiency in the use of the natural resource. The well-known eco-industrial park in the town of Kalundborg, Denmark constitutes another – indeed, the most didactic – example of how local infrastructure influences industrial ecology. In this Danish city, a coalfired power plant, an oil refinery, a pharmaceutical company specializing in biotechnology, a gypsum plant, concrete producers, a producer of sulfuric acid, the municipal heating authority, a fish farm, some greenhouses, local farms and other enterprises, all cooperate in order to optimize the use of energy and resources as well as to reduce the waste. The basic idea behind the system is that wastes and by-products from one company can become raw material for another. Without using any regulatory process or legislation, these organizations established an efficient flow of materials and energy. At the same time as they reduced their environmental impact, the internal costs of companies decreased as a function of the optimal use of resources. The application of industrial ecology requires not just an interdependent flux of materials, processes and energy inside the cluster where firms are

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located but also new forms of collaboration between member firms (Tibbs 2000). The individual firm’s behavior – where manufacturing companies essentially relate to their (internal) value chain – gives space to a collective strategy that considers the flow of energy and resources in the overall industrial system. In other words, it is almost impossible to practice industrial ecology without a socio-structure of labor skills, knowledge, as well as the widespread commitment of other companies, governmental agencies, universities and research centers. The examples of VCC and Fiat Auto mentioned above suggest that the adoption of cleaner technologies in manufacturing depends on conceiving production systems that are based on design for the environment (DfE) principles and techniques. DfE means considering the design of facilities, processes, products and services with an awareness of both ecological and economic costs–benefits across the whole life cycle of a product (Lowe 1993). Data required for the evaluation of the environmental performance of products and processes across their life cycles – technically denominated ‘life cycle analysis or assessment’ (LCA) – are costly to collect, and depend on high levels of training. VCC openly admitted: ‘the task of integrating LCA in Volvo’s product and process development activities is proceeding more slowly than anticipated. This is due, in part, to the fact that the resources required for training and information programs have proved to be greater than envisaged’ (Volvo 1996: 19). As the experience of Volvo shows, private firms cannot easily implement design for environment and similar methods without a socio-structure that facilitates the development of environmental expertise. Although the local conditions of infrastructure may facilitate the adoption of industrial ecology principles by a firm or industrial cluster, the implementation of such principles depends also on competences and capabilities. This is why industrial ecology conditions require the consideration of both, infra- and socio-structures. Economies of scale and organizational size in automobile assembly and distribution represent industry’s self-imposed business concept rather than an industrial imperative. Once car assemblers move away from the current paradigm of car design, they also avoid the high level economies of scale that have characterized the more recent history of the industry. Such a move would make possible the implementation of the concept of microfactory retailing (MFR), proposed by Wells and Nieuwenhuis (2000). By placing small factories within the markets they serve, the distinction between production and retailing would be practically eliminated. According to the authors, volume levels of 5,000 cars per MFR plant, compared with volumes of 250 000 in a traditional factory would be possible, representing both economic and environmental advantages. From the


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engineering point of view, the industrial ecology conditions for such changes do exist. But apart from the skills (socio-structure) that will allow automakers to move away from current practices, there are groups and organizations that have direct or indirect interest in the auto business. For some of them, as the next eco-factor will address, remaining big may represent an important asset. Interest Groups and Organizations As it has been mentioned in the opening of this chapter, the specialized literature generically labels any individual or organization capable of influencing a focal organization as a ‘stakeholder’. A multiplicity of variables, ranging from the structure of the industry and characteristics of the market, to the geographic location of industrial facilities, influences definition of stakeholders for an organization (see Freeman 1984). For this reason, the concept of stakeholder is normally very indistinct. Although this partially holds true for this study, the characterization in the previous sections of specific types of stakeholders, such as regulators, consumers, competitors and related businesses reduces the scope of interest groups and organizations to a more particular set of stakeholders. Of course, this term still embraces a wide range of groups and organizations that have direct or indirect interest in the automobile industry. They range from the most obvious ones, such as shareholders and industry associations, to ones that operate in areas of the economy that are quite distant from the automobile business. Some stakeholders are easily identifiable. They are the representative organizations that have the explicit mandate to influence the directions of the industry. The lobbying role of the European Automobile Manufacturers Association (ACEA) in the decision-making of the European Commission is possibly the most evident in the automobile case. ACEA is just one among several other organizations of the same nature. CLEPA, the trade association for automobile suppliers, was reactivated in September 1997 after 30 years of hibernation, showing the increasing importance of organizational representation in the industry. Several other interest groups were identified in the study, ranging from automobile clubs to ad hoc organizations such as PRAVDA – a working group on end-of-life vehicles created in 1991 by German automakers (see Orsato, den Hond and Clegg 2002). These organizations are undoubtedly important players in the industry. However, there are less obvious groups that exert significant influence on decision-making within the context of the auto industry, such as investment funds and advertising agencies. A closer look at the interdependencies between manufacturing firms and financial markets reveals the reasons why some groups of investors and

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investment fund companies have a clear interest in large-scale auto firms. Of the total profit in the value chain of the auto business, insurance makes 13 percent and the parts market 18 percent while auto assemblers make as little as 1 percent! In the light of such data, one could ask why automakers bother to make cars at all. And why do creditors and shareholders encourage it? The explanation moves us away from the auto business – more precisely, into its consolidation within the sphere of the financial sector. According to Golding (1999: 21): As consolidation of investment funds continues, it is more and more likely that they will invest in the auto industry – because they have to do. Liquidity is the major issue. Big investment houses have to invest funds greater in value than the largest automakers. Active portfolio management means taking a limited number of big beats. If they want to take a significant shareholding in a company, it has to be a very big one. And there are few bigger than the auto companies.

As the quote suggests, there are a wide range of groups and organizations interested in the growth of the auto business (and corporations). On the other hand, a great number of groups and organizations would like to see a reduction in the relative faculty of the auto industry to increasingly populate the planet with motorcars. In Europe, in particular, informal groups and non-governmental organizations (NGOs) have organized street protests against the dominance of cars in the urban environment. Although surveys about public opinion on such matters are still lacking, the European media in the last decade have portrayed increasing public support for anti-motorcar groups, such as the cyclist action group, Critical Mass.31 There is no doubt that the current countervailing power of such groups is considerably smaller than those interested in the growth of the motor business. Nonetheless, they constitute a more genuine public representation, which can eventually provoke changes in social and system integration – the circuits of political ecology components, forming the core of the ecological modernization framework, depicted in Figure 12.1.

CIRCUITS OF POLITICAL ECOLOGY The previous sections identified seven factors that foster or inhibit the ecological modernization of the automobile field. As Orssatto and Clegg (1999) have previously explored, the factors should not be seen as independent entities – every interaction between the environment-contingent factors is mediated by the elements of political ecology. For instance, episodic power gains by environmental groups or legislators imposing better environmental performance on carmakers cannot alone sustain


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ecological modernization processes. They need to have an impact on the overall circuits of political ecology, redefining their constituency. In other words, for ecological modernization to occur, episodic power gains need to be institutionalized in the organizational field (see Hoffman 1999). As can be observed in Figure 12.1, the way in which the circuits of political ecology are represented in ecological modernization frameworks constitutes a simplification of its original presentation in Orssatto and Clegg (1999) and Orsato, den Hond and Clegg (2002), which, by its turn, has been based on Clegg’s (1989) concept of ‘circuits of power’. A simplified version of the ‘circuits’ is intended to facilitate the understanding of the concepts of social and system integration by an audience that is not so familiar with the terminology of political science. Obviously, the original constituents of the ‘circuits’ remain central for a more detailed representation of an ‘anatomy of power’. But mainly because these elements are embedded in the specific dynamics happening in the organizational field, their use in the ecological modernization framework (Figure 12.1) emphasizes their conceptual character, rather than the description of interdependencies in a flowchart, as it was presented elsewhere. Moreover, transformations in the elements of circuits of political ecology will ultimately result in social and system ‘reintegration’. In other words, if eco-factors are to be effective in fostering ecological modernization, they must redefine circuits of political ecology by transforming both system and social integration. This is why the concept of structuration (or the structuring of structures) proposed by Giddens (1984; see also Haugaard 1998) best represents the dynamics happening in the organizational field. Mainly because social actors are constantly ‘building’ structures, the continuous process of configuring and reconfiguring social and system integration is what characterizes the structuration of the organizational field. Social Integration For any organizational field, new techniques of production entail new forms of power and knowledge but the dominance of the current power/knowledge should not be expected to fade away; more likely, people associated with them will resist. As the battle between the steel and aluminum industries over the use of materials suggested in previous sections, technological innovation invariably entails struggles between the various actors involved in the process. The steel industry used the results of a study comparing the environmental impact of steel and aluminum during the life cycle of cars to secure its own interest.32 Nonetheless, the steel industry also directed efforts to reducing the environmental impact of cars made out of steel. By promoting the study, the sector is actually helping to generate

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more knowledge about the real burdens associated not only with steel but also with other materials. The consideration of the entire life cycle of aluminum reveals environmental impacts that have been previously overlooked. Aluminum, a material commonly seen as a ‘green material’, loses its prestige when one considers the real environmental impact during production. Who ‘wins’ this battle is not relevant in terms of the transformation of the circuits of political ecology in the automobile field. More important is the fact that the debate itself has the potential to impact on future design concepts and the corresponding specification of materials. The very necessity of the steel industry to defend the position that historically privileged the sector is, in itself, an indication of possible reconfiguration of social integration. The symbolic importance of the debate over the meaning of what constitutes a ‘green material’ has the capability to define the category (supplier) membership in an ‘ecologized’ automobile industry. System Integration The ways in which innovations in the use of materials may empower an industrial sector at the expense of the disempowerment of the other may modify the system integration encompassing the automobile field. In fact, the concept of ‘system integrator’ is already widely used in the context of the industry. Even though the use of the concept is limited to the description of the new role of tier one suppliers, it provides a clear example of how a specialized form of system integration is already a materialized reality for many players in the sector. As Sage (1999) argues, the consolidation of the global auto supply industry, with the reduction of 30 000 firms in 1986 to less than 5,000 in 2003, will require the remaining players to develop new strategic visions, skills and competences. Such changes will certainly involve the redefinition of system integration, not only of the supply base but also in the balance of power in the auto industry as a whole. The systematic description of the dynamics involved in ecological modernization processes is fundamental for understanding the pace of environmental innovation in a specific organizational field. The use of the circuits of political ecology concept can significantly help one to understand, for instance, why the main developments undertaken by the automobile industry in the last quarter of the 20th century were limited to incremental upgrading of the internal combustion engine and all-steel car body technologies. The notion of circuits of political ecology can also help one to explain why the development of hybrid powertrains assembled in


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all-steel car bodies has been prioritized by automakers. From the perspective of social and system integration, the development of such technology can be seen as an attempt by car assemblers to innovate without having to move away from their core competences. As long as the existing and wellestablished industry complexes surrounding the petroleum engine can be secured, automakers can also maintain their centrality in the automobile field. By using the framework to analyze how eco-factors trigger changes in the circuits of political ecology, one can assess whether this centrality can be maintained in the next decades.

CONCLUSIONS AND IMPLICATIONS This chapter presented a framework that depicts the structuration dynamics happening in the context of the European automobile industry – even though examples were also brought from other regions of the world. In simple terms, the study emphasized that ecological innovation results from the influences that contingent factors exert on each other, shaped by circuits of political ecology. As Reinhardt (1999a) had previously signaled, understanding the greening of organizations requires the consideration of the logic of the business, the structure of the industry, the positioning of the firms within that industry as well as their organizational capabilities. This is what the ecological modernization framework is supposed to provide: a ‘blueprint’ that can help one to develop a systematic analysis of the sociotechnical context of a specific organizational field – the ‘automobile field’, in the research presented here. Implications for Theory There are two main implications for theory-building in the realms of Organizations and the Natural Environment (ONE). First, this study showed that the surge of greening in organizations could not be fully understood from the organizational level of analysis. For the environmental practices of companies to become an empirical phenomenon, episodic environmental gains need to have an impact upon the entire industrial system. Hence, a meso level of analysis that links organizations to societal phenomena is required. Once organizational greening is understood as an integrated dimension of the historical process of modernization undertaken by societies, studies such as the one presented here can be insightful for the identification of the underlying forces of ecological modernization at the industry and societal level. Instead of analyzing determinants of greening in organizations per se, a multi-disciplinary

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analysis of organizational fields revealed factors limiting the achievement of ecological sustainability. The second implication for theory-building refers to the development of the ecological modernization theory. In particular, it addresses the dichotomy between radicalism versus incrementalism in social change. After the brief review of the ecological modernization of the automobile field presented in this chapter, one could question: are radical changes imperative for the ecological sustainability of modern industrial societies or is incrementalism enough to lead them towards sustainable patterns of production and consumption? According to the conclusions of this study, the answer is both: incrementalism and radicalism, which directs us to the concept of ‘radical reformism’. Although this notion may seem a paradox – since one term contradicts the other – the concept of radical reformism may become vital for the development of ecological modernization theory. Similar to the notion of ‘utopian realism’, which characterizes both the visionary and the pragmatic aspect of ecological modernization, radical reformism requires the qualification of the terms. Thus, in the context proposed here, the radical aspect relates to technological innovation while the incremental refers to institutional reformation. The previous sections showed the limitations of environment-related solutions that favor the current paradigm of production in car manufacturing. Incremental improvements in internal combustion engines (ICEs) have resulted in significant environmental gains but also limit the possibilities of alternative powertrain technologies to succeed. The high-energy content of hydrocarbon fuels used in ICE-powered cars allows automakers to maintain steel as the main material used in car bodies – a heavy metal that significantly reduces both the energy and environmental efficiency of cars. This example exposes the limits of incrementalism in ecological modernization. Put simply, technological incrementalism avoids questioning the principles embedded in specific technological applications and, by extension, does not question the fundamentals of science guiding industrialism. Hence, if ecological modernization is expected to facilitate sustainable industrial development, radical technological innovations may be necessary in several instances. Radicalism in technology may need the incremental transformation of the institutions of modern societies. The radical view envisions essential dramatic changes to both the products and the industry, which are to be accommodated within a more ecologically sustainable framework. On the other hand, radical technological innovations will certainly displace those associated with outdated technologies. For instance, the substitution of carbon fiber for steel in car bodies may become economically feasible in the coming years – since, technically, the substitution is already possible. But what would


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happen to those who lose their jobs in the steel industry as a result of such changes? Who would pay for the decommissioning of steel furnaces, among a series of other economic activities associated with this industrial sector? This hypothetical example suggests that radical technological innovations require the development of macro-strategies for the management of transition between modern to ecologically modern industries. Because such reforms engender ample democratic negotiation among social actors, they are inescapably reformist in their character. In other words, ecological modernization demands incremental institutional reform. Therefore, radical technological innovations and incremental institutional reform, together, constitute the concept of radical reformism, which may have important implications for both the development of ecological modernization theory and its normative application. Implications for Policy and Practice Revealing the factors fostering and inhibiting ecological modernization has a crucial importance for management and policy-making; they identify the pressure points for the promotion of change in and around organizations. For policy-makers interested in applying ecological modernization normatively, the arguments presented in this chapter serve as a signpost for the definition of strategies and programs. They constitute mechanisms for the realignment of relationships among nature, technology and society, and for the creation of alternative routes, as well as the implementation of strategies based on visions of sustainable industrial development. In such a view, strategies can be designed for both environmental protection and economic prosperity. For carmakers in particular, the fundamental implication of the study refers to the questioning of what constitutes ‘the business of the auto industry’. The paradigm of production and consumption upon which the modern automobile industry is based shows clear signs of exhaustion. As mentioned in previous sections, incremental changes within the same regime will not generate palpable outcomes in environmental terms. However, if automakers are interested in alternative routes for the current regime of the automobile, then this study presents some insights. As expressed in the previous sections, a transition to an eco-modernized auto industry will not happen without upheavals. If the current situation does not seem too favorable for the industry, a transition period will certainly be traumatic for many in the business. But without such efforts to redefine the nature of the auto business, not only will the economic viability of car manufacturing be in jeopardy, but also sustainable industrial development will remain an evasive concept for this remarkable sector.

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Directions for Future Research The identification of stakeholders – or, as they have been named in this chapter, eco-factors – that are central for ecological modernization in the automobile field resulted in the design of an analytical framework that can certainly be used in further research. The framework can be used to map the ecological modernization of other organizational fields (or industrial sectors), and systematic analysis of the interdependencies among ecofactors can indicate areas where intervention is required – if ecological modernization is to progress. The systematic identification and analysis of eco-factors through the use of the framework sensitizes one to the most probable sources of innovation and resistance that are likely to occur in specific organizational fields. In this respect, the ecological modernization framework is not predictive but rather provides a cognitive map within which interpretation of a complex reality can be structured. Within organizational studies, the framework can assist one to develop (positivistic-oriented or otherwise) research questions and hypotheses combining institutional and power perspectives (Haugaard 1998) with the resource-based view of the firm (Hart 1995). Research themes deriving from these approaches relate to the understanding that corporate strategic actions are only possible within the range of available options defined within the organizational field. As explored throughout the chapter, environmental innovations of focal organizations will only transform the organizational field when specific institutional-power frameworks favor the redefinition of the circuits of political ecology. In this regard, there is the need to develop research following the approach adopted by Hoffman (1999) for the identification of elements causing both the stabilization and changes of industrial sectors. Transaction costs that might justify the adoption of environmental standards, for instance, are themselves dependent on the configuration of the organizational field in which corporations are embedded. Thus, potential competitive advantage resulting from the adoption of certified environmental management systems is context-specific. This justifies the need for the analysis of conditions that would favor environmental innovation within a particular organizational field.

NOTES 1. Please note that in 2002 the spelling of the author’s surname changed from ORSSATTO (with two Ss and two Ts) to ORSATO (with one S and one T). 2. There are, obviously, significant differences between the activities of manufacturing the components of an automobile and their subsequent assembly into a single unit (motorcar).


3.

4. 5. 6. 7. 8. 9. 10. 11.

12. 13. 14. 15.

16. 17. 18. 19. 20. 21. 22.

23. 24.

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Also, the ‘automobile industry’ encompasses a very broad range of suppliers and related businesses. In this study, however, the term ‘automobile industry’ fundamentally refers to ‘car assembly firms’. The terms ‘car assemblers’, ‘carmakers’ and ‘automakers’ are used interchangeably throughout the chapter. For an early overview of the ecological modernization (EM) theory, see Mol 1995; Mol and Spaargaren 1993; Spaargaren 1997; Spaargaren and Mol 1992), and Chapter 6 of Orssatto (2001). A broader and more recent debate on EM can be found in Mol and Sonnenfeld (2000) and Young (2000). The terms ‘Europe’ or ‘European’ are used in this chapter to designate exclusively ‘Western Europe or Western European countries’. See Chapters 10 and 11 in Orssatto (2001). For a detailed description of hybrid electric vehicles, see Hawken et al. (1999); Lovins (1995); Sperling (1995); and Wouk (1997). Concept cars are prototypes that point to future technological choices; ‘they narrow the pool of technologies from which manufacturers are likely to choose and, as such, are a valuable indication of future trends’ (Nieuwenhuis and Wells 1997: 121). Automotive News Europe, 24 September 2000, p. 13. After the successful trial period in Japan and Australia, Toyota launched the Prius in the USA and Europe in October 2000. The Green Business Newsletter, April 2000, p. 3. Hydrocarbons (HC), carbon monoxide (CO), and oxides of nitrogen (NOx) have been reduced during car use. However, prior to the warming up of catalysts (as the engine starts up), emissions are much worse than a car without a catalytic converter. Emissions are also worse if the catalytic fails (and they often do). Overall, emission rates of cars using catalytic converters constitute a very controversial issue among industry experts. An overview of the international developments in emission legislation can be found in Peake (1997). According to Mike Frend, Director General of the UK Petroleum Industry Association. A comprehensive explanation of the Auto Oil Program, and analysis of the implications of the program has been elaborated by Peake (1997). Private and public organizations are also ‘consumers’ of cars. For them, the technical performance is expected to be more central at the moment of car purchasing, when compared with aesthetics, for instance. However, since individuals constitute the vast majority of car buyers, this study focused primarily on this type of client. Mainly because the average size of vehicles sold by Volvo is relatively high, the overall fuel economy is low. See http://www.ucsusa.org/ (26 August 2003). Coalition for Environmentally Responsible Economics: http://www.ceres.org/ (23 August 2003). World Business Council for Sustainable Development: http://www.wbcsd.ch/ (23 August 2003). The aluminum content of an average European car grew from 33kg in 1986 to 80kg in 1997, and the projections indicate that an average of 115kg will be reached by 2005 (Weernink 1998). The use of plastics in cars grew from 4 percent of the total vehicle weight in the 1970s to 9 percent in the 1980s (Wells 1998). The Audi A2 is the first volume-production car in the world to have a body made entirely of aluminum. In 1994, the Audi A8 pioneered the use of aluminum in space-frame. The platform, body structure, panels and interior parts of the Almera Tino were used in the gasoline–electric hybrid of Nissan; the hybrid presented by DaimlerChrysler at the 1999 Frankfurt Motor Show uses a Mercedes-Benz S-class; a converted Multipla is used for the hybrid of the Italian automaker Fiat. EUCAR members are: BMW Group, DaimlerChrysler, Fiat, Ford of Europe, Opel, Porsche, PSA Peugeot-Citroen, Renault, Volkswagen Group and Volvo. See, for instance, the self-regulatory initiative taken by the chemical industry, analyzed by Hoffman (1999), King and Lenox (2000), and Nash and Ehrenfeld (1997).

300 25. 26. 27.

28. 29. 30. 31. 32.

Stakeholders, the environment and society Business and the Environment’s ISO 14001 Update, Vol 1, No 11, November 1999. An extensive account of the problems associated with the recycling of aluminum, acrylics and polyurethane foam in the European auto industry can be found in Peck (2003). The concept of ‘industrial ecology conditions’ borrows from the discipline of industrial ecology (IE). The basic principles of IE were proposed by Frosch and Gallopoulus (1989, 1992). Other foundation works in the field were developed by: Frosch (1992, 1994, 1995); Tibbs (1993); Allenby and Cooper (1994); Allenby and Richards (1994); Ehrenfeld (1994). An extensive definition of levels and types of structure can be found in Fombrum, 1986, 1989. Volvo Car Corporation, Public Relations and Public Affairs, Environmental Report n.35, (PR/PV 947 503). Fiat Auto Environmental Report 1995. Critical Mass comprises large numbers of cyclists who come together on the last Friday afternoon of every month and cycle, en masse, through city streets, to reclaim space for bikes rather than cars. The steel industry has used the results of research conducted by the Materials Systems Laboratory at the Massachusetts Institute of Technology (MIT) to argue that, because the primary production of aluminum results in higher emissions of CO2, cars with high aluminum content also have a high break-even point. The MIT study compared the total CO2 emissions associated with the production and fuel use of both materials for: (1) a typical vehicle, (2) a vehicle with an aluminum body, and (3) the ULSAB (Ultra Light Steel Auto Body) vehicle. The results show that, when compared with a contemporary allsteel car body, the break-even point for the car with aluminum body is ten years of usage, and 12 years for the ULSAB vehicle – calculated for an average life cycle of 12.5 years, a total drive of 224 015km, corresponding to 17 921km/year. See http://www.autosteel.org (23 September 2000).

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Index Abbreviations used in the index include: ENGO – environmental non-governmental organization POEM – product-oriented environmental management NZ – New Zealand ACEA (European Automobile Manufacturers Association) 291 adversarial targeting by ENGOs 75–8 advertising, car industry 284 Agenda 21 143 Agle, B.R. 146, 147, 150, 152, 216 Agriculture and Forestry, Ministry of, NZ 52 Akzo Nobel, magnesium production 172 alliances and ENGOs 80–82 aluminium and automobile industry 287–8, 293–4 Amazon rainforest preservation 107–8 Anniston, Monsanto PCB production 108–10 Antheus Magnesium Ltd 171–2 anticipating stakeholder demands 167–9 Anton, W.Q. 235 Aragón-Correa, J.A. 188, 191, 218, 226 Auto Oil Program 281 automobile industry and ecological modernization 272–98 Bakker, F. de 217 Bansal, P. 7, 18, 226 Barney, J.B. 126 Beck, U. 27, 46, 49 Benner, M.J. 200 Berman, S. 64 Berry, G.R. 150 Berry, M.A. 214, 270 Bonifant, B.C. 270 Bromley, D. 51, 52 Brown, D. 197

business as usual, water resource management 47–50 business managers relationship with ENGOs 85–7 see also management businesses, see companies; corporations Buysse, K. 7, 128 Calton, J.M. 154 Canada, ISO 14001 and stakeholder engagement 194–8 Canterbury, New Zealand, dairying 25, 36–7, 38–50, 52–5 Canterbury Regional Council (CRC) 53 capability building process model 217 capability cycle 217, 224–5 car industry and ecological modernization 272–98 categorical imperative principle 148 CEP (corporate environmental performance) 82–3 chance of liability 174–6 Chapas, R.B. 144 Chapple, W. 192 chemical industry and ISO 14001 193 Cheng, F.Y. 6 ChevronTexaco, waste dumping 110 Child, J. 199, 203 Christmann, P. 190, 200, 235 circuits of political ecology 292–5 civil foundation 186 civil society organizations and corporate responsibility 188–9 Clark, K.B. 217 307

308


Clarkson, M.B.E. 126, 127, 146 Clegg, S.R. 280, 292, 293 CLEPA 291 coalitions, stakeholder 101–2 coercive stakeholder influence 255–61 Cohen, M.J. 272 collaborative R&D, automobile industry 281–2, 286–7 Collis, D.J. 217 common pool resources (CPR) 24 management 27–30 New Zealand 30–34 community of practice 153 community pressures and environmental practices 235–7 companies relationship with ENGOs 85–7 and stakeholder demands 166–79 sustainable development responsibility 119–23 targeting by ENGOs 75–82 see also corporations competition, impact on environmental performance 235, 284–7 compliance and pollution preventionfocused EMS 254–5 consumer demand automobile industry 282–4 and environmental management practices 235 for environmental products 124 Cooke, A. 192 Cooper, W.H. 153 cooperative stakeholder influence 255–61 co-opetition model 102 corporate allies and ENGOs 80–82 corporate environmental performance (CEP) 82–3 corporate environmental responsibility 185–9 corporate partnerships and ENGOs 78–80 corporate power 2–3 corporate responsibility for sustainable development 119–23 corporate social performance (CSP) and financial performance 187–8, 189–91 use by stakeholders 64, 82–3

corporate sustainability 117–35 and POEM implementation 223–5 stakeholders 15–18 corporations and environmental stakeholders 4–6 increasing power 2–3 see also companies costs externalizing 3–4 of non-compliance with stakeholder demands 169–71 of POEM implementation 221 Coup, D. 283 CPR, see common pool resources CRC (Canterbury Regional Council) 53 CSOs (civil society organizations) and corporate responsibility 188–9 CSP, see corporate social performance customer pressure, see consumer demand Daboub, A.J. 154 dairy farming, New Zealand 36–8 environmental impact 38–42 stakeholders 52–5 and water resource management 42–50 Dairying and Clean Streams Accord 54 D’Aunno, T. 233 Davison, D. 230, 236 de Bakker, F. 217 Delmas, M.A. 232, 234 den Hond, F. 293 descriptive theory of stakeholders 7 design for the environment (DfE), automobile industry 279 DiMaggio, P.J. 140, 232, 273 Donaldson, T. 154, 216 Dunfee, T.W. 154 Dyllick, T. 224 dynamics in corporate responsibility for sustainability 120–21 eco-centric management and sustainability 118 eco-efficiency focused EMS 255–7 eco-factors 275–92 ecological modernization 272–98 New Zealand 46–7

Index Ecuador, litigation against ChevronTexaco 110 Eisenhardt, K.M. 274 Elkington, J. 197 emissions liability costs 169 reduction, Kyoto Protocol 105–7 regulations, automobile industry 280–81 EMS, see environmental management systems ENGOs, see environmental nongovernmental organizations environment as stakeholder 141–61 Environment Canterbury 53 environment-contingent factors 275–92 environmental costs, externalizing 3–4 Environmental Defense 66–8, 69–70 environmental impact, dairying 38–42 environmental management practices 241–2 and institutional pressure 230–41 environmental management systems Market Focused 42, 54 standards 98, 191–4, 201–4 and sustainability 246–65 environmental non-governmental organizations 62–89 impact on environmental management practices 235–7 and magnesium production 172 environmental performance and ISO 14001 191–4 environmental policies, automobile industry 280–82 environmental products, consumer demand 124, 282–4 environmental responsibilities, corporate 185–9 ethic of care 152–4 stakeholder model 155–61 Etzioni, A. 153 European Automobile Manufacturers Association (ACEA) 291 European Council for Automotive Research and Development (EUCAR) 286 evaluation of stakeholders 129–32 externalizing social and environmental costs 3–4

309

facility culture and stakeholder influence 260–61 farmers, attitude to water resources 44–5 Federated Farmers 54 financial performance and social performance 187–8, 189–91 financial value distribution 131 firms, see companies Fischer, K. 253 Florida, R. 230, 236 focal-organization frameworks 26–7 Fonterra Cooperative Group 37, 42, 48, 54 Ford, W. 278 Ford Motor Co., environmental commitment 278–9 Freeman, R.E. 6, 19, 141, 144–5, 146, 153, 187, 216 Frooman, J. 63 Galt, V. 192 Giddens, A. 271, 293 Gilbert, D.R. 144–5 Gladwin, T.N. 143 Golding, R. 292 government and environmental management practices 234–5 environmental responsibility 186–7 Green, K. 124 greenhouse gas reduction, Kyoto Protocol 105–7 Greenpeace 66–8, 69 Greenpeace Netherlands and magnesium production 172–3 grounded theory 65 Habermas, J. 158 Hall, S. 253 Hamilton, J.T. 236 Harris, K.E. 124 Harrison, T. 6 Hart, S.L. 18, 144, 199, 200, 212, 215, 217, 225 Hartman, E.M. 148, 153 Hawken, P. 6, 26 Healy, S.A. 124 Henriques, I. 7, 126, 277 Hillman, A.J. 131

310


Hockerts, K. 224 Hoffman, A.J. 13, 233, 234 Hond, F. den 293 hybrid vehicles 277–8, 283, 285–6 Iansiti, M. 217 ideal speech community 158 identification of stakeholders 129, 146 industrial ecology conditions, automobile industry 288–91 industry pressure for environmental management practices 237 targeting by ENGOs 72–3 influence strategies 100–104 information availability, sustainability 124–5 institutional constraints, natural resource management 43 institutional pressures and environmental management practices 233–41 institutional system failures 2 institutional theory and environmental management practices 154, 231–3 instrumental stakeholder theory 7, 145 interest groups automobile industry 291–2 and environmental management practices 235–7 investment risk and stakeholder demands 166–79 ISO 14001 98, 191–4 and stakeholder engagement 194–8 issue importance dynamics 121 issue targeting by ENGOs 70, 72 Jacques, R. 155 Jawahar, I.M. 126 Jennings, P.D. 7, 154, 232 Jensen, M.C. 130 Jones, T.M. 65, 148 Kalundborg eco-industrial park 289 Keeney, R.L. 157 Keim, G.D. 131 Kennelly, J.J. 143 Khanna, M. 235 King, A.A. 193

King, R.J.H. 153 knowledge generation and stakeholders 5–6 Kollman, K. 237 Krahmer, E.M. 2 Krause, T.S. 143 Kyoto Protocol 105–7 La Mure, L.T. 10 land ownership, New Zealand 31–4 Landcare Trust 42, 54 Lave, J. 153 Lawrence, A.T. 230, 236 leadership and sustainability performance 198 lean production and eco-efficiency 285 learning networks 167–8 learning and sustainability performance 198 legislation and environmental management practices 234–5; see also regulations; standards Lenox, M.J. 193 Levy, D.L. 233 Lewis, L. 193 Lewis, M. 185 liability chance and stakeholder demands 169–70, 174–6 Liedtka, J. 144, 152, 153 lobbying by ENGOs 73–4 by firms 76, 86 local control of environmental issues 3 Lomborg, B. 99 Lovins, A. 26 Lovins, H. 26 MAF (Ministry of Agriculture and Forestry), NZ 52 magnesium production, stakeholder demands 171–7 Majumdar, S.K. 191 management and ENGOs 85–7 stakeholder 145–9 and stakeholder responsibilities for sustainability 132–3 systems standards 191–8, 201–4 Mander, J. 2 Marcus, A.A. 191

Index

311

Margolis, J.D. 187 market demand, automobile industry 282–4 Market Focused EMS 42, 54 Marshall, R.S. 167, 197 Martin, R. 186 Maxwell, J.W. 236, 285 McEvily, B. 127 McGrath, R.G. 199, 200, 203 McLaughlin, G.L. 126 Meadows, D.H. 2 Meckling, W. 130 micro-factory retailing (MFR) 290 Miles, R.A. 65 Ministry of Agriculture and Forestry, NZ 52 Mitchell, R.K. 146, 147, 150, 152, 216 Mohr, L.A. 124 Monsanto PCB litigation 108–10 and stakeholder swarms 4 Moors, E. 168 Morell, D. 230, 236 motivation for using POEM 220–21 stakeholder 125–32 motor industry and ecological modernization 272–98 multinational corporations and institutional pressures 237–8

dairy farming, environmental impact 36–52 Resource Management Act 34–6 New Zealand Fish and Game Council 52–3 Ngai Tahu (Maori tribe) 54–5 Nguan, O. 277 Nieuwenhuis, P. 279, 281, 290 Nijhof, A. 217 Nike, and stakeholder swarms 5 non-financial value distribution 131 normative stakeholder theory 7, 145 and the natural environment 147–8 N-RBV (natural-resource-based view) 215–16

National Resources Defense Council (NRDC) 66–9 natural capitalism 26 natural environment 140–41 as stakeholder 141–61 natural gas use in automobile industry 289 natural-resource-based view (N-RBV) 215–16 natural resource management, New Zealand 23–52 Natural Step 202–3 Netherlands, magnesium production 171–7 networks, stakeholder 101–4 New Zealand common pool resources 30–34

Park, G. 32, 33 Partnership for a New Generation of Vehicles (PNGV) 281–2 partnerships and ENGOs 78–80 Paton, D. 192 performance, and environmental management systems 191–4 Pharmacia Corp. 109 Phillips, R.A. 146, 152 planning failures and natural resource management 43 PNGV (Partnership for a New Generation of Vehicles) 281–2 POEM (product-oriented environmental management) 212–27 policy makers and sustainability 133–4

Okuda, H. 277 Oliver, C. 232 Ontario, ISO 14001 registrations 194–8 Operation Cat Drop 6 organizational capabilities and POEM 217–18 and sustainability performance 198–201 organizational culture and EMS design 262–3 organizational studies, socialecological interface 26–7 Orsato, R.J. 293 Orssatto, R.J. 280, 292, 293 Ostrom, E. 28–9 Our Common Future 50

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political ecology circuits 292–5 political pressures and environmental management practices 234–5 politics as usual, water resource management 48 pollution prevention strategy 215–16 polychlorinated biphenyls (PCB), Monsanto 108–10 Porter, M.E. 27, 288 Powell, W.W. 140, 232, 273 Prahalad, C.K. 144 Prakash, A. 191, 237 PRAVDA 291 Preston, L.E. 216 primary stakeholders, motivation 126 prioritising investor demands, magnesium production 174–7 Prius hybrid car 277–8, 283, 285 private property rights, New Zealand 31–4 natural resources 43–5 product-oriented environmental management (POEM) 212–27 product stewardship strategy 215–16 property rights, natural resources 28–9 New Zealand 30–34, 43–5 radical reformism, automobile industry 296–7 Rands, G.P. 7, 120, 123 ranking investor demands, magnesium production 174–7 Rawls, J. 146, 152 regulations, impact on productivity 191; see also legislation; standards Reichart, J. 152 Reinhardt, F. 271, 295 representation of natural environment 150–51 research, collaborative, automobile industry 281–2, 286–7 residents, and magnesium production investment 172 resource-based view of the firm (RBV) 215–16 resource dependence theory 63–4, 100–101 Resource Management Act (RMA), New Zealand 25, 33–6

and ecological modernization 47 and freshwater resources 50–52 and policy implementation 45–6 and property rights to natural resources 44 response strategy 100–101 responsibility for sustainability 122–3 responsiveness dynamics 121 Risch, C. 288 RMA, see Resource Management Act, New Zealand Rodgers, C. 175 Rondinelli, D.A. 214, 270 Roome, N.J. 225, 226, 253 Roth, K. 7, 18 Rothenberg, S. 233 Rowley, T.J. 64, 120 Royal Dutch/Shell, and stakeholder swarms 4–5 Ruddick, S. 141 Sadorsky, P. 7, 277 Sage, L. 294 salience, stakeholder 146–9 Schafer, A. 282 Schlager, E. 28–9 Schot, J. 253 scientific disagreement on environmental issues 98–9 secondary stakeholders’ motivation 126–7 Settle, S. 278 Sharma, S. 13, 126, 188, 191, 199, 200, 212, 218, 226, 227, 239–40, 277 Shrivastava, P. 27, 118–19 smarter growth 94–9 social costs, externalizing 3–4 social-ecological linkages 23–30 social effects, dairy farming, NZ 40 social integration, automobile industry 293–4 social strategy and financial performance 189–91 Solomon, A. 193 Solutia Inc. 109–10 Spar, D.L. 10 Stacey, R. 203 stakeholders coalitions 101–2

Index demands and investment risks 166–79 dynamics 120–21 identification 129–30, 146 influence on EMS design 263 on organizational change 246–65 and smarter growth 93–112 and ISO 14001 registered firms 194–8 legitimacy 145–9 mobilization 99–104 motivation 125–32 networks 101–2 and POEM 216–17 representation 149–51 salience 146–9 and sustainability 6–8, 123–5 swarms 4–5 standards, environmental management systems 98, 191–4, 201–4 pressure to adopt 234–5 Starik, M. 7, 120, 123 steel industry, environmental impact 293–4 Stiglitz, J.E. 125 Stone, C. 141 Strategic Management: A Stakeholder Approach 6 structuration processes 271 Sundaramurthy, C. 185 suppliers, influence of automobile industry 287–8 sustainability focused EMS 257–8 sustainable development 94, 142–5, 215–16 corporate responsibility 119–23, 185–9 definition 119, 140 Swanson, D. 158 system integration, automobile industry 294–5 systemic perspectives on sustainability 120 tactic selection, ENGOs 74–5, 83–4 targeting, ENGOs 70, 72–3, 75–82 Taylor, G. 235 Throop, G. 27 Tilley, F. 253

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Toyota, environmental commitment 277–8 Prius hybrid car 277–8, 283, 285 Tronto, J.C. 141 Tushman, M.L. 200 Ulrich, D. 126 Union of Concerned Scientists (UCS) 66–8, 70 United Kingdom, ISO 14001 192 United Nations Conference on Environment and Development (UNCED) 143 United States chemical industry and ISO 14001 193 EPA, voluntary strategies 240 and Kyoto Protocol 105–6 utilitarianism and decision-making 153–4 value creation model and stakeholder influence 102–3 value distribution 131 Van der Linde, C. 27 Verbeke, A. 7, 128 Victor, D. 282 voluntary environmental strategies 240 Volvo Car Corporation environmental program 276, 290 Vredenburg, H. 13, 212, 218 Wada, A. 277 Waddensea, magnesium production 171–3 Walley, N. 190 Walsh, J.P. 187 water resource management, NZ 36–7, 38–50 Webb, D.J. 124 Weber, M. 277 Welford, R. 253 Wells, P. 279, 281, 290 Wenger, E. 153 Wheeler, D. 197, 198–9 Whitehead, B. 190 Whiteman, G. 153 Wicks, A.C. 144–5, 148 Winn, M.I. 7, 18 Womack, J. 285

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Wood, D.J. 146, 147, 150, 152, 216 World Resources Institute (WRI) 66–8, 70

Zaheer, A. 127 Zandbergen, P.A. 7, 154, 232

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