Internal Factors Shaping Business Decisions on Environmental Practices: A Case Study, Lecture notes of Business

Download Internal Factors Shaping Business Decisions on Environmental Practices: A Case Study and more Lecture notes Business in PDF only on Docsity! Constructing the License to Operate Jennifer Howard-Grenville Boston University School of Management Jennifer Nash Harvard University Kennedy School of Government Cary Coglianese University of Pennsylvania Law School August 2006 | Working Paper No. 27 (Revised June 2007) A Working Paper of the: Corporate Social Responsibility Initiative A Cooperative Project among: The Mossavar-Rahmani Center for Business and Government The Center for Public Leadership The Hauser Center for Nonprofit Organizations The Joan Shorenstein Center on the Press, Politics and Public Policy HARVARD UNIVERSITY JOHN F. KENNEDY SCHOOL OF GOVERNMENT Citation This paper may be cited as: Howard-Grenville, Jennifer, Jennifer Nash, and Cary Coglianese. 2006. “Constructing the License to Operate: Internal Factors and their Influence on Corporate Environmental Decisions.” Corporate Social Responsibility Initiative, Working Paper No. 27. Cambridge, MA: John F. Kennedy School of Government, Harvard University. Comments may be directed to the authors. Corporate Social Responsibility Initiative The Corporate Social Responsibility Initiative at the Harvard Kennedy School of Government is a multi-disciplinary and multi-stakeholder program that seeks to study and enhance the public contributions of private enterprise. It explores the intersection of corporate responsibility, corporate governance and strategy, public policy, and the media. It bridges theory and practice, builds leadership skills, and supports constructive dialogue and collaboration among different sectors. It was founded in 2004 with the support of Walter H. Shorenstein, Chevron Corporation, The Coca-Cola Company, and General Motors. The views expressed in this paper are those of the author and do not imply endorsement by the Corporate Social Responsibility Initiative, the John F. Kennedy School of Government, or Harvard University. For Further Information Further information on the Corporate Social Responsibility Initiative can be obtained from the Program Coordinator, Corporate Social Responsibility Initiative, Harvard Kennedy School, 79 JFK Street, Mailbox 82, Cambridge, MA 02138, telephone (617) 495-1446, telefax (617) 496-5821, email CSRI@ksg.harvard.edu. The homepage for the Corporate Social Responsibility Initiative can be found at: http://w ww.hks.harvard.edu/m-rebg/CSRI/ Constructing the License to Operate: Internal Factors and their Influence on Corporate Environmental Decisions What determines the environmental practices of individual companies and facilities? In particular, what leads some businesses to take actions that go beyond compliance with environmental regulation? Despite more than two decades of research devoted to these questions, scholars “still know little about why individual corporations behave the way they do in the environmental context, about why some companies, but not others, choose to move beyond compliance, or what motivates them to do so” (Gunningham, Kagan & Thornton, 2003: 135). Firms’ environmental practices are generally thought to be the result of a constellation of factors including regulatory requirements, competitive and economic pressures, evolving social demands and institutional norms, and technological innovation and adoption (Porter & van der Linde, 1995; Hoffman, 1997; Reinhardt, 2000; Vogel, 2005). Increasingly, scholars argue that companies experience possibly unique constellations of external pressures shaped by their community, location, economic sector, and interactions with critical external stakeholders (Gunningham, Kagan, & Thorton, 2003; Delmas & Toffel, 2005). Such an approach, drawing attention to each firm’s or facility’s “license to operate” (Gunningham et al., 2003), begins to explain differences that have been observed in environmental management practices within and between industries (Prakash, 2000; Gunningham & Kagan, 2005). These explanations are incomplete, however, because they fail to take account of the fact that different firms, operating under similar regulatory, competitive, and social pressures, can develop starkly different environmental management approaches. Consider an example. Two competing manufacturing facilities located only miles apart produce the same specialized industrial component for the same set of customers. Both employ the same number of people and both are among the largest employers in their mostly rural communities. In the not-so-distant past, both had been implicated in significant pollution problems in their communities, but both had more recently implemented sophisticated environmental management systems and had stayed in compliance with state and federal environmental regulations. Although similar in their customer base, line of business, community location, and overall environmental performance, these two facilities have made completely different choices about whether to participate ina federally sponsored voluntary environmental program. Why? In this paper, we explore the choices made by these two companies, and other similarly matched pairs of facilities, by drawing attention to the internal factors that influence how managers interpret external conditions and act upon them. Even when external factors clearly influence companies’ actions on environmental issues, internal factors shape whether and how the external conditions are regarded as problems for the company in the first place, and internal factors also influence what solutions are deemed appropriate for addressing the identified problems (Lyles & Mitroff, 1980; Dutton & Ashford, 1993). “Problems” do not drop from the sky; they are formulated by managers as they selectively attend to cues from both insiders and outsiders (Lyles & Mitroff, 1980). Individual, group, and organizational level factors have all been shown to contribute to business decision making, suggesting that “managers are guided in their choices as to what is important and why it is important by the interaction of the categories of issues they confront, their own experiences, and the natures of the teams and organization to which they belong” (Thomas, Shankster, & Mathieu, 1994). In this paper, we connect general insights about organizations to an emerging body of work that draws attention to the influence of internal factors specifically on businesses’ environmental and regulatory behavior (Haines, 1997). As others have acknowledged, firms’ decisions about their environmental operations can be affected by managerial perceptions (Andersson & Bateman, 2000; Sharma, 2000; Gunningham et al., 2003; Vandenbergh, 2003), organizational culture (Forbes & Jermier, 2002; Howard-Grenville, 2006), and organizational structure (Delmas & Toffel, 2005). Plant-level variables (such as size, age of facility, etc.) have been found to be better predictors of regulatory compliance behavior than are corporate-level variables, suggesting that plant management plays an important role in determining whether and how a plant will comply or go beyond compliance (Gray & Shadbegian, 2005). Connecting the behavioral determinants of internal plant-level decision making with observed environmental practices presents a key opportunity for advancing understanding of the processes and predictors of firm’s and facilities’ environmental management choices. Although it may seem readily apparent that both internal and external factors enter in to these choices, the internal factors have received markedly less systematic, empirical attention than have the external ones. Our intention in this paper is to elaborate theoretically and empirically key organizational and individual factors that contribute to the construction of the license to operate and affect plant-level environmental decision making. We begin this paper by briefly considering the literature on the determinants of beyond- compliance environmental practice and then proceed to articulate what we mean by the internal construction of the license to operate by drawing on selected insights from organizational theory. Next, we identify five key internal factors — managerial incentives, organizational culture, organizational identity, organizational “self-monitoring” behavior, and personal affiliations and commitments — from theory and prior research and argue that each could importantly shape environmental decision making. Following this, we report on our study of ten closely matched make the adoption of certain environmental practices more or less attractive for certain firms (Esty & Porter 1998; Christmann, 2000; Reinhardt, 2000; Aragon-Correa & Sharma, 2003). The License to Operate Increasingly, corporate environmental practices are seen as the result of multiple, possibly firm-specific, drivers that interact with each other, including those originating in regulatory, international, resource, and social domains as well as in the marketplace (Hoffman, 2000). One way of conceptualizing these myriad pressures on a firm is as a “license to operate.” This label has been widely used by companies, analysts, journalists, and scholars to refer to the idea that industrial facilities must comply with tacit expectations of regulators, local communities, and the public in order to continue operations (Gunningham et al., 2003, 2004; Howard-Grenville, 2005). Some have noted, importantly, that these aspects of the license to operate are not simply imposed. ona firm; they are at least partially subject to negotiation and revision by the firm’s own actions (Gunningham et al., 2003). This view accords with recent work indicating that companies and the organizations they interact with jointly construct norms of legal compliance and standards for appropriate business conduct (Edelman, Uggen, & Erlanger, 1999; Hoffman, 1999). Internal Factors Relative to the external factors that influence environmental management practice, internal factors have been understudied in the literature on voluntary corporate behavior. An accumulation of recent empirical work, however, suggests that internal factors matter. Managers’ commitment, perceptions, and leadership (Andersson & Bateman, 2000; Egri & Herman, 2000; Sharma, 2000; Bansal, 2003), organizational culture and subcultures (Forbes & Jermier, 2002; Howard-Grenville, 2006), and different organizational structures (Delmas & Toffel, 2005) have all been found to influence the environmental practices adopted by firms. Others have argued that broader constructs of managerial commitment (Coglianese & Nash, 2001) or environmental management style (Gunningham et al., 2003) critically shape environmental practice and performance. These constructs may include personal attitudes towards environmental problems as well as individual orientations that are shaped by and help shape the organization’s culture and leadership (Vandenbergh, 2003). Missing from much of this work on the internal influences of environmental practice is a theoretical underpinning grounded in the literature on organizational behavior. Also missing are empirical studies that control for external factors to enable a clear comparison of internal factors across companies. Without these, we are left with at best a partial sense of where a particular environmental management style comes from, why one style is distinct from another, and whether a particular style will tend to endure or change over time. Indeed, without refinement and theoretical anchoring, constructs like management style or environmental commitment risk becoming catch-all categories for all that remains unexplainable once external factors have been accounted for. We draw from organizational theory to identify specific internal factors that are expected to contribute to how members of a firm or facility experience and act on external pressures for environmental practices. These factors have two effects: first, they shape whether and how external regulatory, social, and economic conditions are interpreted as problems in the first place, and, second, they influence how the selected problems are solved (See Figure 1). The first effect, known as “problem setting” (Schén, 1983: 40), occurs when organizational structures, cultures, and subcultures channel and direct the attention of their members to particular issues and orient them to specific goals (Simon, 1947; Van Maanen & Barley, 1984; Schein, 1996; Ocasio, 1997; Howard-Grenville, 2006). Individuals can be active participants in the formulation of problems from nascent issues, and their positions in formal and informal structures of power contribute to whose interpretations have influence within a given company. Given this, it should come as no surprise that companies and individuals interpret similar environmental pressures quite differently; in other words, they “set up” different problems to solve based on the same external data. Once problems are set, internal factors also shape how they are solved. Certain organizational structures, cultures, and systems of managerial incentives compel the use of certain favored “strategies for action” within a firm (Swidler, 1986; Schein, 1996; Howard- Grenville & Hoffman, 2003). When groups or individuals within an organization approach a given type of problem, they set about solving it using the knowledge, skills, routines, and tesources that they possess and value. Of course, within an organization, different groups possess different types of knowledge, skill, and resources, and hold different interests and power (Carlile, 2002), suggesting that the strategy for action ultimately adopted may represent the outcome of internal negotiation (Howard-Grenville, 2006). Nonetheless, internal factors can differently influence the actions taken by organizations, even if they set themselves similar problems. Indeed, valued strategies for action tend to shape recursively the problems that firms’ members set for themselves as they attend more closely to the problems that their strategies are most suited to attain (Swidler, 1986). Although problem setting and strategies for action may well be closely interrelated in practice, it is analytically helpful to separate them in order to understand, respectively, how internal factors shape the interpretation of external conditions and how internal factors lead to issues (Sharma, Pablo, & Vredenburg, 1999). Clearly, those who are unaware of potential issues due to organizational arrangements will have little incentive to take action on them. Organizational Culture. An organization’s culture can influence managerial incentives, but it can also influence more broadly how problems are set and how they are acted upon. Organization culture is regarded by many scholars as a system of meanings that operate within an organization and that shape its members’ daily actions (Gregory, 1983; Smircich, 1983; Meyerson & Martin, 1987; Schein, 1992). Importantly, culture is not entirely negotiable (Douglas, 1978); it is something an organization “is” rather than something that it “has” (Smircich, 1983: 342). In other words, culture change cannot be so simple as changing a company’s mission and values statements, or adopting a new program, for culture is embedded in the everyday actions that people take throughout the company. Where formal structures delineate who does what in an organization, culture influences how it is done and many of the cultural norms operating in organizations are tacit. Are decisions only taken when “hard” data are persuasively presented? Is consensus required for decisions to be made, or are individuals encouraged and trusted to pursue innovative approaches on their own? Does the organization prefer “homegrown” solutions or is it open to new ideas from outsiders with different expertise and perspectives? Is risk-taking behavior discouraged or rewarded? These are all aspects of an organization’s culture that can both influence how people regard external pressures and information and how they act when faced with problems. For example, NASA’s actions during both the Challenger and Columbia space shuttle tragedies have been attributed to cultural factors (Vaughn, 1996; Roberto, Bohmer, & Edmondson, 2006). In each case, incomplete evidence hinting at the eventual technical causes of failure was held by engineers who were at relatively low levels of their organizations. A culture 11 characterized by a reliance on hard data, and the need to meet a substantial burden of proof in order to unseat prior conclusions about safety and risk, made it difficult for these engineers to advance their concerns. As one Columbia investigation board member noted, a cultural norm around decision making was “prove to me that it’s wrong, and if you prove to me that there is something wrong, then I'll go look at it” (Roberto, Bohmer, & Edmondson, 2006: 110). NASA’s culture strongly influenced which events and anomalies were labeled “problems” and, once labeled, how they were acted upon. Cultural influences are particularly important to understanding organizational actions, whether they are prompted by internal or external events. Organizational Identity. Whereas organizational culture refers to the patterns of day-to-day actions within an organization, organizational identity refers to an overarching sense among meinbers of “what the organization stands for and where it intends to go” (Albert, Ashforth, & Dutton, 2000). Organizational identity is defined as that which is central, enduring, and distinctive about an organization as perceived by its members (Albert & Whetten, 1985). Whereas culture refers to patterns of meaning arising from day-to-day interactions within a company, identity emerges through interactions with the outside world (Hatch & Schulz, 2002). Critical events can feed into a revision of a company’s identity and contribute to it on an ongoing basis. For example, the Brent Spar incident for Royal Dutch Shell triggered adjustments in employees’ impressions of the company and strongly influenced its subsequent efforts to shape its identity proactively (Hatch & Schulz, 2002). Organizational identity shapes how managers view the work of their company or facility and how this is situated within a larger local, regional, or global community. For example, a study of how the New York Port Authority addressed the issue of homelessness at its facilities demonstrated the importance of organizational identity in the interpretation of issues (Dutton & 12 Dukerich,1991). The use of Port Authority facilities by homeless people threatened the organization’s identity as a professional organization. Members saw the Port Authority as an organization holding technical expertise but ill-suited to solving social service problems (Dutton & Dukerich, 1991). This shared identity of technical proficiency and social service incapacity shaped the organization’s early approaches to the issue and the external salience of the issue made identity the primary lens through which members interpreted it. More generally, work on corporate social responsibility suggests that organizational identities are more salient to employees of some companies than they are for others (Bhattacharya & Sen, 2003). For example, a consumer products company may have salient elements of its identity bound up in an image of green marketing and it may work hard to maintain this image. In contrast, a company that supplies raw materials to a third tier auto supplier will still have an identity, but its environmental aspects may be much less salient and important to its members. Organizational “Self-monitoring” Behavior. A further internal factor, one that is related to but still distinct from those we have just discussed , shows up as a company’s propensity to engage with outsiders. We label this organizational “self-monitoring” behavior, following the important psychological construct of individual self-monitoring (Snyder, 1974). Organizational self- monitoring behavior represents a set of choices about how an organization portrays its image to outsiders, in response to its impressions of those outsiders and the value it places on adhering to socially appropriate portrayals. It can show up as the degree of openness, trust, and reciprocity that an organization’s members have towards key external groups, including regulatory agencies, communities, activist organizations, and others. Individual self-monitoring refers to the extent to which individuals strategically cultivate their public behaviors and expressions (Gangestad & 13 contrary, we would expect that in some instances one or more of these factors will dominate over others, and that in some instances certain factors may well lie dormant. We would also expect that the five organizational and individual-level factors that contribute to an internally constructed license to operate will interact with each other. For example, the most fervent advocate of environmental practices might be unable to convince her company to adopt a beyond-compliance program if formal and informal organizational incentives severely limit managerial discretion. Conversely, an individual with limited personal interest in environmental issues may nevertheless be guided by his company’s strong identity as an innovator and leader on environmental performance. Factors Influencing Participation in Performance Track Ultimately, it is an empirical matter how these internal factors interact with each other and with external factors, as well as the relative importance they play in affecting the overall license to operate. In this section of the paper, we take advantage of interview data from a set of matched industrial facilities in an effort to begin to assess the preceding theoretical account of the types of internal factors that may influence businesses’ beyond-compliance behavior. Relying on our interviews, we examine an equal number of participants and non-participants in the EPA’s National Environmental Performance Track (NEPT) to see if we can observe any systematic differences between the two groups. While the interview data is limited and does not teveal all of the detailed sources of evidence suggested in Table 1, it does suggest that at least three of the five internal factors contribute to differences between the environmental management choices made by the facilities we studied. The NEPT program seeks to recognize, reward, and encourage facilities that exemplify “top environmental performance” (EPA, 2004). The mission of the program is to improve 16 environmental performance, transform relationships between facilities and agencies, and encourage innovation (EPA, 2004a). To be admitted, a facility must have a proven record of tegulatory compliance, an operational environmental management system, a history of environmental achievements that go beyond legal requirements, and a commitment to performance reporting and outreach to the local community and the public. Facilities apply to NEPT by completing standard application materials and submitting them during one of two application cycles scheduled each year. Facilities must describe their environmental management system, submit an “environmental requirements checklist” detailing the environmental tegulations they are currently subject to, and provide the names and contact information of three community references. Importantly, they must also make commitments to improve their environmental performance in ways that go beyond what they are required to do by law.” If admitted, facilities are required to submit annual reports to EPA on their progress. Their meinbership lasts for three years’ duration, after which facilities must reapply. Facilities that are admitted to NEPT are offered recognition, networking opportunities, and certain kinds of limited regulatory and administrative incentives. For example, EPA allows meinbers to use the NEPT logo at facility sites and in promotional materials, and the agency sends letters to relevant elected officials announcing a facility’s acceptance to the program, submits articles to trade journals about members, and highlights members on the agency’s website. EPA has also deemed NEPT facilities to be a low priority for routine federal inspections (EPA, 2006).* In addition, NEPT plants are allowed to file certain required air pollution reports less frequently and may store hazardous wastes on-site for up to 180 days without obtaining a RCRA permit (69 Fed. Reg. 21737, 2004). 17 Although only a small percentage of eligible plants take part in NEPT, about 400 facilities from across the United States enrolled as of August, 2006 (EPA, 2006).* With so many eligible plants not participating, NEPT presents a valuable opportunity to understand differences between participants and non-participants. Study Design We matched five facilities that chose to participate in NEPT (“NEPT facilities”) with five closely comparable non-participating facilities (“matched facilities”). Within each matched pair, the facilities shared similar industrial processes, were of equivalent size and output, had similar environmental compliance records, and operated in demographically simular locations in the region.° This matched data set allowed us to control for key factors that are known to shape the tegulatory, social, and economic licenses to operate for facilities, enabling us to probe for internal factors that influenced the environmental management decisions made at the facility, including the specific decision to join or not join NEPT. This design overcomes an important limitation common to many studies of voluntary program participation. For example, the EPA’s own assessments of NEPT have focused only on participants (e.g. EPA, 2003; EPA, 2004; EPA, 2005; EPA, 2006). Several scholarly articles have compared participants and non-participants in voluntary programs (see, for example, Arora & Cason, 1995; Arora & Cason, 1996; DeCanio & Watkins, 1998; Khanna & Damon, 1999), but the principal focus has been on externally observable differences that explain (or are explained by) participation. By focusing on internal factors, and choosing matched companies based on their decisions to participate ina single voluntary program, our study design opens up the possibility of discerning internal differences between otherwise similar participants and non-participants. We identified NEPT members for this study using the list of participating facilities by region on the U.S. EPA’s website. We focused on a single region with a large number of NEPT 18 Data Collection We conducted in-person, not-for-attribution, semi-structured interviews with plant-level environmental managers at each facility. We focused our interviews at the facility level because from its inception NEPT has been a program for facilities, not overall companies, to join. Once we had identified an appropriate non-participating match for a NEPT facility, every effort was made to conduct an interview at that plant. Where managers attempted to avoid talking to us, we tepeated our requests and assured them that the discussion would not be attributed to them or their facilities. With persistence, we were able to conduct an interview with a plant-level environmental manager at every matching facility we had identified. By doing so, we reduced the bias that comes from limiting the selection of study facilities to those that readily take part in tesearch about voluntary environmental programs. Interviews ranged in length from one to two hours and were tape recorded and professionally transcribed. Because we were interested in understanding the internal context for and influences on environmental decision making at the facility level, the interviews probed broadly for significant events, developments, and challenges the interviewee perceived or experienced. Each interviewee was asked about: 1) changes that had been made in environmental management at the facility in the preceding few years, reasons for these changes, and staff involved; 2) actions that had been taken to improve awareness of environmental management activities and actions or arguments that were or could be made to influence key decision makers; and 3) interviewees’ experiences with voluntary programs in general and their perceptions of the costs and benefits of such programs to their facilities. Importantly, NEPT was not mentioned until late in the interview during the discussion of voluntary programs, unless the interviewee volunteered information about the program earlier. This interview protocol allowed us to elicit interviewees’ broad 21 attributions and assessments of any events or factors (external and internal) that shaped environmental management decision making and actions at the facility. In addition, by focusing on how the interviewee sought to influence others, we were able to gather information on internal barriers or opportunities that might have been posed by structure, culture, or incentives. The interview guide was not shown to participants in advance to ensure that they did not approach the interview as being “about” NEPT. Interviews proceeded in an open-ended fashion which resulted in the collection of rich qualitative data on how individual managers perceived their facility’s environmental activities and performance, well beyond their participation or non- participation in NEPT. Consistent with an exploratory qualitative research approach, we did not probe for specific information on organizational culture, identity, and organizational self- monitoring in order to avoid presupposing key influences on environmental management. Instead, we used our interviews to gather manager’s own insights and gain detail that we used to develop further our theoretically derived factors.!° Data Analysis We began our data analysis by having each author read all interview transcripts individually, looking for emergent themes (Glaser & Strauss, 1967). From these, we compiled a list of initial codes that we used to code the interviews qualitatively (Miles & Huberman, 1994). Initial codes covered both external factors (e.g., customer demands, community pressures, etc.) and internal factors (e.g., managerial support, organizational structure, identity, etc.) mentioned by interviewees as important to their facility’s environmental practices. We also included codes for tespondents’ judgments of the value and effectiveness of NEPT and other beyond-compliance behaviors. A research assistant who was not aware of which facilities were members of NEPT, and which were not, coded the interviews in random order, starting with the list of initial codes and modifying them as new or different themes emerged from the data. The coding was done 22 using Atlas.ti, a qualitative research software package. The research assistant discussed his coding with the authors and we iteratively arrived at a final list of codes and assured that the coding was applied consistently and comprehensively. Once the coding was completed, we performed both “within-case” and “between-case” analyses (Miles & Huberman, 1994). For each facility, we summarized the results of the coding ona figure to represent the internal and external factors that, according to the managers interviewed, informed their environmental management practices and their decisions about joining NEPT or taking other beyond-compliance activities. We also attended to how the content of each set of codes differed between NEPT and the matched facilities, as groups. These comparisons are reported below. Participation, Performance, and External Aspects of the License to Operate The interview data showed no systematic differences between NEPT and matched facilities in how their managers viewed regulatory requirements, nor how they viewed other external social or economic pressures. In all cases, facility environmental managers regarded compliance with regulation as a given. As one NEPT participant noted, “it’s basically the rule of the land, you have to do this or do that.” A matched facility manager similarly observed, “you just can’t afford not to pay attention to this stuff.” In addition, both NEPT and matched facility managers commented on what they perceived as inconsistent or irrational details of regulation. One NEPT manager gave the following example: We have to file the paperwork within 35 days. That's by federal law. One of the states said you have to file it in 30 days. So I don't know what those five days difference is going to do, aside from you're creating one more paragraph, you're creating one more law,...that is what I consider nonsense with the regulation. 23 shape perceptions and actions on environmental issues. The interviews did offer occasional hints at the importance of culture and personal commitments,'! but we found a much stronger indication of the importance of managerial incentives, organizational identity, and organizational “self-monitoring.” In this section, we report representative interview evidence illustrating each of these three factors and how they varied between participating and non-participating facilities. Managerial Incentives. While the formal structure within each company was largely similar (for example, 9 facilities were part of a larger corporate structure),!* managers from the NEPT and matched facilities spoke differently about the degree of autonomy they enjoyed within such structures, the degree of support from their superiors in pursuing voluntary programs, and their tacit rewards and incentives for doing so. In other words, the informal aspects of the organizational structure seemed to create a different set of incentives for the NEPT versus matched facilities. NEPT facility managers spoke of very clear management support from both their direct management and from higher levels. One noted that “my boss, the director of operations for the site, backed me up when I found out about the [Performance Track] program and suggested we join.” Others spoke of the involvement and knowledge of corporate managers in their environmental programs, with one noting that a manager from the corporate office said, “Hey, you might want to consider this [joining NEPT].” Similarly, NEPT managers spoke of the incentives they received to manage environmental programs ina certain way and the fit of Performance Track with these incentives. One noted that: It seemed to me that our readiness to participate in Performance Track was pretty good because they [management] were looking for very measurable and quantifiable things that you could say, OK, here’s where we are and here’s what we might set as some targets for future improvement. 26 Another manager described how she had turned down business from her parent company because it would have required formulating chemicals that had been eliminated from the plant for health reasons. “My boss backed me up,” she added, “He understands that we need to keep a positive direction.” Although the majority of the NEPT facilities were part of a larger corporate structure, many of these managers spoke about the autonomy they had to implement programs that were consistent with corporate objectives. One observed that, in joining Performance Track, “we didn’t need signoff from our parent company, but they would have been supportive if we’d asked because it’s consistent with their philosophy of excellence.” Another noted that he pursued participation in Performance Track because it was a program that would help “gain that bottom- line improvement that our management has come to expect of us.” The majority of the matched facilities were also part of larger corporations, but in at least several of these the organization’s structure and decision processes seemed to act more as a constraint than an enabler for individual facilities and managers. One matched facility manager noted that “the [parent] company provides for the environmental management system.” He added that participation in a voluntary program was “probably something of interest [to his site] but ... we generally do things together,” noting that he had very limited autonomy to work outside the programs prescribed by the corporate EH&S group. Another manager suggested that making a decision to participate in a voluntary program was not within his purview. He observed: I think of our site level as an operation site. You know, we have not talked about doing some of those programs. It’s really the worldwide environmental health and safety level. The matched facility managers also spoke of much less direct managerial support for voluntary programs. One said, “sure they [management] would care, but it’s a matter of degree. How much would they care?” Another manager suggested a relationship with corporate 27 management that was very hands-off: “What I’m looking for is a handshake from our corporate environmental auditor.” These differences in incentives were associated with differences in perceptions of the benefits and costs of Performance Track. Many of the NEPT participants regarded the program as relatively low cost to join, and saw synergies between joining the program and using their existing environmental managements systems, such as ISO 14001. One NEPT facility manager noted that, “because we already had our ISO 14001 certification at the time we joined PT, the costs have been pretty minimal. Just a few hours of my time.” Similarly, a second observed, “It was a fairly easy decision to join since we had most of the elements already in place. We had an EMS that had been certified in 1998.” One noted that “this initiative aligned perfectly [with our business] as have some others that we’re involved in within the community for example.” In contrast, managers from the matched facilities spoke of the significant costs of participation in voluntary programs in terms of time and resources. One commented that “you have all this stuff to worry about, and one of the things that’s important is to begin to prioritize things. You just can’t do everything.” Another added, When we look at efforts we have a lot of justifications and investments, and we don’t do an awful lot of them just because they’re fun. I don’t have time to do something just because it might be interesting or personally gratifying. Incentives for these managers seem to be focused quite heavily on audits, and in particular, in satisfying internal or third party auditors. One manager remarked, When I have an audit, what’s in my mind is that I can answer all their questions and that they won't come back with significant lists of things to follow up on. Relative to other priorities, these managers saw the requirements of NEPT and other voluntary programs as distracting from their main focus. As one manager observed, “these are important programs, but so is getting product out the door safely.” 28 in external recognition and spoke more of taking care of their business and its environmental impacts, rather than advertising their behavior to outsiders. Recognition from the immediate community was very important according to many of the NEPT facility managers. One noted that “if we can get in the newspaper having received some [state agency] or EPA award or some recognition ... it plays well.” Another, commenting on the facility’s certified EMS and participation in voluntary programs, observed that “all of these programs are advertising. Some of the programs carry more weight, but every little thing can help in public relations and marketing.” Beyond the community, firms in this group wanted to be seen as environmentally aware with their employees. One commented that “if EPA stamps their approval on your facility program ... that does wonders for the morale for people here as well as in the local community.” Contrast these comments with those made by matched facility managers who generally asserted that performance, not recognition, was most important in their relationships with others. One noted that “as long as we get it done, that’s what matters, not necessarily that we get tecognized for it.” He added, “we should be reducing our risk. That’s what people care about. They don’t care about fluffy management practices.” Another manager echoed this sentiment, saying, “at the end of the day it’s how many losses did you have, and did you have fewer injuries, fewer spills, fewer incidents.” There was a similar contrast between how NEPT and matched facility managers spoke of their interactions with regulators. Several of the NEPT managers were very open and forward in their interactions with regulators; they clearly valued building and maintaining a positive relationship with state and federal environmental agencies. For example, one NEPT manager noted that his facility had “built up positive karma ... where now when we relate with a regulator 31 we can relate in a position of trust.” This manager now felt comfortable going to the EPA and state regulators and “saying to them look, there are other ways of doing it [meeting regulatory tequirements].” Another manager noted that “the recognition that EPA give us validates what we're trying to do.” While some matched facility managers also recognized the need for good will between their facilities and regulators (e.g., “I think there’s definitely a correlation between... [the company] being proactive in some spaces and developing a relationship with [state regulators] that’s helpful”), others were very clear that they regarded regulators as untrustworthy and were unwilling to see them as partners. One manager, commenting on the EPA, suggested “they don’t trust anybody ... and I don’t trust the agency.” Another observed that, They’re [the EPA] just too big, too dysfunctional, too many lawyers. Not enough risk people. And too focused in on command and control, too much paper, too much garbage, and not enough result. Rather than seeing themselves as capable of working in partnership with regulators, these managers actively dismissed this approach. One manager asserted EPA wants a partnership. I’m looking for a cop. Shut me down if I violate my permit. Otherwise leave me alone. Like low individual self-monitors, managers in this group recognized what comprised socially desirable behaviors, and at times attempted to conform, but largely implied that conformance was not very important to them or their companies. One drew this analogy: [T]en years ago, our environmental commitment was like brushing our teeth. We did it every day, but we didn’t talk about it. Now we have a documented procedure for brushing our teeth and write a note every time we brush. We document everything because that’s part of being open. The behavior required to appeal to agencies, in this case the establishment of a formal EMS, held little intrinsic meaning to this manager. Another, commenting on standard practices expected of industry suggested, 32 EPA comes in with a checklist. If I spent all my time taking care of what’s on their checklist, my plant would probably blow up. For these managers, like low individual self-monitors, performance itself, rather than adherence to outsiders’ criteria for performance, was most important. As one asserted, “It’s always nice to be recognized for advancement, but ultimately it’s the advancement that matters.” Discussion In this paper, we have explored the internal factors that affect facilities’ licenses to operate, complementing but extending earlier work on the external (regulatory, social, and economic) aspects of licenses to operate. In order to bring together disparate work on internal factors that shape corporate environmental practices, we posited that the license to operate is affected by at least five core organizational and individual factors: managerial incentives, organizational culture, organizational identity, organizational “self-monitoring” behavior, and personal or professional affiliations and commitments. Although the license to operate is clearly shaped by the external conditions the company faces and its historic engagement with outsiders around particular issues, there are strong reasons to believe the license also is independently influenced by internal factors. Because it is informed by key organizational factors that are much larger than environmental management alone, the license to operate may be resistant to changes in external environmental pressures, or, conversely, responsive to changes in internal pressures that may be completely unrelated to environmental issues (e.g., a leadership change). For this reason, connecting particular external conditions or incentives to internal management or culture change (or vice versa) must be done very carefully. The causality of such connections is complex, and internal factors can create inertia or significant managerial agency (or both), each of which significantly influences a company’s responsiveness to external conditions. 33 handfuls of facilities over a long period of time could be very valuable in developing a more nuanced sense of the processes by which internal factors and external conditions interact. Methods such as in-depth interviewing and direct observation would be valuable to develop a close understanding of internal factors, as well as insight into how managers interpret external conditions and set and solve environmental problems. Conclusion Those who have pointed to internal, managerial factors as shaping corporate environmental practices have had good reason to do so, for external factors cannot tell the full story. In this paper, we have attempted to provide both theoretical and empirical grounding for the internal factors that shape decisions to adopt certain beyond-compliance behaviors. Our analysis has several implications for the literature on corporate environmental practice and beyond- compliance behavior, and for practice and policy in these areas. First, by articulating five internal factors that we expect contribute to how particular companies select problems for attention and act on them, we extend and elaborate in greater theoretical detail the constructs of environmental management style (Gunningham et al., 2003) and managerial commitment (Coglianese & Nash, 2001) that have been deployed in the literature to date. Better understanding of the complex interactions between internal organizational factors and external pressures in shaping environmental decision making and ultimately environmental performance can be gained by further studies that develop and test the internal factors we offer here. Second, our empirical data suggest that there is likely a set of businesses that seek and obtain recognition through a constellation of beyond-compliance initiatives, and another set that does not. Just as individuals differ in their self-monitoring behavior, how closely they match their public behaviors to socially desirable displays, and their desire for recognition, our data suggest that businesses have analogous propensities. This finding could have immediate 36 implications for how voluntary environmental programs are evaluated. For example, surveying managers to see how happy they are with a voluntary program may become rather meaningless, since almost by definition those who join are happy to join (Coglianese, 2003). Finally, our findings serve as a caution for outsiders not automatically to identify those who seek and receive recognition as leaders and those who do not as laggards, for they may perform equally well in terms of compliance and pollution reduction. Companies shape others’ unages of them, and such images can influence the pressures external organizations place on them (Gunningham et al., 2003; Howard-Grenville, 2005). Given this fact, we might expect companies that value and seek external recognition to engage in activities that positively reshape external aspects of their licenses to operate, while those who place less value on external recognition may not. While this ability of companies to influence external pressures could be taken as an argument for companies to engage proactively in beyond-compliance behavior, it should also be taken as a warning to observers of such behavior not to overestimate the differences in performance among firms that cultivate external recognition and those that do not. 37 Notes 1 Following Gunningham et al. (2003) and others, our focus is explicitly on beyond-compliance behavior, although we suspect that much of our theoretical account and empirical findings could also bear on business decisions about complying with regulations. The differences, if any, in explanatory models for compliance and beyond-compliance behavior merit further inquiry but extend beyond the scope of this paper. ? Facilities with fewer than 50 employees must make only two such commitments; larger facilities must make four. 3 Some state environmental departments also avoid inspecting NEPT plants on a routine basis. * Determining the number of facilities that would be eligible for the program is difficult. Some 5,000 facilities in the United States have become certified to ISO 14001, the international environmental management system (EMS) standard, and would meet the program’s EMS requirement (ISO, 2006). Many more facilities have implemented EMSs that would probably still qualify them for Performance Track. * To be sure, outside of a laboratory setting, no such empirical matching effort will be perfect along every dimension. Like others who have used a similar research design in other areas (e.g., Shapiro, 2002), we claim only to have made the best possible effort to match facilities on observable characteristics. The facilities in our study were matched in the first instance by operating in precisely the same line of business and in the same EPA region. Other characteristics, such as the number of employees or community demographics, cannot be exactly the same but are sufficiently comparable that we do not expect any of the modest differences to explain differences in behavior. In selecting these five matched pairs, we rejected other possible matches where differences in observable characteristics were more pronounced. © Starting with the launch of NEPT, Johnson & Johnson had announced a corporate-wide commitment to have all of its facilities join EPA’s program. We therefore excluded its facilities from our study for two reasons. First, since no other major corporation had made a similar company-wide commitment at that point, we concluded that Johnson & Johnson facilities would not represent the “typical” case of a facility deciding whether to join NEPT. Second, the very fact that Johnson & Johnson facilities joined because of a corporate directive provides support all on its own for the importance of intemal factors in explaining business behavior. Facility managers within Johnson & Johnson clearly found themselves facing different managerial incentives — not to mention other organizational factors — than did managers at facilities elsewhere. Excluding Johnson & Johnson from our sample therefore followed appropriate qualitative research methods by ensuring that we did not select cases that would be more likely to support our theoretical prediction that internal factors affect bey ond-compliance behavior (King, Keohane & Verba 1994). 7 Because our goal was to assess overall trends in TRI releases, we did not attempt to normalize releases but compared each matched pair’s trends in aggregate releases over time. 5 At one matching facility, toxic releases had increased following a change in the products manufactured at the site. ° Three of the five NEPT plants had been inspected in recent years (2003, 2004, and 2004) even though the agency offers “low inspection priority” as a benefit to members. 1° At each facility, we interviewed the key environmental manager who would have been most closely involved in the facility’s decision about participating in NEPT. With the exception of one NEPT facility where our interview consisted of a meeting with the facility manager and plant manager together, our study is limited to only one respondent per facility. While more interviews at each facility would always be better, the practical constraints of obtaining any access at all tonon-NEPT facilities were such that obtaining more than a single interview was often not feasible. For symmetry, we similarly limited our interviews for NEPT facilities. Given the early stage of overall research on internal factors affecting bey ond-compliance behavior, and the necessarily exploratory nature of our empirical work, the number of interview respondents is clearly not inappropriate. Our number of respondents per facility is comparable to that found in studies that rely on survey methods, and not out of line with other interview- based studies. " The lack of evidence about cultural influences is to be expected, partly as a result of the study design. 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