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Corporate responses to government and environmental group actions designed to protect the environment Raizada, Rachana 1998

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C O R P O R A T E RESPONSES T O G O V E R N M E N T A N D E N V I R O N M E N T A L G R O U P ACTIONS DESIGNED T O P R O T E C T T H E E N V I R O N M E N T by RACHANA RAIZADA B.A. Economics (Honours), Delhi University, 1987 M . B . A . , The University of Windsor, 1989 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF T H E REQUIREMENTS FOR T H E DEGREE OF DOCTOR OF PHILOSOPHY in T H E F A C U L T Y OF G R A D U A T E STUDIES (The Faculty of Commerce and Business Administration) We accept this thesis as conforming to the Required standard T H E UNIVERSITY OF BRITISH COLUMBIA November 1997 ® Rachana Raizada, 1998 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Department of CoMME&CE % feuS>(NeS>S ^ b i \ A l N \ S T R ^ » O N The University of British Columbia Vancouver, Canada DE-6 (2/88) 11 A B S T R A C T Corporate Responses to Government and Environmental Group Actions Designed to Protect the Environment The pressure on corporations to manage their operations in an environmentally responsible manner has increased rapidly in the last decade. These pressures are especially intense for resource-based companies. In the province of British Columbia, environmental policy, which is the basis of many forms of intervention by the provincial government, constitutes a significant constraint on the operations of forest companies. Diverse environmental group campaigns addressing issues such as preservation of temperate coastal rainforest, forest management practices, and air and water pollution by pulp and paper mills, have contributed to intensifying the environmental pressures on companies. Yet it is apparent that forest companies in B.C. which face similar competitive conditions and are regulated by the same environmental policies have responded differently. The research question addressed in this study was "Why do corporate responses to government and environmental group actions designed to protect the environment differ between corporations?" The research question was examined through the use of a comparative case study research strategy. Two B.C.-based companies which showed prima facie evidence of having divergent responses to environmental pressures were chosen for the study. Data was collected on government and environmental group actions on environmental issues for the period 1983 to 1997 to determine the substantive nature of the issues faced by corporations and to trace their evolution over the period covered by the study. Data on corporate responses between 1983 and Ill 1997 was collected through interviews, newspaper reports, and corporate documents. The data was analyzed through a framework based on four theories of organization. Four models were specified in terms of their unit of analysis, organizing concepts, dominant inference patterns, and propositions: the rational choice model; the institutional model; the bureaucratic model; and the leadership model. The case studies demonstrated that while some government actions had distinct effects on the companies, and though one was the target of interest group actions more intensively and frequently than the other, the general operating and regulatory environment of the companies was more similar than it was distinct. Analyzing organizational characteristics with the use of the theoretical framework accounted for much of the difference in response. The rational model was not generally supported except in limited decision-making situations. The institutional model explained corporate stance in terms of the content and sources of institutional pressures. The bureaucratic model explained organizational output by illustrating how structural characteristics affected issues of goal setting and implementation of responses. The leadership model explained the extent to which changes in corporate strategy resulted from different types of leadership behaviour, subject to situational constraints. The four models were then integrated to derive some theoretical implications for academic research and some managerial implications for corporate managers. iv TABLE OF CONTENTS Abstract ii Table of Contents iv List of Tables viii List of Figures ix Acronyms x Acknowledgements xii 1.0 INTRODUCTION 1 1.1 Nature of the Problem 1 1.2 Objectives of the Study 4 1.3 Outline of the Study 5 1.4 Contributions of the Study 6 2.0 RESEARCH METHODOLOGY 8 2.1 The Case Study Method 8 2.2 Case Selection 9 2.1.1 MB and Canfor 10 2.3 Research Design 17 2.4 Research Procedures 20 3.0 LITERATURE REVIEW 23 3.1 Introduction 23 3.2 Positive/Empirical Literature 24 3.2.1 Environmental Management Practice 24 3.2.2 Environmental Reporting by Companies 27 3.2.3 Impact of Environmental Policy 28 3.3 Normative/Theoretical Literature 32 3.3.1 Models of Environmental Management 32 3.3.2 Environmental Issues in Functional Areas 34 3.4 Theoretically Grounded Empirical Studies 37 3.5 Conclusions 40 4.0 CONCEPTUAL FRAMEWORK 42 V 4.1 Choosing and Defining a Conceptual Framework 42 4.2 Rational Choice Theory 44 4.2.1 Literature Review 44 4.2.2 Model A 50 4.3 Institutional Theory 53 4.3.1 Literature Review 53 4.3.2 Model B 60 4.4 Theories of Bureaucracy 66 4.4.1 Literature Review 66 4.4.2 Model C 70 4.5 Leadership Theory 78 4.5.1 Literature Review 78 4.5.2 Model D 67 4.6 Integrating the Four Models 91 5.0 G O V E R N M E N T AND E N V I R O N M E N T A L G R O U P ACTIONS 97 5.1 The Forest Industry in British Columbia 97 5.2 Government Actions 99 5.2.1 Types of Government Actions 100 5.2.2 Enforcement 102 5.2.3 Government Actions by Issue 105 5.3 Environmental Interest Groups 107 5.3.1 Environmental Interest Group Tactics 108 5.3.2 Environmental Groups 108 6.0 M A C M I L L A N B L O E D E L : A C A S E STUDY 113 6.1 Survival Mode: 1983-1986 113 6.1.1 Significant Environmentally Related Events 113 6.1.2 Operating Context 115 6.1.3 Analysis of Responses 117 6.2 Mamtaining Competitiveness: 1987-1990 124 6.2.1 Significant Environmentally Related Events 124 6.2.2 Operating Context 129 6.2.3 Analysis of Responses 130 6.3 Environmental Issues Gain Momentum: 1991-1993 146 vi 6.3.1 Significant Environmentally Related Events 146 6.3.2 Operating Context 154 6.3.3 Analysis of Responses . 156 6.4 "Crisis Management": 1994-1997 169 6.4.1 Significant Environmentally Related Events . 170 6.4.2 Operating Context 176 6.4.3 Analysis of Responses 180 7.0 C A N F O R C O R P O R A T I O N : A C A S E S T U D Y 195 7.1 Setting the Stage: 1983-1986 195 7.1.1 Significant Environmentally Related Events 195 7.1.2 Operating Context 196 7.1.3 Analysis of Responses 200 7.2 Charting a Course for Environmental Leadership: 1987-1990: 202 7.2.1 Significant Environmentally Related Events 202 7.2.2 Operating Context 207 7.2.3 Analysis of Responses 209 7.3 Implementing a Vision: 1991-1993 222 7.3.1 Significant Environmentally Related Events 222 7.3.2 Operating Context 227 7.3.3 Analysis of Responses 228 7.4 Standing at the Crossroad: 1994-1997 238 7.4.1 Significant Environmentally Related Events 239 7.4.2 Operating Context 241 7.4.3 Analysis of Responses 243 8.0 C R O S S - C A S E C O M P A R I S O N & I N T E G R A T I O N O F F I N D I N G S 254 8.1 Introduction 254 8.2 Differences in Corporate Responses '. 256 8.3 External Institutional Pressures 263 8.4 Application of Model A 267 8.5 Application of Model B 272 8.6 Application of Model C 282 8.7 Application of Model D 286 vii 8.8 Conclusion and Integration 289 8.8.1 Theoretical Implications of the Model 289 8.8.2 Dynamic Implications of the Model 294 9.0 C O N C L U S I O N 299 9.1 Contributions of the Study 300 9.2 Implications of the Study 301 9.3 Limitations of the Study and Future Directions for Research 308 BIBLIOGRAPHY 311 A N N O T A T E D BIBLIOGRAPHY 332 APPENDLX A A Chronology of Actions by the B .C. Government Initiated to Protect the Environment 335 APPENDIX B B.C. Forest Policy History 1945-1985 372 APPENDIX C Key Government and Environmental Group Actions 377 APPENDIX D Environmental Policy Statements 381 APPENDIX E Leadership at MB and Canfor 382 APPENDIX F Environmental Milestones in B.C. 1988-1997: M B A N D CANFOR 383 viii LIST O F T A B L E S TABLE 2.1: COMPARATIVE CORPORATE PROFILES OF MB AND CANFOR (1996) 14 TABLE 4.1: ISSUES ADDRESSED BY MODELS 45 TABLE 4.2: STRATEGIC RESPONSES OF CORPORATIONS 64 TABLE 4.3: THE CONCEPTUAL FRAMEWORK: FOUR MODELS SUMMARIZED . 96 TABLE 5.1: GOVERNMENT ACTIONS BY ISSUE 106 TABLE 7.1: CANFOR'S ENVIRONMENTAL RESPONSES 229 TABLE 8.1: OVERALL PROFILE OF ENVIRONMENTAL RESPONSES 1983-1997: MB AND CANFOR 257 TABLE 8.2: MB & CANFOR: VISIBILITY AND PUBLIC IMAGE 264 TABLE 8.3: COMPARISON OF GOVERNMENT AND DIRECT ACTIONS BY ENVIRONMENTAL INTEREST GROUPS 265 TABLE 8.4: THE MEANING OF INSTITUTIONAL PRESSURES 277 TABLE 8.5: STRATEGIC RESPONSES OF MB AND CANFOR 279 TABLE 8.6: APPLICATION OF BUREAUCRATIC MODEL 284 TABLE 8.7: APPLICATION OF LEADERSHIP MODEL 289 TABLE 8.8: SUMMARY OF PROPOSITIONS 290 ix LIST O F FIGURES FIGURE 2.1: M A C M I L L A N B L O E D E L 12 FIGURE 2.2: CANFOR CORPORATION 13 FIGURE 4.1: INTEGRATING T H E FOUR MODELS 95 FIGURE 8.1: INTEGRATION OF T H E FOUR MODELS 292 FIGURE 8.2: A TIME PERSPECTIVE OF T H E FOUR MODELS: M A C M I L L A N B L O E D E L (MB) & CANFOR (C) 295 X LIST O F A C R O N Y M S A A C Annual Allowable Cut A D M Assistant Deputy Minister A D T Air Dry Tonne A O X Adsorbable Organic Halide BC British Columbia BOD Board of Directors C F F G Coastal Fish/Forestry Guidelines CLES Continuing Legal Education Society COFI Council of Forest Industries C O R E Commission on Resources and Environment CRB Community Resource Board E E M Environmental Effects Monitoring EMA Environment Management Act EMS Environmental Management System EPA Environmental Protection Act FPC Forest Practices Code FRBC Forest Renewal British Columbia FRC Forest Resources Commission F R D A Forest Research Development Agreement FSSC Forest Sector Strategy Committee ha. Hectares LRMP Land and Resource Management Plan LRUP Local Resource Use Plan L U C O Land Use Coordination Office MEMPR Ministry of Energy, Mines and Petroleum Resources M O E / Ministry of Environment1 M O E L P Ministry of Environment, Lands and Parks M O F Ministry of Forests OGS Old Growth Strategy 'Over the period covered by this study the MOE has undergone a few reorganizations and changes in name. In this paper, the terms MOE and MOELP will be used interchangeably. A C R O N Y M S (Contd.) PAS Protected Areas Strategy PCA Pollution Control Act PCB Polychlorinated Biphenyls PCPs Pentachlorophenates SOE State of the Environment T F L Tree Farm Licence TRS Total Reduced Sulphur TSA Timber Supply Area TSR Timber Supply Review UBC University of British Columbia VILUP Vancouver Island Land Use Plan W A C Wilderness Advisory Committee WMA Waste Management Act X l l A C K N O W L E D G E M E N T S I would like to acknowledge the following, for without them this research would not have been possible: • The managers from Canfor Corporation and MacMillan Bloedel Ltd. who were so generous with their time and information. My special thanks go out to Michael Bradley and John Howard, for their earnest support and for enlisting the cooperation of their colleagues at Canfor and MacMillan Bloedel, respectively. • Al l the members of my committee for the time and effort they devoted to this research and their constructive criticism, but also for their distinctive contributions: Keith Head for valiantly battling his suspicion of qualitative research; Nancy Langton for her extremely precise, prompt and insightful suggestions for improvement; William T. Stanbury for navigating me through the maze of environmental policy in B.C. and for being so generous with the data he has collected on this issue over the years; and my supervisor Ilan Vertinsky for numerous types of support but most of all for seeing me through to the finish. I would also like to acknowledge the contribution of Benjamin Cashore in reviewing drafts of this thesis, and some financial support from the Sustainable Forest Management Network of Centres of Excellence. • My mother, Archana Mohan, and brother Amitabh Raizada, for their unconditional support and patience; and my father Manendra Mohan who, were he here today, would have given me his ideas, inspiration, and sound advice. • My friends for cheering me up and always putting everything in perspective: Joel Beckerman, Catherine Bennie, Joan Calderhead, Tanya Dubik, Eileen Fegan, Janice Foley, Kevin Fox, Masami Fox, Jens Knuth, Timothy Lam, Nidhi Mehrotra, Richard Phillips, Martine Rousseau, Nishi Sinha, Willy Spat, Ursula Sweeney, and last, littlest, but definitely not least—Julian Zwack. • Al l the trees used in the process of writing the many drafts of this dissertation. "The world's ecological problems are systemic problems that cannot be understood in isolation...they are systemic problems-interconnected and independent—and need a new kind of systemic or ecological thinking to be understood and solved. Moreover, this thinking must be accompanied by a shift in values from expansion to conservation, from quantity to quality, from domination to partnership. The new value system and thinking, together with corresponding new perceptions and practices, are what we call the 'new paradigm.' ...The new paradigm may be called a holistic world view-seeing the world as an integrated whole rather than a dissociated collection of parts." Ernest Callenbach, Fritjof Capra and Sandra Marburg (1990) The Elmwood Guide to Eco-Auditing and Ecologically Conscious Management. The Elmwood Institute, Berkeley, C A . : 21-22 1 1.0 INTRODUCTION The pressure on corporations to manage their operations in an environmentally responsible manner has increased rapidly in the last decade. Governments over the world have had to respond to changing social values, the efforts of international environmental interest groups, and the demands of the global community as expressed through international bodies such as the World Commission on Environment and Development. As a result, environmental policy and other forms of intervention by public policy makers are having an increasing impact on corporate management in many countries of the world. In many industrial sectors, environmental policies affect all areas of a company's operations—from strategic planning, human resource management, accounting procedures and production process technology—to the products themselves. An understanding of how large international corporations respond to such environmental challenges and balance the many demands on them is essential. Their operations constitute one of the most important instruments of global economic activity, they are major consumers of valuable and rapidly depleting natural resources, and major producers of industrial waste and pollution. 1.1 Nature of the Problem Environmental policy1 (which is the basis of many forms of intervention by the provincial government) constitutes one of the most significant constraints on the operations of forest companies in British Columbia. Direct actions by environmental interest groups have been This term will be used in this paper for the sake of brevity to refer to all actions by government (legislation, regulations, taxes, subsidies, public ownership, administrative requirements, etc.) designed to achieve its goals relating to the natural environment. A more detailed explanation of environmental policy and the way in which it affects companies is provided in Section 5.0 2 targeted at individual companies and their customers, and also to the forest industry at large. Not only have the sources of environmental pressures on companies multiplied, the array of environmental issues to which companies have to respond has diversified. In the three and a half decades since Rachel Carson's Silent Spring was published in 1962, environmental concerns have grown wider in scope. In the 1960s and 1970s, the focal issues were air and water pollution, and the threat posed by chemicals to human health. Since 1987 the general concept of sustainability has increased in importance. Sustainable development as defined by the Brundtland Commission is that which meets "the needs of the present without compromising the ability of future generations to meet their own needs."2 In the context of the forest industry in B . C . , the concept of "sustainability" has been used since the 1940s, at which time it referred to maintaining a commercial timber supply on a long run sustained yield basis. Over time, this conception has changed. Sustainability in the British Columbia of the 1990s refers to maintaining the health of the entire forest eco-system and other non-timber values associated with it, such as wildlife and recreation. Indeed, managing for preserving "biodiversity" became the new environmental imperative, partly as a result of intensive environmental group campaigns to preserve the temperate coastal rainforests of British Columbia. Due to the rapidly changing nature and intensity of these environmental pressures, some forest companies in British Columbia found themselves in the position of having to react quickly, often without the time or resources to collect adequate information on the most effective way to 2World Commission on Environment and Development, 1987:43. 3 resolve these situations. Occasionally, some companies were overwhelmed by the challenges they faced and found themselves in a crisis situation, operating in "firefighting" mode. Other companies anticipated some environmental issues and even saw them as a source of competitive advantage. They tended to formulate proactive strategies to deal with the changing nature of environmental issues. Why did companies operating in the same industry and regulated by the same environmental policies respond so differently? Corporations within the same industry are faced with the same competitive structure and those within the same geographic location are apparently faced with the same operating environmental policy context. Yet one finds that firms operating under the same competitive conditions and environmental policies responded quite differently. What explains these divergent corporate responses to environmental challenges? Academic research on this question has been approached from a variety of perspectives. Literature in the areas of strategic planning and "issues management" has for a long time been examining how companies incorporate environmental issues (where environment referred in a broad sense to the external competitive and strategic environment) into their planning and operational processes.3 "Issues" are different from other business decisions in that they are often not resolved in the market place but are addressed through a public policy process that includes public controversy, legislation, regulation, and often litigation (Greening, 1992:84). However, the impact of (natural or physical) environmental issues has now expanded beyond the domain of public-policy making to the marketplace. In recent years, scholars in the field of organization theory have attempted to integrate theoretical perspectives and provide comprehensive frameworks for analyzing corporate responses to environmental issues. For the practitioner, 3See e.g., Ansoff (1965), Ansoff (1980) & Abel and Hammond (1979). 4 management tools such as Life Cycle Assessment and Total Quality Environmental Management have been developed.4 However empirical research in the area is still in the exploratory and descriptive stages. Most studies tend to focus either on the corporation, or on the government actions themselves, without attempting to understand how organizational characteristics moderate interaction between corporations and governments, which evolves over time to affect the nature and depth of divergent corporate responses to environmental issues. 1.2 Objectives of the Study The purpose of this research is to offer an explanation for divergent corporate responses to government and direct interest group actions on environmental issues within the context of established theories of organization. In order to explain the different responses, the following questions are asked at the level of the corporation: What is the likely impact of government and environmental interest group actions on the company? What alternatives does the company have in these situations? How do companies interact with government and interest groups to reduce the potential impact of these actions on their corporations? How does the corporation incorporate environmental issues in its corporate strategy? How do organizational goals, structures and processes change in response to government actions and direct actions by interest groups? The answers to these questions are examined with the use of a theoretical framework and are compared between companies to build a comprehensive explanation for differences in responses. 4Life Cycle Assessment is a systematic method of estimating the environmental impact of a product over its complete life cycle. Total Quality Environmental Management refers to the application of Total Quality Management principles (such as continuous improvement, the use of a systems approach and a preventive orientation) to environmental management. 5 1 .3 Outline of the Study This paper employs a comparative two company case study approach. The responses of two forest companies headquartered in the province of British Columbia, where government and environmental group actions on environmental issues escalated sharply between 1985 and 1996 are analyzed. The companies, MacMillan Bloedel Limited (MB) and Canfor Corporation (Canfor), were chosen because of key similarities and differences. They are similar in that they are both B.C.-based companies with a long history of operating in the province and have a substantial portion of their operations in B.C. Both companies are large, vertically integrated and horizontally diversified forest products corporations which operate in international markets. Of the two companies, MB is the larger, the more international and the more horizontally diversified of the two. It is the largest holder of forest tenure (rights to harvest trees on land owned by the province) in B .C. While both companies sell their products on global markets, M B has manufacturing operations in Canada, the U.S. and Mexico, as opposed to Canfor whose manufacturing operations are concentrated in B.C. and Alberta with the exception of lumber remanufacturing plants in the U.S. and a joint venture in B.C. with a Japanese company. Both companies have international marketing offices. The two companies are also different in that they showed prima facie evidence of having divergent responses to environmental pressures. The research methodology used in this paper will be discussed in detail in section 2.0. Section 3.0 summarizes academic literature as it relates to environmental issues management by corporations, with the emphasis on recently published studies. Section 4.0 derives the conceptual framework for the study by outlining four models each of which includes propositions developed 6 from the literature. Section 5.0 is a review of the external stimuli (relevant government and environmental group actions) pertaining to environmental issues as experienced by the companies being studied. The purpose of Section 5.0 is to introduce the reader to those initiatives which have had a major impact on forest companies. To this end, Section 5.0 will provide the context for the study by summarizing major environmental initiatives by the government of British Columbia over the last ten years. Appendices (A,B) to Section 5.0 include a chronology of government actions and background on B.C. forest policy. Sections 6.0 and 7.0 are case studies of the two companies. These sections analyze corporate responses to the external stimuli summarized in Section 5.0 using the conceptual framework developed in section 4.0. Section 8.0 compares corporate responses and integrates the differences and similarities between organizations based on the conceptual framework. The contributions of the study, its implications, limitations, and suggested directions for future research are set out in the conclusion in Section 9.0. 1.4 Contributions of the Study This study makes research contributions of theoretical import and practical significance. Its findings have implications for academic research, corporate decision-makers and public policy makers. From the point of view of academic research, this study has contributed to the development of organization theory by outlining a conceptual framework which uses four models to analyze different aspects of corporate response. These models have been used in the case studies to analyze the management of environmental issues within organizations. Previous empirical research on corporate responses has not analyzed the substantive nature of environmental issues in detail, and a major contribution of this project is studying the interaction 7 between specific government actions and corporate responses, and noting how the substantive nature of the environmental issue can affect corporate response. Because multinational companies are a dominant instrument of foreign and domestic economic activity, an understanding of the structure of their responses is a first step to understanding what is needed to meet the challenge of globally sustainable economic development. Similarly, if public policy makers are to be effective with their legislation and related policy instruments, an understanding of corporate responses is crucial to ensure satisfactory compliance. The practical relevance of this study lies in its implications for corporate decision-makers. Firstly, it provides participating companies with a convenient summary description of their overall corporate responses to environmental issues, as well as an improved understanding of each company's strengths and weaknesses related to environmental issues. It can aid them in understanding which organizational factors have facilitated or impeded aspects of corporate responses to environmental issues. By providing an analysis of these organizational factors, the research results can serve as a useful decision-making tool to estimate the effectiveness and implementation requirements of planned strategies. Finally, it enables each company to assess the depth and nature of organizational change required for maintaining and developing environmental management systems. The following section describes the research methodology of this paper. 8 2.0 R E S E A R C H M E T H O D O L O G Y 2.1 The Case Study Method The underlying phenomena of interest in this study is the process of corporate change in response to external pressures regarding environmental issues and the reasons why this change process might differ between companies. An understanding of the context within which corporate change occurs is crucially important, because the interaction between the organization and its environment is an instrumental factor in shaping the evolution of responses. The focus of enquiry in this study is a contemporary phenomenon within its real life context and in which the boundaries between phenomenon and context are not always clearly evident. Yin (1989) has suggested that the case study method is appropriate in this situation. In reality, corporations do not just respond to environmental policies, they also attempt to influence them. Some corporate "responses" actually anticipate environmental legislation and take place before it is introduced. Thus it was not possible to focus only on frequencies, or incidence of either government actions or corporate responses. Rather the emphasis was on the continuous interaction between governments and corporations, and how it changed. When used in such evaluation research, a case study is able explain causal links in real-life interventions which are too complex for surveys or experimentation and in which in which the intervention being evaluated (government and interest group actions) has no clear single set of outcomes (Yin, 1989). Corporations had to respond to a wide range of inter-related issues which had a cumulative effect over time. By using a comparative case study it was possible to define how operational links were traced over time, and how they differed between companies. Case studies can explain complex relationships in which the distinction between phenomenon and context is blurred because they enable one to deal with the full variety of evidence where such evidence includes documents, artifacts, interviews, and observations (thereby including those which are not easily quantifiable) (Yin, 1989). In this study, the available empirical evidence which was relevant to answering the research question took many different forms: corporate annual reports and corporate environmental reports, government documents, personal accounts, newspaper reports. Much of this evidence was qualitative and not amenable to quantitative analysis. 9 Case studies are suggested to be useful when the researcher has no control over behavioral events and the focus is on contemporary events (Yin, 1989). This study is concerned with the response of corporations to environmental policies. Both the external stimuli and corporate responses are behavioral events which can merely be observed and described, as opposed to controlled or manipulated. Also, much of the legislation and corresponding corporate responses have occurred in the past ten years, with the emphasis being on the past five years. For the reasons described above, the case study method was an appropriate methodological choice which facilitated the building of an explanation to answer the research question: why corporate responses to government and direct interest group actions on environmental issues differ between corporations. Two companies were analyzed through the case study method, and then the differences in their responses were compared. 2.2 Case Selection Following Eisenhardt (1989) and Yin (1989), the case studies were chosen for theoretical rather than statistical reasons. Case selection used the logic of theoretical, as opposed to random sampling (Eisenhardt, 1989:534). By this, Eisenhardt refers to the suggestion that cases be chosen because they fill theoretical categories or because they provide examples of polar types. Yin (1989:53) too, suggests using theoretical or literal replication, and not sampling logic for multiple-case studies. Cases should be carefully selected for either literal replication (they predict similar results), or for theoretical replication, which refers to a situation where there are contrary results but for predictable reasons. The logic of theoretical replication was used for selecting the two companies for this case study. The corporations were selected from the forest industry because of the importance of government actions designed to protect the environment in this natural resource-based industry. In the provincial economy of British Columbia, the forest industry represents a critical case because of the economic importance of forestry to the provincial economy. The forest companies that are chosen here operate in a line of business which is important not just to the provincial economy, but also to the Canadian national economy. Moreover, their operations come under 10 a great deal of public scrutiny because (especially in B.C.) they are entrusted with the management of a non-renewable and valuable public resource. 2.2.1 MB and Canfor: Since the objective is to explain divergent responses, two companies which exhibited prima facie evidence of having divergent responses were selected. M B and Canfor were chosen because they are both large, vertically integrated companies in B .C . which appear to have responded somewhat differently to roughly similar external stimuli. One appeared to have a taken a proactive approach to environmental issues, while the other had not. However over the time period of the study, both firms experienced considerable change in their environmental goals, systems, structures, and policies. The two companies operate in the same environmental policy context and economic conditions. Both companies operate in the sectors of forestry, wood products and pulp and paper (three operational areas which have been affected by government actions related to environmental protection). Figures 2.1 and 2.2 are corporate profiles of M B and Canfor. Table 2.1 provides comparative corporate profiles of MB and Canfor. The companies are similar enough that they can be compared, at the same time there are differences in their organizational histories and structures that may shed some light on similarities and differences in their responses. MB, much more so than Canfor, and as the largest holder of forest tenure in B . C . , is a highly visible company and has often been the target of specific environmental campaigns waged against it by environmental groups. In B .C . it has sometimes been percieved by environmental groups as the archetype "multinational". Its large holdings of old-growth coastal temperate rainforest made it a specific target for environmental groups concerned with preserving this unique environmental ecosystem. MB has a longer history than Canfor of operating as a publicly held company, which has only been publicly held since 1983. Both companies have undergone substantial growth (Canfor through acquisitions and MB through acquisitions and mergers) since they were first founded. 11 over the time period of the study, both firms experienced considerable change in their environmental goals, systems, structures, and policies. The two companies operate in the same environmental policy context and economic conditions. Both companies operate in the sectors of forestry, wood products and pulp and paper (three operational areas which have been affected by government actions related to environmental protection). Figures 2.1 and 2.2 are corporate profiles of MB and Canfor. Table 2.1 provides comparative corporate profiles of M B and Canfor. The companies are similar enough that they can be compared, at the same time there are differences in their organizational histories and structures that may shed some light on similarities and differences in their responses. MB, much more so than Canfor, and as the largest holder of forest tenure in B . C . , is a highly visible company and has often been the target of specific environmental campaigns waged against it by environmental groups. In B . C . it has sometimes been percieved by environmental groups as the archetype "multinational". Its large holdings of old-growth coastal temperate rainforest made it a specific target for environmental groups concerned with preserving this unique environmental ecosystem. M B has a longer history than Canfor of operating as a publicly held company, which has only been publicly held since 1983. Both companies have undergone substantial growth (Canfor through acquisitions and MB through acquisitions and mergers) since they were first founded. Table 2.1 illustrates how MB is larger than Canfor in terms of sales, profits, resource base, and employment. MB has the largest R&D department of all forest companies in Canada, and was a pioneer of scientific forest management techniques in Canada. In 1994, MB's annual R&D budget was $12 million and it employed 100 researchers at its Discovery Park research centre. FIGURE 2.1 M A C M I L L A N B L O E D E L 12 As of February 1996, MB was Canada's largest forest products company (both with respect to sales and market capitalization) with integrated forest operations in the U.S. , Canada and Mexico. The company also has marketing facilities in North America and Japan, and significant joint venture interests in North America. MB has three core business segments: Building Materials, Paper and Packaging. It manages 2 million hectares of productive timberlands which supply most of its fibre requirements. About half of the lands are in B . C . , where the company's head office and approximately 50% of its property, plant and equipment are located. The origins of MacMillan Bloedel can be traced back to three companies, each of which had a long history of being run as a family-operated firm. The H.R. MacMillan Export Company was established in 1919 by H.R. MacMillan. 5 In 1951 the H.R. MacMillan Export Company merged with the firm of Bloedel, Stewart and Welch to form MacMillan and Bloedel.6 In 1960, MacMillan and Bloedel merged with the Powell River Company Ltd. to form MacMillan, Bloedel and Powell River Ltd, which changed its name to MacMillan Bloedel Ltd. on May 10, 1966. The passing of the owner-manager era at M B became formalized in 1970 when H.R. MacMillan and W.Van Dusen resigned from MB's board of directors. 5For a detailed biography of H.R. MacMillan the reader is referred to the book by Ken Drushka (1995) listed in the bibliography. H.R. MacMillan was one of the first Canadians to graduate with a degree in forestry. He joined the private sector after many years of government service. His background as one of the nation's first scientific foresters was instrumental in making forestry and forest products the focus of early corporate strategy at MB. 6At the time of the merger, the H.R.M Export Company was integrated from timber holdings through sawmilling, plywood and pulp manufacture to transportation. 13 FIGURE 2.2 C A N F O R C O R P O R A T I O N Canfor Corporation is a leading Canadian, integrated forests products company based in Vancouver, B .C. The company employs approximately 5,700 people, 4,400 directly and 1,300 through its affiliates. Most of Canfor's forest operations and manufacturing facilities are located in B .C. and Alberta. It also has lumber manufacturing plants in Washington and Idaho. The company is a major producer and supplier of lumber and bleached kraft pulp, in addition to other forest products. Canfor's products are sold in global markets. The company has marketing offices in Canada, Europe and Japan. Canfor Corporation is listed on the Vancouver and Toronto Stock Exchanges. Canfor was founded in November 1938 by J.G. Prentice and L . L . G . (Poldi) Bentley (brothers-in-law) who were born and raised in Vienna. They came to Canada in 1938 and opened a furniture veneer plant in New Westminster called Pacific Veneer which employed 28 people. The Company expanded and in 1944, took the name Canadian Forest Products Ltd. Mr. Prentice became President, then Chairman of the Board, while Mr. Bentley became Vice President, President, then Vice-Chairman. On May 17, 1966, the company was incorporated under B.C. law as Canadian Forest Products Holdings Ltd. for the purpose of reorganizing the predecessors of the Canfor group of companies. The common shares of the company were owned by Matthews Holdings Ltd. and Cartier Holdings Ltd. whose shares were held by trust funds for the descendants of the Prentice and Bentley families. In May 1983, following a capital reorganization, the name of the company was changed to Canfor Corporation (referred to hereafter as Canfor). Canfor went public in June 1983 with a common share issue to the public, however, the Prentice and Bentley families continued to be Canfor's largest shareholders. Mr. Prentice and Mr. Poldi Bentley retired in April 1985, and the reins passed to Poldi Bentley's son, Peter Bentley. 14 TABLE 2.1: COMPARATIVE CORPORATE PROFILES OF MB AND CANFOR (1996) ORGANIZATIONAL CHARACTERISTIC MACMILLAN BLOEDEL CANFOR CORPORATION AGE I9601 19832 SIZE-ASSETS (Smillion) -SALES ($million) -INCOME ($million) -EMPLOYEES 4,830.0 5,043.0 51.0 13,497 (excl. jointventures) 1,641.8 1,790.9 (56.9) 4,400 (directly) COMMERCIAL FORESTLAND IN B.C. (hectares) 1,071,000 (total) Crown lands 65% Fee Simple 21% Timber Licences 14% 667,956 (not including 3.4 million cubic metres from Forest Licences) TFLs 28% Forest Licences 69% Timber Licences 3% PROFITABILITY ROE% EPS$ 2.0 0.36 (8.0) (0.97) DIVERSIFICATION Sales by Industry Segment Building Materials 69% Paper 14% Packaging 18% Corporate (1%) Lumber 46% Pulp, kraft paper & newsprint 27% Building materials distribution 24% Miscellaneous 3% INTERNATIONAL EXPERIENCE Operating Assets Distribution Manufacturing facilities in Canada 50% USA 37% Japan & Other 8.5% Corporate 4.8% Manufacturing operations concentrated in B.C. and Alberta SOURCE OF TIMBER SUPPLY B.C., Alabama B.C., Alberta EXCHANGE LISTINGS HEAD OFFICE Toronto, Montreal, Vancouver, NASDAQ Vancouver, B.C. Toronto, Vancouver Vancouver, B.C. BC OPERATIONS PAYMENTS TO GOVERNMENTS ($million) (excluding joint ventures) 407.0 (including affiliates) 282.4 (1994) NUMBER OF OFFICERS 28 15 CAPITAL EXPENDITURE ON ENVIRONMENT 3 $65 million $19.4 million (Capital expd.:$7.4; Operating expd.:$12 million) 'Following the mergers with Bloedel Stewart & Welch and Powell River Ltd. ^he year in which Canfor went public. 3May not be directly comparable. 15 M B has a strong competitive advantage in the area of composite wood products. O f seven major innovations in composite wood products over the past 2,000 years, M B claims its researchers invented two: Parallam and PSL-300 or TimberStrand. 7 Canfor's research and development expenditures, including capital expenditures, amounted to $4.7 mi l l ion in 1996 and $6.3 mi l l ion in 1995. Wi th respect to forest land, an important point of distinction is that M B has proportionately larger holdings of "fee simple" land, which are its own private lands. For M B , the primary distinction with respect to forest land is between its privately-owned lands and Crown lands. For Canfor, which has a very small proportion of privately-owned lands, the important distinction with respect to forest management practices is between its volume-based and area-based tenures, although with the increasing regulation of forest management practices, the difference is not as significant as it once was. M B is more internationally diversified than Canfor with a significant manufacturing presence in the U . S . (packaging and composite wood products) as well as woodlands operations. Its recent acquisitions include a plant in Mexico . M B ' s corporate history includes a long record of foreign direct investment in Braz i l , Australia, Holland, and the U . K . Partly because of its highly diversified operations, but also due to its historical development, M B is characterized by a more hierarchical organizational structure than Canfor. It has a proportionately larger number of top managers compared to other large forest companies in Canada. A t the end of 1995, no less than 30 executives held the title of V ice President, Senior 1Vancouver Sun, September 17, 1994 CI. The other five innovations are plywood, laminated timber, particleboard, waferboard and laminated veneer lumber. 16 Vice President or Executive Vice President as compared to 15 for Canfor.8 M B and Canfor differ quite radically with respect to their corporate governance structure. Approximately 39% of Canfor is still privately held by the descendants of Canfor's founders.9 4 members of Canfor's 11 member Board are from the Bentley and Prentice families. In 1981 Noranda acquired a 49.9% share in MB. MB managers claim that Noranda did not have a major influence on the day-to-day management of the company. Adam Zimmerman, the C E O of Noranda, was the non-executive Chairman of MB from 1983 to 1990. Since 1993 when Noranda sold its stake in MB, no single interest held more than 5% of MB until March 1997 when joint interests acquired a 10% ownership stake. In the last two years institutional shareholders of M B have been active in criticizing the company for its financial performance and nominating Directors to the Board. From a historical perspective, Zimmerman (1997:65) has described MB's Board as "a very legalistic board having been run for years [in the 1970s] by Jack Clyne, followed by Cal Knudsen, both lawyers." Both MB and Canfor are considered to have distinct corporate cultures. MB's culture which is characterized by competition, hierarchical decision-making processes, and adverse-party relationships with the government stems partly from its American background10 and its historical cutural legacy. Drushka (1995) has detailed the influence of the autocratic nature of 'Analysts pointed out that this was twice as many as at Fletcher Challenge, 150% more than at Avenor and 75% more than at Abitibi. MB was also described as "overly bureaucratic". Vancouver Sun, February 13, 1997:D1. 'in spring 1996 institutional shareholders instigated a minor shareholder revolt and forced the appointment of Ian Delaney (CEO of Sherritt Gordon) to MB's board. After his appointment to the Board, Delaney bought approximately $735,000 of MB stock which was the first time since the days of H.R. MacMillan that an MB director or senior officer had invested so much of his own personal assets in the company. 10The firms with which it merged (see Figure 2.1) to become the present-day MB were both American, it has extensive U.S. operations and many senior executives over the years have been American. 17 H.R. MacMillan on the company he founded. Having no male heirs himself, a corporate policy designed to encourage competition was instituted, along with the rule that sons and sons-in-law of senior managers and executives could not be employed by the company. At M B the corporate culture has been described as a "military command and control" culture. Canfor, by contrast, has been described as having a more open and collaborative culture in which informal communications play a large role. In 1970, (thirteen years before Canfor went public), Peter Bentley, was lured back to the family business and appointed Executive V P Operations. "Reporting to no one", he was allowed to run the business his way (McCullough, 1995:37). Until then, department heads reported to the founders with little interaction between the departments themselves. Peter Bentley instead sought to have weekly meetings where information was shared on all sides and managers were empowered to make decisions regarding their departments (McCollough, 1995:37). Even today, since Canfor is a smaller company with fewer hierarchical levels, there is more informal collaboration and less competition since opportunities for promotion are fewer within Canfor's flatter hierarchy. The preceding pages have summarized some major points of difference in organizational characteristics between MB and Canfor. Using the logic of theoretical replication, the conceptual framework derived in section 4.0 links these organizational characteristics to predict why organizational response might differ between these companies, 2.3 Research Design The research design is a logical model of proof which also identifies the study's domain of •generalizability (Yin, 1989:28). In a sense, the complete research design embodies a "theory" 18 of what is being studied (Yin, 1989:36). The five components of research design, (Yin, 1989) the study's questions, propositions, unit of analysis, logic linking data to propositions and criteria for interpreting the findings are discussed next. Research Questions: The key research question is: Why do corporate responses to government and direct interest group actions differ between corporations? In order to answer this question, one must first know: How do government and direct interest group actions affect companies; how do companies interact with stakeholders to reduce the impact of these actions; and how do they change their organizational goals, structures and processes in response to these actions? Propositions: In this study, each of the two cases is examined through the conceptual lenses of four different models drawn from organization theory, each of which has its own set of propositions. The process of choosing and defining the conceptual framework with its four models is elaborated in Section 4: Conceptual Framework. Unit of Analysis: Results are compared across two different units of analysis. The primary question (why do corporate responses differ?) means that the main unit of analysis is the organization; responses are compared between companies. In order to be able to describe organizational level responses, this paper also describes how within each of the companies, various units have had to coordinate their actions, and how intra-organizational factors affected overall corporate responses. Logic Linking Data to Propositions: The logic linking data to propositions lies in the analyses 19 (i.e. the dominant inference patterns of the models and supporting tables) used to compare the data to the propositions proposed in the four models of the conceptual framework. The analysis of case study evidence is one of the least developed and most difficult aspects of doing case studies (Yin, 1989:105). Eisenhardt too, (1980:539) points to analysis of case study data as the most difficult and the least codified part of the case study process. Yin (1989) suggests that one general strategy for data analysis is to rely on the use of theoretical propositions. Pattern matching is suggested as a mode of analysis, whereby an empirically based pattern can be compared with a predicted one (or with several alternative predictions). If such patterns coincide, the results are suggested to increase the internal validity of the case. In this study, the blueprint for the "pattern matching" was provided by the conceptual framework, the dominant inference pattern and the propositions outlined in the four models. Another suggestion is the creation of "table shells" prior to analysis, and this too was undertaken, though only a few of the "table shells" finally were used, following some revisions. Criteria for Interpreting the Findings: The criteria used forjudging the quality of research design are construct validity, internal validity, external validity and reliability (Yin, 1989:40).11 The efforts at increasing the construct validity of this study came from establishing a chain of evidence and trying to use multiple sources of evidence where possible. Internal validity was established through pattern matching and explanation building using the conceptual framework. "Construct Validity refers to establishing correct operational measures for the concepts being studied. Internal Validity refers to the degree to which a causal relationship is shown to be the result of manipulation of independent variables. External Validity refers to the degree to which the study's findings can be generalized. Reliability refers to the degree to which the operations of a study can be repeated with the same results. 20 The external validity of the case study is limited in that the results should be used for analytic generalization only as opposed to statistical generalization. The method of generalization used here is analytic generalization under which a previously developed theory is used as a template with which to compare the empirical results of the case study. Yin describes this kind of generalization as a level one inference in which the results of the case study are generalizable at the level of the theory development on which the case study is based (Yin, 1989:38). In order to increase the reliability of the study, an evidentiary database was created. An evidentiary database is separate from the researcher's report (Yin, 1989). For example, in this paper the evidentiary database for government actions includes copies of the B .C . Statutes and Regulations, the summaries of provincial ministry annual reports and notes on other government documents. The evidentiary database for corporate responses includes summaries of annual reports and newspaper reports, and interview transcripts. 2.4 Research Procedures First a literature review was undertaken to specify the research question and establish its relevance. A review of empirical research provided an idea of methodologies used in this general field of inquiry, and of theoretical frameworks used to guide empirical data collection. Following this, some preliminary data on government and environmental group actions was collected, as well as information on corporate responses from annual reports dating back to 1983. An initial rough eclectic conceptual framework was developed based on a review of organization theory literature. 21 Collection of empirical data on government actions resulted in a large amount of information which was summarized in a chronology (Appendix A). Environmental group actions were also summarized in short chronologies specific to the issue. From these, the most important actions were selected, which would later be used as a basis for discussion with interviewees from corporations (Appendix C). This stage of the research identified the corporation's operating context with respect to environmental issues, and provided perspective on the substantive nature of the issues facing the company. This step in the research process was critical in defining "what" the company was responding to. Data sources on government actions included B .C . Statutes, B .C. Regulations, Ministry of Forests Annual Reports (1980-present), Ministry of Environment Annual Reports (1980-present), and other provincial government documents. Information on the actions of environmental groups directed at the corporations being studied came primarily from newspaper reports. Empirical data on corporate responses was collected from secondary data sources (annual reports, company newsletters and newspaper reports) and from primary data sources (personal interviews with key informants). Miles and Huberman (1984:49) suggest that in qualitative research, data collection and analysis should proceed iteratively, "the ideal model for data collection and analysis is one that interweaves them from the beginning." This approach was used in this study with considerable overlap between the research stages described above. For example, as it became increasingly apparent which government actions were most important to the company, government documents were once again analyzed for further information on those specific actions. As the theoretical framework continued to be developed, annual reports were read again to find more data on those variables which were increasingly becoming recognized as important. Eisenhardt (1989:541) 22 suggests that the central idea behind building theories from case study data is that researchers should constantly compare theory and data—iterating towards a theory that closely fits the data. Some data analysis was done subsequent to each data collection stage, and the conceptual framework continued to be defined and redefined throughout the course of the research. 23 3.0 L I T E R A T U R E R E V I E W 3.1 Introduction In the last decade, the topic of "environmental management" has found its own niche in academic literature on business management. What is environmental management? Environmental management has been defined as "the integration of the environmental dimension into an organization's management structure, decision-making processes, feedback procedures, and control and correction loops."12 An increasing number of articles now deal specifically with "the corporate response to the environmental challenge."13 However, since research and writing on environmental management for business is a newly emerging segment of the literature, much of it is in the conceptual and exploratory phases (Post, 1992:5). Empirical research for the practitioner has by far outpaced theoretical analysis of the topic. A large number of books or research studies (often by management consulting firms) have been published which deal with implementation of environmental management systems in organizations (Hunt & Auster, 1990; Arthur D. Little Inc., 1989). The analysis of environmental issues is not in itself a new topic. If environmental management is seen as a sub-area of "issues management" or "corporate social performance" research, then one finds a substantial body of literature dating back to the early 1970s. Similarly, if environmental management is seen as a subset of the strategic planning literature in which organizations pay a great deal of attention to external events and forces affecting their I^nternational Network for Environmental Management. (1991) Introduction to INEM. Hamburg :INEM. 13For example, the October 1995 issue of the Academy of Management Journal was a Special Topic Forum on Ecologically Sustainable Organizations. The Leadership Quarterly devoted its Issue No.3/4 in Vol.5 (1994) to environmental leadership. 24 operations, then too, one finds a large area of literature which dates back to the early 1970s. What is new in the latest wave of literature on the topic is the recognition that environmental issues by their very nature can alter organizational structure, affect issues of corporate governance, and stimulate the development of new product and process technology. A 1991 study by McKinsey & Company (1991:4) reported that 92% of the 400 firms surveyed agreed with the statement that, "The environmental challenge is one of the central issues of the 21st century." Since there is potentially a very large number of articles, this literature review was narrowed down by keeping in mind the general research question and the specific research objectives outlined in the introduction. Its primary purpose is to be illustrative, rather than exhaustive. In analyzing the literature the following general ideas were kept in mind: identify variables/propositions considered important in the context of environmental management; identify variables/propositions which have found empirical support in the context of environmental management; identify organizational variables which can be used to differentiate organizational responses; identify how variables were operationalized; and identify the research methodologies used in this area. 3.2 Positive/Empirical Literature 3.2.1 Environmental management practice: Much of this literature has been sponsored by companies or industrial associations. Examples of such studies include Howatson (1990), Vaughan & Mickle (1993), Rappaport and Flaherty (1992). For the purposes of this study, this literature has been useful in: (i) identifying factors crucial to successful environmental 25 management; (ii) explaining how environmental issues are incorporated into corporate strategy; and (iii) determining the primary motivation for corporate responses. Piasecki (1995:11-12) quotes from Booz-Allen and Hamilton's brochure on Strategic Environmental Management that the most successful corporate environmental management programs are characterized by: clearly articulated corporate policies and practices; organizational structures which support two-way communication between corporate functions and field units; effective information management and compliance systems; top-level support and commitment; integration of environmental issues into all facets of planning; and risk assessment and risk management practices. Piasecki further suggests that this six part matrix is echoed with minor adjustments from the practitioner brochures of other leading environmental consulting groups (e.g., E R M , A . D . Little and Arthur Anderson to name a few). For successful implementation of environmental objectives, polices and programmes it is essential that supporting organizational structures be established; that environmental polices and programmes be institutionalized; and that environmental planning be integrated with that of traditional business functions (Howatson, 1990; Rappaport & Flaherty 1992; U N Benchmark Survey, 1993). Top management support was found to be a singularly important factor. Japanese corporations were found to integrate environmental programmes into the overall business strategy by involving top management, strategic planning and market research to a higher degree than European and North American corporations (Howatson, 1990; U N Benchmark Survey, 1993). Vaughan & Mickle (1993) in their report Environmental Profiles of European Business found 26 that environmental issues fit into business philosophy in three fundamental ways: as a business opportunity, as a legislative constraint, and as integral to business. The U N Benchmark Survey (1993) finds four predominant management approaches. The lowest level is oriented towards compliance with regulations and is termed compliance-oriented management. This is followed by a preventive management approach aimed at the prevention of pollution and the reduction of resource use. The strategic environmental management approach seeks to seize the business opportunities of growing green markets. The most advanced approach is that of sustainable development management, practised globally by only a handful of corporations. In the U N Benchmark Corporate Environmental Survey of Environmental Management in Transnational Corporations (1993), over 60% of the respondents indicated that the development of environmental policies and programmes were motivated by the enactment of environmental legislation in their home country. This finding is consistent with the results of a 1991 survey by Flaherty and Rappaport (1992) which found that government laws and regulations were the most influential factor in the development of corporate environmental policies. Respondents in the U N Survey reported a relatively minor role for consumer and worker related events in determining environmental policy. In Europe, accidents and malfunctions with ensuing environmental damage were the second most frequently cited reason for change in environmental policies. One-third of North America-based corporations cited legal action as influencing change in environmental policies. The U N Survey (1993) found significant differences in the national regulatory environment of corporations. While the US was described as highly legalistic and contentious, European 27 environmental regulation was characterized by a much closer and more cooperative relationship between regulators and industry representatives. Environmental regulation is seldom enacted before industrial consent has been reached, enforcement is less adversarial, and voluntary agreements and corporate self-regulation play a much more dominant role. Japanese environmental regulation is also relatively cooperative and consensual. Some articles deal with the government-firm relationship in a broad sense, i.e., examining how firms respond to legislation which is not just related to the environment. Lenn et.al (1993) have examined the public affairs/government relations activities of U.S. multinational corporations in Europe. This kind of activity is an important component of boundary spanning activities of the firm (those which link two or more organizations). The public affairs/government relations function was conceptualized along a continuum ranging from "external communication of company ethos (general self-presentation) through participation in public and government policy debates, to direct influence, manipulation, or control of specific strategic policy or regulatory decisions by government actors" (Lenn et.al, 1993:116). Firms which were disengaged from the lobbying process, worked exclusively through industry associations in the area of issues management or representation. 3.2.2 Environmental Reporting by Companies: A number of organizations have surveyed environmental reporting by companies both on a domestic and international basis (CICA, 1994a,b; K P M G , 1993;). Although there is still a lack of quantitative performance data, this does not mean that there has been no improvement in environmental reporting over the last few years (CICA, 1994a:61). The majority of companies have in fact introduced environmental 28 awareness into their business strategies in a qualitative sense, but lack the analytical tools to evaluate costs and benefits of business decisions from an environmental perspective (CICA, l?94a:61). In 1993, 44% of the Canadian annual reports surveyed disclosed some information relating to environmental issues, although the extent of information provided varies from superficial to detailed (CICA, 1994b:9). The Canadian Institute of Chartered Accountants (CICA, 1994a) has summarized these reports on environmental information. The traditional annual report to shareholders is found to provide the best overview of how environmental performance fits within the overall business strategy of an organization, although some organizations also publish a separate environmental report. The basic elements of most environmental reporting frameworks are as follows: organization's profile; environmental policy, objectives and targets; environmental management system; and environmental performance analysis. Concerns about environmental practice have prompted some organizations to look for formal recognition of effective management practice (CICA, 1994a: 10) such as ISO 14000 registration once the series has been developed.14 3.2.3 Impact of Environmental Policy: With a few notable exceptions, the influence that regulation exerts on firm level behaviour and performance is largely uncharted territory (Ramaswamy et al., 1994:64). Shaffer (1992) points out that certain regulations affect the industry in a differential manner, resulting in "winners and losers" in terms of intra-industry The ISO 14000 series is a set of environmental management standards developed by the Geneva-based International Organization for Standardization. 29 competition. In a study of the effects of Corporate Average Fuel Economy (CAFE) regulations on the global automobile industry, regulation was found to have affected the competitive balance in the industry, creating winners and losers. Patterns of adaptation to C A F E show that regulation required a complex strategic response where political action is integrated with product development, sourcing and marketing. The political positions and actions of various auto producers suggest that political strategy complements and is shaped by competitive strategy considerations. Ramaswamy et. al. (1994) explored the influence of governmental regulation on organizational strategies and performance outcomes by means of a longitudinal empirical analysis of the U.S. domestic airline industry. Results indicated that in a regulated context, managerially controlled strategic resource deployments explained a significant proportion of variance in performance. Organizations pursuing efficiency oriented strategies (as opposed to a service and excellence orientation) outperformed others that did not. The results of macroeconomic studies of environmental management initiatives which have been completed for numerous European countries, the US and Canada exhibit surprising similarity. Overall, the macroeconomic studies suggest that the impact of environmental regulations on traditional economic indicators is likely to be modest rather than discrete and significant (ARA, 1993:4-1). The impact on business profitability ranged from -12% to +8%. A major corporate concern with respect to environmental legislation is the cost of compliance with regulations. This emphasis arises from concerns that these costs could compromise financial 30 stability and industrial competitiveness of the company (ARA, 1993:i). A review of studies analyzing this relationship revealed that the costs of compliance can be substantial in absolute terms. Generally, capital costs constitute the largest part of total costs, while incremental operating and maintenance and monitoring/enforcement costs are relatively insignificant (ARA, 1993). However not all initiatives incur heavy costs (ARA, 1993 :ii). Summarizing the impact of compliance costs on the financial performance and competitiveness of industry is problematic because standard indicators are lacking, perhaps reflecting the difficulty of tracing linkages from costs to product prices to demand response. Costs of complying with environmental regulations were generally concluded to have minor impacts on competitiveness (ARA, 1993 :ii). Costs of compliance are not restricted to the private sector. Government also incurs costs in terms of: administration, monitoring and enforcement of regulations, and direct investment in "environmental infrastructure." A 1995 study commissioned by the Forest Alliance of B .C. (Price-Waterhouse, 1995) which analyzed the land use and forest policy initiatives implemented by the provincial government in recent years found that significant adverse effects are expected on the quantity and quality of wood available for harvest, and on the costs of access, logging and stumpage as a result of these initiatives. Using A A C (Annual Allowable Cut) as a proxy for the economic consequence of various policy initiatives on wood supply, the study found that in the short term, the A A C is expected to fall by about 17% (Price-Waterhouse, 1995:49). The study (using other studies as a basis) estimated that a 17% reduction in A A C would result within a few years in a reduction in total employment in B.C. ranging from 1.3% to 4.1%. The corresponding reduction in provincial Gross Domestic Product was estimated to range from 5.1% to 4.3%. The report 31 stated that the while the impact of uncertainty created by these policy initiatives was difficult to quantify, it could result in delayed investment decisions and possibly some diversion of investment away from the Province until the uncertainty is resolved (Price-Waterhouse, 1995:66). Contributions of Literature on Environmental Management Practice: This literature has identified factors which are hypothesized to be crucial to effective environmental management: top management commitment, the integration of environmental issues with general corporate strategies, involvement of many functional business areas, and the development of supporting organizational policies, structures and technologies (Howatson, 1990). A consistent finding in studies was that government legislation was the most significant factor motivating corporations to take action in regard to environmental protection (Rappaport & Flaherty 1992; U N Benchmark Survey, 1993). Several studies attempted to classify overall corporate actions along a continuum ranging from reactive to proactive (Howatson, 1990; Vaughan & Mickle, 1993) . The underlying variable of this continuum which was not always explicitly stated appears to be compliance, (i.e., non compliance; ex post compliance; ex ante compliance; and compliance-plus). As noted above, companies are sometimes affected differentially by the same environmental policies, and strategic choice can also be used by companies resulting in divergent responses to environmental legislation (Ramaswamy, et.al, 1994:64; Shaffer, 1992). The predominant research strategy was the use of surveys and qualitative case studies. Survey research was used to identify differences across companies or industries, but did not examine corporate responses in detail. This literature was generally very practitioner-oriented and did not rely on the use of a theoretical framework to guide the research strategy. 32 3.3 Normative/Theoretical Literature 3.3.1. Models/Approaches to Environmental Management: There are two general streams of literature in this area. The first (Shrivastava, 1995a,b; Jennings & Zandbergen, 1995; Gladwin, et al., 1992) explains why corporations "should" be environmentally managed. Shrivastava (1995a) has explained the concept of "environmental technologies" as a competitive force and a tool for competitive advantage. Environmental technology is defined to include both a set of techniques (technology, equipment and operating procedures) as well as a management orientation. As a management orientation, environmental technologies have spawned environmentally responsible approaches toward product design, manufacturing, environmental management, technology choice and design of industrial systems. Environmental technologies are suggested to offer a new substantive orientation and a management process for minimizing the ecological impact of economic production while enhancing the competitiveness of firms. Since environmental problems are likely to be important for a long time, Shrivastava (1995a) suggests that these environmental technologies should have a sustained impact. Using the resource-based theory of the firm as the cornerstone of his argument, Shrivastava suggests that environmental technologies are a potential strategic resource because they affect the value chain at multiple points. They are capable of providing firms with unique and inimitable advantages at each stage of the value-added chain (Shrivastava, 1995a: 190). Using a short illustrative case study of 3M, Shrivastava (1995a) shows how integrating environmental technologies into strategic management offers competitive advantages in the following areas: cost reduction, revenue enhancement, supplier ties, quality improvement, competitive edge, reduction of liabilities, social and health benefits, strategic flexibility and public image. Investing in 33 environmental technology solutions may not only enable companies to preempt environmental legislation, it may even allow them to shape environmental regulations consistent with their own internal policies. Barriers to the adoption of environmental technology include costs, lack of know-how, organizational inertia and contradictory regulations. The second focal point of this literature is to identify the various stages of environmental management. Post & Altman (1992) offer three models of "corporate greening", each model deals with three different aspects of corporate social performance: organizational processes, environmental performance and organizational change and learning components. The first model proposes a three-phase developmental model of corporate greening, which comprises the stages of adjustment, adaptation and innovation. The second model links environmental performance (low to high) with the three stages of development. The final model maps key change factors which facilitate greening within individual organizations. Starik & Gribbon (1993) have classified current business environmentalism models into three groups: component, direction/degree and combination. Component models focus on various organizational entities such as hierarchical levels, organizational functions, and internal/external interfaces. Direction/degree models have provided labels for describing organizational orientations toward business environmentalism. An example of this is Howatson's (1990) classification of Canadian companies as proactive or reactive. Another example is Shrivastava's (1995b) use of Porter's (1980) generic strategies (least-cost strategy, differentiation strategy and niche strategy) as applied to ecological sustainability. Combination models utilize both components and orientation to develop a more comprehensive view of business 34 environmentalism. 3.3.2 Environmental Issues in Different Functional Areas: A comprehensive review of the incorporation of environmental issues in the accounting function of the corporation has been given by Rubenstein (1994). Accounting values what society values. As these values change over time, accounting has to change accordingly. There are two problems with current accounting practices: (1) financial statements currently only provide a very partial assessment of full monetary and environmental operating costs and give little insight into the state of the natural resources upon which companies are economically dependent (North, 1992:79); and (2) traditional accounting is limited in accounting for "non-business" values (Rubenstein, 1994:7). For example, in many companies, the installation of pollution-control technology is accounted for as an "expense", with a corresponding negative impact on the bottom line. Work done by the International Network for Environmental Management (INEM) has led to the development of an INEM model which examines the environmental impact of a company's own operations including everything a company owns, leases or rents (Rubenstein, 1994:28). The core accounting includes an analysis of energy use and the disposal of waste products, with a focus on natural resource thrift. Currently, the Canadian Institute of Chartered Accountants, the Canadian Standards Association and the International Institute of Sustainable Development, among others, are all working to develop a set of accounting guidelines which will reflect accounting for environmental protection to a greater extent. The incorporation of environmental issues in the marketing function of the firm has spawned a 35 whole new buzzword as well as a body of literature which deals with "green marketing." Peattie sees green marketing as a new variation of traditional marketing techniques and strategies defined as "the management process responsible for identifying, anticipating and satisfying the requirements of customers and society in a profitable and sustainable way" (Peattie, 1992:11). Coddington's treatment of environmental issues in the company's marketing function defines environmental marketing as "marketing activities that recognize environmental stewardship as a business development responsibility and business growth opportunity" (Coddington, 1993:1). Coddington suggests that environmental marketing involves both perspective and know-how, and that it is absolutely essential that a commitment to total quality environmental management be in place before an environmental marketing program is launched. His book covers topics such as environmental intelligence; the consumer market; segmentation of consumers by greenness; regulation and product certification, and the environmental marketing infrastructure (i.e. regulatory bodies, technical institutions, policy institutions). Additional topics include green-product development, green-product positioning and environmental communication strategies. Welford's (1995:155-7) treatment of green marketing suggests that within the marketing mix, environmental priorities should be identified on the following checklist: corporate policy; product policy; packaging; promotion policy; pricing policy; transportation policy; quality; personnel policy; and environmental information systems. Another aspect of environmental marketing is that of eco-labelling schemes which have been devised in a number of countries to promote the use of production methods which are less harmful to the environment. Consumers identify environment-friendly products by means of 36 environmental labels such as the Blue Angel in European Community countries (North, 1992:45). These schemes attempt to provide an independent recognition of the positive environmental profile of an individual product; often based on life cycle assessment (Welford, 1995:165). The first such scheme was introduced in the (then) Federal Republic of Germany in 1978 (Welford, 1995:164). In Canada, the Canadian Standards Association introduced a new certification standard for Sustainable Forest Management in 1996 to meet the demand for forest products from sustainably managed forests. The human resources function of the firm is likely to be increasingly affected by environmental issues for two reasons. Firstly, employee training (or retraining) is one of the most critically affected areas in corporate response to environmental issues. Good environmental education and training of personnel in industry and regulatory agencies is crucial for the improvement of environmental performance of industry, and is a prerequisite for achieving sustainable development (Ecotec, 1992). A study by Ecotec (1992) presents an occupational analysis of key environment-related jobs (e.g., environmental manager, effluent manager) in terms of tasks, required skills and competencies, and training. The problems in the implementation of employee training programs lie in their being tailored to specific job responsibilities (which increases costs) and in convincing employees that the programs are necessary. North (1992:81) contends that environmental thinking starts at the recruitment stage and that personnel management tools should include not only training and administrative rules, but remuneration and incentive schemes. Secondly, environmental issues often pose serious health concerns to workers. As Schrecker 37 (1993:15) puts it, "In many ways, workers were the first environmentalists." Workplace pollution has been a major concern of the labour movement for over a century and unions have been in the forefront of resistance to "job blackmail "-the argument that pollution and other kinds of environmental damage have to be tolerated as the price of progress (Schrecker, 1992:15). 3.3 Theoretically Grounded Empirical Studies: Miles (1987) has developed a grounded theory of corporate social performance based on studies of firms in the insurance industry. Two dimensions of corporate social performance have been defined: corporate social responsibility and corporate social responsiveness. Corporate social responsibility concerns the outcome of the corporation's behaviour, whereas corporate social responsiveness refers to the processes developed for understanding and responding to developments in the corporate social environment. The framework developed by Miles is based on three features. The first of these, and the one for which the strongest support was found, is the philosophy-strategy connection (Miles, 1987:8). The essence of this connection is as follows: Institution-oriented companies pursue an external affairs strategy that is collaborative and problem-solving in nature. Enterprise-oriented companies pursue an external-affairs strategy that is individualistic and adversarial in nature.15 The external affairs function of the firm is assumed to play an important role in managing the corporate social environment, and it was described along the dimensions of 1 5An enterprise-oriented company has been defined as one in which the corporate external affairs function is oriented toward protecting the company's economic self-interest (Miles, 1987:48). In institution-oriented companies, corporate external affairs activities are aimed at the long term interests of the company and the industry as a whole. 38 breadth16; depth; influence and integration; and line-manager involvement. A key finding by Miles (1987:14), was "the relatively enduring influence of the history and character of a corporation on its contemporary approach and effectiveness in the area of social performance." Greening (1992) has developed a conceptual model of how firms are structured to address impending social and political issues,17 and to explain the relationship between certain environmental factors, organization factors and firm structures in one industry. To examine these relationships, an institutional theory perspective is adopted as environmental actors pressure firms, both to respond to impending issues and to develop internal structures to manage their responses. Predictions based on resource dependence theory are also offered to explain the role that top managers play in managing their dependency on external stakeholders. It is suggested that a key factor which is influential in explaining variance in issues management structures is whether or not a firm has experienced a crisis (Greening, 1992:86). Firms experiencing crises often suffer a loss of legitimacy due to their apparent negligence in addressing situations that affect their constituents. A critical reason why firms develop structures isomorphic with institutional pressures is the legitimacy they receive from important stakeholders. Greening (1992) hypothesizes that interest group pressure and firm-specific media exposure are positively associated with high levels of issues management development, as is 16The theoretical basis for this dimension stems from the contingency theory of organization. Contingency theorists argue that organizations are effective to the extent that their internal structure is of sufficient complexity to cope with the complexity of the external environment to which the organization is exposed. The more complex the external environment, the greater the need is for the organization to have specialized units to deal with each major element of the external environment (Miles, 1987:55). 17Issues are defined here as follows: Issues are often not resolved in the marketplace, but are addressed through a public policy process that includes public controversy, legislation, regulations and often litigation (Greening, 1992:84). 39 experiencing a crisis. Organizational size and top management philosophy are proposed as moderators of the effect of crises, interest group pressure and media exposure on issues management development. Five structural components of issues management development have been defined: formalization, committee use, resource commitment, integration with strategic planning and integration with line functions. In a later article, Greening and Gray (1994) have extended the original model from Greening (1992) to advance a contingency model of the issues management process. Their results suggest that institutional and resource dependence explanations are distinct but complementary. Firms respond isomorphically to some institutional pressures and exercise discretion in the face of other pressures. Although institutional pressures create a context within which additional resources can be expended to manage issues, firms' top managers exercise discretion about whether to elaborate and formalize in-house activities, to engage in impression management tactics to influence media exposure, or to contract out issue management activities. Corporate social and financial performance may best be explained by a contingency model incorporating environmental factors, top management discretion, firm capabilities and response choices. Bhambri and Sonnenfeld (1988) hypothesized that companies which exhibit strong social performance show high receptivity to public affairs, have effective integrating mechanisms to coordinate their public affairs information; and are influenced in their general management i decisions by public affairs activities. Their hypotheses stem from the work of contingency theorists who have suggested the establishment of inter-unit coordinating structures as a mechanism for connecting organizational units in the face of environmental uncertainty. 40 Although contingency theorists have encouraged the study of differentiated boundary-spanning units and inter-unit coordinating structures, more recent writers have added emphasis on the need to consider the acquisition and maintenance of power by those units (Bhambri & Sonnenfeld, 1988:645). Thus they conclude that in the public affairs domain, maintaining the visibility and importance of public affairs information becomes an especially important responsibility of top management because in the absence of visible support from top management, pressures for short-term performance on line managers tend to override the relatively long term consequences of public affairs imperatives. Conclusions: When it comes to identifying the source of pressures on corporations, the literature is consistent in identifying government actions as the primary motivator. Pressures from interest groups are also significant factors. The limited evidence suggests that firms operating in the same context do respond differently and that environmental issues may be used as a source of competitive advantage. The literature has identified many organizational attributes which influence an organization's ability to adapt to these external pressures. These attributes include: size, top management involvement and commitment, integration of boundary-spanning activities with internal operations, and technology. The literature suggests the importance of studying corporate history and character (Miles, 1987:282). Some studies (e.g. Dillon & Fischer, 1992) consider crisis to be a motivator of organizational response, whereas Greening (1992) suggests that it may also have the effect of "inertia" whereby it induces paralysis in organizational response. In terms of organization theories, institutional theory (in conjunction with some insights from the resource dependence perspective) was found to be useful in explaining some aspects of organizational response to environmental issues. 41 In many corporations the nature of change has been far-reaching and the literature demonstrates that a holistic cross-functional approach to environmental management may be an emerging reality for many large firms (Starik & Gribbon, 1993). Little empirical and predictive research has been done concerning how firms are structured to address environmental issues and how the process of addressing issues is integrated into ongoing operations and planning. As Shrivastava (1995b:56) puts it, "the challenge facing organizational scholars is to flesh out organizational pathways to ecological sustainability." 42 C O N C E P T U A L F R A M E W O R K 4.1 Choosing and Defining a Conceptual Framework The objective of this study is to empirically analyze the reasons why corporations differ in their responses to environmental policy using established theories of organization. This section builds a conceptual framework based on four theories of organization to serve as an analytical blueprint for describing how companies respond to environmental challenges, in order to explain observed divergence in their responses. Developing and implementing environmental strategies is a very complex matter which simultaneously affects many different functional areas of the firm (Starik & Gribbon, 1993; Coddington, 1993). There are multiple contingent factors operating at various organizational levels: individual, department, division, and organization. Using the appropriate level of analysis is an important methodological issue in organization theory (Roberts, Hulin & Rousseau, 1978). The unit of analysis should correspond to the level of the theoretical mechanisms that are presumed to be affecting the dependent variables, and units of analysis must be defined inclusively enough to incorporate the variation of interest (Pfeffer, 1982:15; 16). Since the objective of this study is to compare organizations, the relevant unit of analysis here is "organizational action". In choosing theories on which to base the conceptual framework, those theories of organization were considered which can explain organizational action. Besides the level of analysis issue, different organizational theories are based on different assumptions about the nature of organizational action: whether it is intendedly rational, externally constrained, or emergent and random (Pfeffer, 1982:5). These underlying assumptions 43 led respective theories to place differing emphasis on variables, process and outcomes. Since different theories have the potential to shed light on diverse facets of the same complex problem, it was decided to use the methodology set forth by Allison in his classic book Essence of Decision (1971): that of using alternative "conceptual lenses" to examine the same problem. As a first step in defining the framework, key management dilemmas with respect to environmental issues were identified (Ibbotson & Phyper, 1996): integration versus differentiation of the environmental function (e.g. should a full time employee be hired, or should their duties be incorporated as a part time duty of someone within their full time job?); compliance versus compliance-plus strategies; the tradeoff between short term profitability and long term sustainability (e.g. what are the competing demands for capital at the present time?); and incentives to improve environmental performance. From these underlying practitioner dilemmas, stem the following theoretical questions: How does a corporation's environmental strategy relate to its general corporate goals? What resources are available to the organization to address environmental issues? What kind of environmental strategy will the corporate culture be able to support? How necessary is it to respond to environmental imperatives? How will responsibility for environmental goals be divided between departments? How will departments coordinate their efforts towards the achievement of these goals? Four theories were chosen as "conceptual lenses" with which to undertake this analysis: (1) The theory of rational choice has long dominated economic theories of organization. It makes predictions on organizational choice based on assumptions about rationality and choice among alternatives based on cost-benefit analyses, where the costs and benefits are specific to the firm 44 conducting the analysis. (2) Institutional theory has been used to make predictions about corporate responses to its external institutional environment, based on the nature and sources of external pressures directed at the company. The theory also examines how the organization's internal institutional environment is characterized by stability through the ritualization of organizational processes and structures, independently of efficiency considerations. (3) The theory of bureaucracy makes predictions as to how the actions of a large number of individuals are aggregated to produce "organizational action". (4) Leadership theory describes how organizational action or change can result from characteristics of the organizations' leadership, contingent on situational factors. Table 4.1 summarizes the issues addressed by these four theories. The following four sub-sections discuss each of the models as they are used in this paper. Each sub-section begins with a short literature review, followed by an outline of the model. Each model is explained in terms of its unit of analysis, organizing concepts, dominant inference pattern and propositions. 4 . 2 The Theory of Rational Choice 4.2.1 Literature Review: Although the number and type of corporate stakeholders has grown and diversified greatly in the last two decades, publicly-held companies are still primarily accountable to their shareholders. Managers may now have to consider factors besides the bottom line but financial profitability remains the principal goal. The financial solvency of a company is an important criteria of corporate social performance (Miles, 1987). Investment projects are still undertaken largely on the basis of financial cost-benefit analyses. Within the specific context of the forest industry, investment in environmental improvements often involves large capital outlays which have significant effects on profitability and sometimes, on firm 45 T A B L E 4.1 ISSUES ADDRESSED B Y M O D E L S RATIONAL CHOICE M O D E L INSTITUTIONAL M O D E L • what is the "problem" as defined by the organization? • what are the feasible alternatives for the organization? • what is the organization's method of choosing among alternatives? • what are the consequences of various alternatives? • what is the organization's preference ordering? • what was the degree of social legitimacy and economic gain perceived to be attainable from conforming to institutional pressures? • how many different institutional pressures were there and to what extent were these pressures contradictory, i.e. pulling the organization in different directions? • how consistent were external pressures with internal organizational goals and norms? • what methods were used by institutions to exert pressures on the organization? •what political forces support/oppose institutional pressures and to what extent are they for/against change? BUREAUCRATIC M O D E L LEADERSHIP M O D E L • to what extent do organizational outcomes coincide with intended organizational goals? • what is the process of defining organizational objectives? • what are the methods used by individual organizational members to make decisions and how do these lead to the realization of stated organizational goals? • how does competition between organizational departments influence organizational outcomes? •how did the relative power of various coalitions influence outcomes? • to what extent are organizational goals consistent, and what is the process by which they are defined at various organizational levels and departments? • what motivated change, and what was the role of crises in motivating change? • what was the leader's role in motivating organizational change? • how effective was the leadership vision as a means of providing a solution to organizational problems? • how did the corporate culture support/not support implementation of leadership vision? • were the organizational resources to support the leadership vision available, and how effectively were they deployed? • how did the relationship between the leader and employees affect implementation of the leadership vision? • did employees perceive the leader's authority to be legitimate? was the leader charismatic and able to motivate them? did they internalize the leader's vision? •how do power and politics affect outcomes? 46 solvency. For some products, the production function is fixed (at least in the short term) and the firm is a price-taker on the global market for many commodity-grade products. The economic rational choice theory of the firm is useful in this situation as it generally assumes that the objective of the firm is to maximize profits, given prices and a technologically determined production function. The rational choice approach is used in public policy research to explain issues such as firm noncompliance in environmental reporting (Brehm & Hamilton, 1996;18 Hamilton, 1993). Although firms were traditionally assumed to operate in perfectly competitive markets, the theory of rational choice was extended to cover either imperfect factor or product markets; or both. The assumptions of rationality in the theory of the firm can be reduced to two propositions: (1) firms seek to maximize profits; and (2) firms operate with perfect knowledge (Cyert & March, 1963:9). Rational behaviour is characterized by the following four features: individuals have a known set of alternatives; a knowledge of the consequences of alternative actions (at least up to a probability distribution); a consistent preference ordering; and a decision rule (to select an alternative on the basis of its consequences) (March, 1981:210). Standard assumptions of the rational choice model include transitivity, dominance and invariance.19 Brehm & Hamilton (1996:446) argue that a firm choosing to comply with a regulation trades-off marginal costs of compliance with marginal benefits likely to accrue to the firm. The marginal benefits of compliance often relate to the expected value of fines avoided which are in turn a function of the probability of inspection, the likelihood a violation will be found, and the magnitude of the penalty likely to be assessed. 19The assumption of transitivity states that A is preferred to B when u(A)>u(B). The assumption of transitivity is violated when it is not possible to assign to each option a value that does not depend on other available options, i.e., when the consequences of an option depend on the alternatives to which it is compared. Preferences are transitive over actions. The assumption of invariance states that preference between options will be independent of their descriptions. The dominance assumption states that if one option is better than another in one state, and at least as good in all other states, it will be chosen (Tversky & Kahneman (1986:S252). 47 While the durability of this simple structure of rational choice has been impressive, it has been subject to two kinds of criticism: firstly, that human beings cannot be nearly as rational as the model assumes and secondly, that the model anaesthetizes human reason by ignoring basic questions of value, morals, conflict and teleology inherent to human purpose (Van de Ven, 1983:38-39). Another criticism relates to the treatment of the organization as a single actor endowed with a set of goals and the capacity for pursuing these goals, but Bendor & Hammond (1992:305) point out that although it is easy to criticize the assumption that the nation [or organization] is a single actor, many abstract analyses require treating an aggregation of human beings as a single unit. The maximizing aspect of rational choice and human limitations to rationality (i.e., limited cognitive capacity) were addressed by the emergence of a subset of theories of rational choice emphasizing "bounded rationality" and "satisficing behaviour" (Simon, 1957).20 Relaxing strict assumptions about rationality allowed for the recognition of the limits to human cognition while staying within the spirit of rational choice theory (Abell, 1995). Another broadened conception of rationality includes rule-bound behaviour21 which can be carefully considered, reflecting lessons of experience and the process by which rules are determined and applied (March & Olsen, 1989:22). In spite of these modifications this approach still retains important features of the "rational man" hypothesis, the most significant being that of consequential logic—means are subordinated to ends and action to intentions (Warglien & Masuch, 1996:4). Consequential logic implies that actors order choice processes following a 20Bounded rationality refers to the constraints on the information processing capabilities of the actor (Simon, 1972:162). Satisficing behaviour refers to a process in which search for alternatives stops when a satisfactory one is found (Simon, 1957). Simon (1978) recognized that search is costly and Lindblom & Braybrooke (1970) pointed to incremental decision making as another aspect of bounded rationality. 21For example, Scholz & Pinney (1995:491) suggest that in routine decision situations that do not merit full cognitive effort, actors may use heuristics (cognitive short cuts). 48 chain of premises and consequences, leading to outcomes connected to intentions (March & Olsen, 1989). Even with the changes to critical assumptions regarding human behaviour, the internal logic of the rational model continues to be questioned. Elster (1989) suggests several circumstances under which the rational choice theory fails to yield unique predictions: there may be several options which are equally and maximally good, or no option with the property that it is at least as good as any other. Tversky & Kahneman (1986) argue that the logic of choice does not provide an adequate foundation for a descriptive theory of decision making because the deviations of actual behaviour from the normative model are too systematic and widespread to be ignored. They propose that normative and descriptive analyses of choice be pursued as separate enterprises. Brehm & Hamilton (1996:444) suggest that the increasingly common regulatory tools which delegate the duty to provide information to regulated entities create new problems in principal-agency models of regulation. Critical analyses of rational choice models suggest some advances. In applying the rational choice model to the problem of voter turnout (Aldrich, 1993:264-5) argues that in low cost-low benefit decision making problems, small changes in costs and benefits can make a significant difference. He suggests that there are more "errors" made by decision makers in low (versus high) cost-benefit contexts, measurement error is more consequential, and a large range of variables that contribute small quantities of costs/benefits and that are generally impossible to measure completely will have greater impact on decisions. Sylvan et al., (1990:109) contend that political decision making results from interacting information-processing mechanisms (the actor's 49 use of knowledge and experience in exploring space of choice and action) and political mechanisms. According to them, the situation determines available options. Even with minimal assumptions about rationality, one can determine choices from a knowledge of the problems faced by the actor (Sylvan et. al., 1990:109). A classic interpretation of the rational choice model is that advanced by Allison (1971). Bendor & Hammond (1992) have sought to redress the "surprisingly little examination of the content and internal logic" of this model. They propose that rational actor models in international relations should have two essential components: a decision-theoretic component covering decision maker attributes and a game-theoretic component covering strategic interactions. They suggest that the decision-theoretic component can be enriched by attention to goals, time and uncertainty. They propose that rational models include multiple goals (ordered through utility functions to resolve intra-personal conflict). The fact that a chosen option may not be optimal for other goals does not imply that other goals were irrelevant to the decision (Bendor & Hammond, 1992:306). To address the problem of a single-time period orientation, they suggest that a rational agent must aggregate, into a single measure, costs and benefits that may be spread over a long time, making assumptions about the long term orientation of the actor. To address how an actor makes optimal choices under uncertainty, they suggest making assumptions about the agent's attitudes towards risk. The theory of rational choice is first and foremost normative, and from this normative account, explanatory theories are derived by assuming that people are rational in the normatively appropriate sense (Elster, 1989:3). Tversky & Kahneman (1986:S251) suggest that the use of 50 a normative analysis to predict and explain actual behaviour is defended on the basis that: (1) people are generally thought to be effective in pursuing their goals particularly when they have incentives and opportunities to learn from experience; (2) Competition favours rationality because optimal decisions increase survival chances in a competitive environment; and (3) The axioms of rational choice contain intuitive appeal. The use of a largely normative model based on a narrow interpretation of economic costs and calculable benefits to the firm is justified here on the grounds that it provides a baseline to assess behaviour, a departure point to start explaining unexplained behaviour. "There is a genuine danger that interpreting costs/benefits broadly will make the rational choice theory tautological. If everything is a cost/benefit, the theory predicts everything which is the same as predicting nothing" (Aldrich, 1993:275). 4.2.2. Model A—A Model of Rational Choice:22 Organizational Action as Rational Choice. I. BASIC UNIT OF ANALYSIS: The theory assumes that organizational action is the result of deliberate, rational choice by a decisionmakers). II. ORGANIZING CONCEPTS Decision Agents: The theory implicitly assumes boundedly rational, unitary decision making processes which are goal oriented. The primary decision agent is at least boundedly rational and is able to consider a restricted number of choice alternatives as well as a restricted number of The model used here is based largely on the classical model of rational choice as used in Allison's Essence of Decision (1971:32-35), with modifications to account for advances and criticisms addressed in the preceding literature review. The modifications include recognition of the limits to human cognition (the decision maker considers a limited number of alternatives as opposed to all alternatives; the decision maker searches for satisfactory alternatives as opposed to maximally optimal alternatives). To address the issues of time orientation and risk preferences raised by Brehm & Hammond (1992), it is assumed here that the decision maker is risk averse and has a short-term orientation, placing greater value on options which have tangible short-term befits as opposed to less tangible long term benefits. 51 important consequences for the possible choice alternatives.23 The decision maker is assumed to have a consistent preference ordering which is transitive and invariant. Definition of the Problem: Actions are chosen in response to a well defined strategic problem, keeping in mind an organization's goals, its strengths and weaknesses, and threats and opportunities within key markets. Selection Among Alternatives: Action is conceived as a steady-state choice among alternatives at the organizational level. It is implicitly assumed that there is coordination between organizational divisions, and that each division can represent its objectives. Alternatives are chosen through satisficing behaviour, i.e., the first satisfactory alternative is chosen. Stakeholder Relations: To whom is the organization accountable? The rational model makes no explicit mention of organizational stakeholders. Since economic theories have traditionally assumed profitability and efficiency to be the primary organizational goals, this implies that shareholders are the primary stakeholders. The objectives of other stakeholders are considered in terms of their impact on shareholder value. In the case of stakeholder conflict, responsibility to shareholders would be given priority, and used as a basis for preference ordering among alternatives. III. DOMINANT INFERENCE PATTERN: If a particular action is taken, this is because the The use of bounded rationality as opposed to (pure) rationality implies here only that the decision maker considers a limited number of alternatives (as opposed to all alternatives), and that consequences of alternatives are considered upto a probability distribution. 52 corporation had objectives towards which that action constituted a satisficing means. Problem solving involves defining a problem, setting goals, choosing courses of action that will result in desired outcomes, and then repeating the process until the problem is solved. Alternatives which are finally chosen are expected to lead to certain outcomes (at least up to a certain probability).It is assumed that the organization continuously scans available alternatives, and adjusts its investment portfolio according to changes in these alternatives (Cyert & March, 1963:45). The consequences of alternatives to the firm are calculated, at least in terms of approximate probability distributions. Recognizing that search (for information on consequences of alternatives) entails costs, the firm invests in information only as long as expected marginal revenue from information gained exceeds the marginal cost of obtaining the information. IV. PROPOSITIONS A l : The choice between alternatives is most likely to occur based on the results of cost-benefit analyses (which are calculated based on costs and benefits specific to the organization); those alternatives will be chosen in which economic benefits to the firm exceed economic costs to the firm. A2: A positive cost-benefit analysis increases the likelihood of an alternative being chosen, while a negative cost-benefit analysis decreases the likelihood of an alternative being chosen. A3: Marginal changes in costs and benefits are most likely to have an impact on low cost-low benefit decision making problems, i.e., small changes in costs and benefits can make a significant difference to the choice of alternatives in low cost-low benefit decisions. V . IMPLICATIONS OF PROPOSITIONS: In the context of this research, these propositions suggest that the primary method used by the organization to choose between alternatives is a cost-benefit analysis in which economic costs and benefits to the organization are calculated. The implication is that when faced with a problem, alternatives are specified which are likely to fulfil 53 the organization's goals and that a systematic choice process takes place to determine which alternative will be chosen. A major point is that alternatives are evaluated on the basis of calculable economic costs and benefits to the firm which will be reflected in financial statements. Some economic benefits of environmental measures to which dollar values can be assigned include: cost savings due to reduced energy and resource consumption; reduced fines and penalties; and increased marginal contributions of "green" products sold at higher prices. The first two propositions (Al and A2) suggest that environmental protection measures are only likely to be undertaken if they contribute to profitability or if the net benefits exceed the net costs. Proposition A3 implies that there may be greater variability in choice of alternatives (and therefore higher room for error) for those environmental issues which are considered to be of secondary importance in that the alternatives chosen to address them incur lower costs and offer lower benefits. On such issues, marginal differences in costs and benefits can make the difference between an alternative being chosen or not. 4.3 Institutional Theory24 4.3.1 Literature Review: Institutional theories of organization represent an important break with rational-actor models and a promising strategy for modelling and explaining instances of organizational changes that are not driven by processes of interest mobilization (DiMaggio, 24The review of institutional theory offered here is based primarily on its use in organization theory. However it is recognized that institutional approaches have been used in economics, political science and sociology. In political science, e.g., a feature of the new institutional perspective is its emphasis on the relational character of institutions and the way in which a given institutional configuration shapes political interactions. DiMaggio & Powell (1991a:7) point out that the disparities among the various approaches are illustrated by their respective definitions of institutions. When one moves from the new institutionalism of economics and public choice to that of organization theory, the term institution takes on a different meaning. Unlike institutional economists and public choice theorists, the more sociologically oriented branch of institutionalism does not view institutional arrangements as adaptive solutions to problems of opportunism, imperfect information and costly monitoring (DiMaggio & Powell, 1991a:9). 54 1988:3). Tolbert & Zucker (1996:176) suggest that institutional and rational models should be treated as two ends of a continuum of decision making processes and behaviours and that a key problem for research is to specify conditions under which behaviour is more likely to resemble one end of this continuum or the other. Institutional theory has been successfully used as a theoreticalbasis for empirical research in the area of environmental management (Greening, 1992; Greening & Gray, 1994).25 Its relevance stems from its ability to explain the impact of externally imposed institutional pressures on the process of adaptation of corporate norms in order to increase the corporation's legitimacy in the eyes of society. Legitimacy is an important theoretical variable which, in the context of the forest industry in B . C . , has a great deal of practical significance. Forest companies are the trustees of a publicly-owned resource as tenure holders subject to an elaborate administered contract. Public perceptions of their reliability in being the custodians of this resource, to some extent determine their future access to this resource. Under the (new) institutional approach to organizational theory (see, e.g., Meyer & Rowan, 1977; Zucker, 1987; DiMaggio & Powell, 1983; Scott, 1987), whose "birthday" has been defined (DiMaggio & Powell 1991a) as 1977, organizations tend to assume structures which are isomorphic with their institutional environments and whose formation is driven by these external institutional pressures. The process of homogenization which occurs when organizations attempt to obtain legitimacy by conforming to external institutional pressures is labelled isomorphism and DiMaggio and Powell (1983:150-4) have proposed three mechanisms of institutional 'In these studies the propositions were limited to the identification of external institutional pressures. 55 isomorphism.26 Institutions have been defined as "cognitive, normative, and regulative structures and activities that provide stability and meaning to social behaviour. Institutions are transported by various carriers—cultures, structures and routines—and they operate at multiple levels of jurisdiction" (Scott, 1995:33). External institutions include various levels of government, as well as interest groups and public opinion (Oliver, 1991:147). The underlying assumption is that organizations are social as well as technical phenomena, and that their structures and processes are not shaped by pure technical rationality (Westney, 1993:54). A key proposition of this theory is that organizations are more likely to survive if they obtain legitimacy and social support from their external environment (Evan, 1993:11). In the late 1970s and 1980s, research in institutional theory (DiMaggio & Powell, 1983; Meyer & Rowan, 1977; and Zucker, 1977, 1987) examined the nature of institutional processes and their influence on organization structure. Various versions of institutional theory differed in their emphasis on the process of institution building27 and the key problems they addressed. DiMaggio & Powell (1983) analyzed the reasons why homogenous organizational forms arose within the context of highly institutionalized external environments. Meyer & Rowan (1983) defined institutionalization as "the processes by which social processes, obligations or actualities come to take on a rule-like status in social thought and action" (Meyer & Rowan, 1983:22). 26Coercive isomorphism results from organizational patterns being imposed on organizations by other organizations upon which they are dependent, usually the government. Mimetic isomorphism is a process whereby organizations respond to uncertainty by adopting the patterns of other organizations defined as successful in that kind of environment. Uncertainty is hypothesized to encourage imitation. Normative isomorphic organizational change stems primarily from professionalization (the collective struggle of members of an occupation to define the conditions and methods of their work). Occupational socialization, for example, through industry associations, trade association workshops and trade magazines can act as an isomorphic force. 27For example, DiMaggio (1988) views institutions as highly stable whereas Zucker (1988) views institution building as a continuous process. 56 They argued that in order to maintain ceremonial conformity (in order to gain social support and legitimacy), organizations tend to buffer their formal structures from the uncertainties of technical activities by becoming loosely coupled, building gaps between their formal structures and actual work activities. A related empirical finding of relevance to this study is that the presence of legislative requirements can facilitate but does not ensure the institutionalization of new activities (Pfeffer, 1982:248). This is especially true when units created to fulfil legislative requirements are only "loosely coupled" with the rest of the organization. Zucker (1981) found that units which are created as a legislative requirement often serve as little more than signals of apparent compliance with external directives. As external use of information generated by these units increases relative to internal use, the unit becomes increasingly loosely coupled with the rest of the organization (Zucker, 1981:21). In using institutional theory it is important to note that there are several variants of this approach (Scott, 1987:493), and recent work in this area addresses different questions than were addressed by earlier research.28 The earliest versions of institutional theory (e.g. Selznick, 1957) were more concerned with the organization's internal institutional environment: they studied the taken-for-granted character of institutional rules, myths and beliefs as shared social reality and on the processes by which organizations tend to become instilled with value and social meaning (Oliver, 1991). To "institutionalize" meant "to infuse with value beyond the Tolbert & Zucker (1996) point out how, ironically, the institutional approach has yet to become institutionalized: it has developed no central set of standard variables, nor is it associated with a standard research methodology or even a set of methods. "Institutionalization" can be both a property and a process variable. The institutional environment can refer either to the firm's internal or external institutional environment depending on the context of the study. The main problems with the applications of institutional theory have to do with the fact that it is still the early stages of development (Evan, 1993:9). As well certain methodological problems remain unresolved, such as defining the boundaries of an organizational field and measurement of the variable termed "institutionalization". 57 technical requirements of the task at hand" (Selznick, 1957:17). New institutionalism differs from the old on these key points of difference as summarized by DiMaggio & Powell (1991a: 13): it downplays conflict of interest within organizations; structural emphasis is on the symbolic role of formal structure; the source of inertia is the legitimacy imperative; organizations are assumed to be embedded in the organizational field, sector, or society; the locus of institutionalization is the organizational field/society; it is concerned with the persistence of organizational dynamics; and key forms of cognition include classification, routines, scripts and schema. The similarities between the new and old institutionalism include: scepticism of the rational order; an emphasis on organization-environment relations and revealing aspects of reality inconsistent with formal accounts of organization; and descriptions of the role of culture in shaping organizational reality (DiMaggio & Powell, 1991:14a). Recent empirical work in the area of institutional theory is diverse and has examined institutional processes at various levels of analysis. Research has examined the emergence of organizational fields (DiMaggio, 1991); and the industry-wide or organizational-field-wide adoption of practices by organizations (Fligstein, 1991; Mezias, 1995). Institutional approaches have been used to understand the evolution of technological systems (Garud & Kumaraswamy, 1995) and the emergence of universal economic principles under distinct policy regimes (Dobbin, 1995). At the level of the firm, institutional theory has been used to study the origin and transformation of organizations (Christensen & Molin, 1995) and the manner in which one single organization must incorporate different institutional models (Mouritsen & Skarbaek, 1995; Borum & Westenholz, 1995). At the theoretical level, Scott (1994a,b) has advanced a "layered model" synthesizing various levels of institutional analysis and categorizing institutional theories in terms 58 of whether they used variance or process approaches and the level of unit studied (intra-organizational, organizational field, societal). Jennings and Zandbergen (1995) have expanded on institutional theory by advancing several hypotheses to use it as an approach to ecologically sustainable organizations. Their focus is on understanding how consensus is built around the meaning of sustainability, and how the practices associated with it are developed and diffused among organizations.29 Since institutional theory provides a partial explanation of how coherence (the shared social reality of rules, myths and beliefs which constitute organizational norms) contributes to organizational stability (if not necessarily to organizational efficiency), for the purposes of this study, the hypotheses from this area of research are of use in describing the institutional environments of the two companies under study. The forestry profession is highly institutionalized in terms of shared norms, certification processes, trade magazines and membership in professional associations. However this stream of institutional research does not explain how institutional patterns change and how they differ between companies.30 If, for example, two companies from the same industry have organizational norms which come from the professional associations of that industry, then this does not explain why the companies would respond differently to the same pressures. Because these interests are regarded as universal and thus invariant, they cannot in themselves explain variation in organizational structure or practice (DiMaggio, 1988). Allusions to the influence on organizations of actors' 29They suggest that while coercive pressure may be effective in ensuring that a certain practice is adopted by an organization, it may actually reduce the possibility that its content or meaning is adopted. An example of how this would be relevant in this study is if a firm installed end-of-the pipe technology to reduce effluent, but viewed it as little more than a (annoying large) capital cost which takes capital away from other areas of the business. 30The emphasis at this time was on isomorphism, or similarity of structures as opposed to differences in structures. 59 self-interested behaviour tend to be smuggled into institutional arguments rather than theorized explicitly (DiMaggio, 1988:9) and institutional theory has no explicit or formal theory of the role that individual interests and accompanying power differentials play in institutionalization (Zucker, 1988:27). Although the issue of how organizational change comes about is not adequately addressed (DiMaggio, 1988:12), there is agreement that the major sources of change are exogenous and that the range of alternatives available is constrained by mimetic, coercive and normative institutional forces external to the organization (DiMaggio & Powell, 1983). In recognition of the fact that much of the imagery of institutional theory portrays organizations too passively and depicts environments as overly constraining" (Powell, 1991:194), institutional theorists are increasingly beginning to integrate institutional approaches with other approaches such as the strategic approach (Suchman, 1995a)31, or transaction cost approaches (Roberts & Greenwood, 1997). While these integrative approaches have met with the criticism that they obscure the unique theoretical contributions of institutional theory (Tolbert & Zucker, 1996), Westney (1993:58), argues that institutional theory is increasingly portrayed as complementary to, rather than antithetical to, paradigms such as resource dependency.32 Keeping in mind the objectives and research question of this study, the area of institutional research which deals with the interaction between external sources of pressure and organizational 31By "strategic", Suchman refers to the work of resource dependence theorists. 32Tolbert & Zucker (1996:180) write that "the recasting of institutional theory to be more derivative of a resource dependence approach probably reflects, in part, general discomfort with the lack of voluntarism implied by more phenomenologically oriented versions" of this theory. 60 adaptation is most useful for analyzing divergent corporate responses. Such research incorporates perspectives from other theories in order to overcome the limitations of a purely institutional approach. Oliver (1991:145) has elaborated on this aspect of institutional theory by analyzing explicitly the strategic behaviours that organizations employ in direct response to the institutional processes that affect them. By combining institutional theory with insights from resource dependency theory, Oliver (1991) has identified the antecedents of strategic corporate responses to external institutional pressures in terms of cause (why is the organization being asked to change), constituents (who is asking the organization to change), content (what is the organization being asked to respond to), and control (what methods are being used to exert pressure on the organization). These predictive factors are then associated with certain strategic responses (acquiesce, compromise, avoid, defy, manipulate), where these responses are suggested to signify increasing levels of resistance to institutional pressures. Oliver argues that the institutional framework can readily accommodate a variety of strategic responses to the institutional environment when the degree of choice and activeness that organizations exhibit is not assumed to be invariant across all institutional conditions. The institutional model defined below has been formulated with the objective of comparing organizational responses and is based on Oliver (1991) with some modifications.33 4.3.2 Model B: Institutional Model: Organizational Action as Response to External Institutional Pressures. I. BASIC UNIT OF ANALYSIS: The objective of organizational action is to gain legitimacy This paper contributes to the literature by exaniining in an empirical setting, the theoretical framework developed by Oliver (1991). 61 from external institutions upon which the organization is dependent, even though the course of action chosen may not be the most efficient one. II. ORGANIZING CONCEPTS Decision Agents: Decision agents within an organization share some norms which serve to guide their behaviour. Through a process of institutionalization decision agents internalize the norms and values imposed on them by external institutions, and which have been embraced by their own organization. Central to this theory is the assumption that humans have a preference for certainty and predictability in organizational life (Zucker, 1977; DiMaggio & Powell, 1983). Definition of the Problem: The problem is viewed largely as one of gaining legitimacy by accepting externally imposed institutional values, and adopting an organizational structure which facilitates the diffusion of those values. However, the definition of the problem may be highly fractured when consistent norms and values are not imposed by the external institutions. The more varied and diverse the nature of external institutional pressures on the organization (i.e., the greater the number of constituents), the more likely the problem is to be unclearly defined. Selection Among Alternatives: Alternatives are chosen in accordance with organizational norms and values, and are constrained by multiple pressures from the institutional environment. Strategic responses by organizations can be of three basic types, defined in terms of increasing levels of resistance.34 (These are summarized in Table 4.2 which follows). The lowest level of resistance involves internalization or compliance. Internalization entails the least resistance ^These are drawn from the strategies outlined by Oliver (1991) but their presentation here is a modified version. 62 on the part of the organization: it accepts externally imposed norms as its own organizational goals. Under a compliance strategy the organization obeys externally imposed norms. An example of a compliance strategy is responding to legislation and meeting standards set by regulations. At the next level, the organization can try to find a middle point between its own objectives and those imposed on it from the outside. It can do this in a spirit of compromise or through attempts at manipulation. Tactics which can be used are bargaining (e.g. through negotiations with stakeholders), co-opting (e.g., persuading an institutional constituent to join the organization), or influencing (e.g., through lobbying efforts). Finally at the highest level of resistance the organization can attempt to avoid or defy the norms being imposed on it. Tactics include concealment (disguising nonconformity behind a facade); buffering (through decoupling its scrutinized activities); exit (leave the domain where pressure is being exerted); and dismissing, challenging or attacking externally imposed norms. Routines:35 Routines are developed in order to meet the externally imposed norms and standards. The objective of routines is to win legitimacy for the organization by providing evidence that the organization is conforming to external institutional pressures. Adherence to routines is more important than the outcomes of following routines, since they are infused with meaning beyond the technical requirements of the task. The regulative aspects of routines include protocols and standard operating procedures; the normative aspects of routines include conformity and performance of duty (Scott, 1995a:52). The three organizing concepts described here: routines, corporate culture and external environment, correspond roughly to Scott's (1995a:52) institutional carriers: routines, cultures and social structures. 63 Corporate Culture: Corporate culture (the types of cultural beliefs specific to a given organization) plays an important role in defining the context of organizational goals, which in turn w i l l determine the degree to which external institutional norms are aligned with corporate goals and values. A strongly defined corporate culture and well established SOPs are indicators of an internally institutionalized corporate environment. 3 6 External Environment: The external environment is important in terms of the pressures it exerts on organizations. The external environment of an organization is characterized by its constituents, the demands they exert on the organization, the implications of these demands for the organization and the methods they use to express these demands. 3 7 III. D O M I N A N T I N F E R E N C E P A T T E R N : The preference of decision agents for relatively routinized and predictable environments leads organizations to institutionalize their internal environments, i .e. , they are characterized by differentiated roles, shared organizational norms, a corporate culture, and a reliance on routines. The organization's interest in survival leads it to accede to the demands of other actors on which it depends for resources and legitimacy. These other actors, the organization's institutional constituents that can exert pressure and expectations include government agencies, interest groups, customers, suppliers, other members of the organizational field and the general public. A n effort is made to identify relevant constituents (stakeholders) and then to set up meaningful ongoing communication with them. The 36Scott (1995a:52) has identified the following aspects of culture: regulative (including rules and laws); normative (including values and expectations); and cognitive (including categories and typification). 37The regulative and normative aspects of social structures include governance systems and authority regimes (Scott, 1995a:52). 64 norms and values of these stakeholders are taken into consideration, and constitute a basis for organizational action. Organizational action takes place through the diffusion of externally imposed norms and values throughout the organization. Organizational action motivated through the diffusion of these norms and values in the organization will be directed towards increasing either legitimacy or access to resources from the external environment. By assuming active-agency on the part of the organization, it can exhibit variety in strategic behaviour in response to pressure towards conformity with the external institutional environment. Analyzing external pressures in terms of cause, constituent, content and control, can be used to predict strategic responses which vary in terms of differing degrees of resistance from internalization to avoidance or defiance. Each strategic response such as compliance or avoidance is associated with the use of tactics summarized in Table 4.2. T A B L E 4.2: S T R A T E G I C RESPONSES O F CORPORATIONS S T R A T E G Y T A C T I C S E X A M P L E S Least Resistance 1. Internalize 2. Compliance •Internalizing external norms •Obeying rules •Validating external norms •Compliance with regulations Moderate Resistance 3. Compromise 4. Manipulate • Pacifying/bargaining • Co-opting/influencing •Redesigning product to fit institutional expectations •Persuading institutional constituent to join BOD High Resistance 5. Avoid 6. Defy • Concealment/buffering/exit • Dismissing/challenging/ attacking •Moving operations to a different legal jurisdiction •Ignoring or denouncing external values and the constituents which express them The responses are numbered according to the degree of resistance they imply. At one end of the 65 continuum the organization can internalize the norms of the external environment, and at the other end it can resist them completely through avoidance or defiance. IV. PROPOSITIONS 3 8 B I : Cause: The lower the degree of social legitimacy and economic gain perceived to be attainable from conformity to institutional pressures, the greater the likelihood of organizational resistance to institutional pressures. B2: Constituents: The greater the degree of constituent multiplicity, and the lower the degree of dependence on pressuring constituents, the greater the likelihood of organizational resistance to institutional pressures. B3 : Content: The lower the degree of consistency of institutional norms with organizational goals, the greater the likelihood of organizational resistance to institutional pressures. B4: Control: The lower the degree of legal coercion behind institutional norms and requirements, the greater the organizational resistance to institutional pressures.39 V . IMPLICATIONS OF PROPOSITIONS: These propositions suggest that organizational resistance can be hypothesized as a function of the type of environmental pressures being exerted on the organization and the source of pressure. To operationalize these propositions, the following factors need to be identified: the institution exerting the pressure, the substantive demand of that institution, the impact of that demand on the corporation, and the strategic response of the corporation. Strategic responses can be classified according to the use of tactics outlined in Table 4.2. Demands by interest groups are bound to be met with higher resistance than government regulations because a firm is more dependent on the government and the These propositions are from a theoretical article by Oliver (1991). The case studies in this paper offer an opportunity to test these propositions. 39However while use of legal coercion may result in compliance, this may be accompanied by loose coupling of that activity with other organizational activities. 66 government can in some situations exert coercive power over the organization. If the demand by an environmental group is not consistent with organizational goals (e.g., "stop all clearcut logging") then such a demand is likely to be met with higher resistance than a demand which is complementary to, or can facilitate organizational goals (e.g., a demand for an environmentally-friendly product which might offer the company some competitive advantage). Customer demands are likely to be met with lower resistance than interest group demands since meeting these demands is likely to result in economic gains (and not meeting them to result in potential economic losses). Organizational resistance is also likely to be high in situations where there are a variety of environmental groups posing a set of demands which may not necessarily be consistent with each other. 4 . 4 Theories of Bureaucracy 4.4.1 Literature Review: As the bureaucratization of the corporation and the state have been achieved, bureaucracy remains the common organization form (DiMaggio & Powell, 1991b:63). It is important to clarify at the outset the meaning of the word "bureaucracy" as it is used in this paper, as the word has many connotations. Weber initially thought of bureaucracy as a Janus-faced organization: administration based on expertise and administration based on discipline (Weber, 1947). Bureaucracy, as the product of rational, goal-oriented behaviour was considered a superior organizational form because of its stability, reliability and calculability.40 Taking a more empirical view, Simon (1976), March & Simon (1958), and Merton et al., (1964) attacked Weber's ideal on the basis that informal structures and actual practices may have a significant The paradox of bureaucracy lay in the fact that democratic social action was thought to be possible only through bureaucratic organization, yet bureaucratic organization was recognized to be destructive of democratic values (Crozier, 1964:176). 67 impact on the working of this complex social structure. That is the issue of concern in this paper, and the interpretation of bureaucracy. Why does actual organizational action deviate from intended organizational action? This question is at the heart of theories of bureaucracy (e.g., Crozier, 1964) and process theories of organization (e.g., Allison, 1971). Theories of bureaucracy in particular, analyze how the decisions of many thousands of actors are aggregated to produce organizational outcomes which may or may not be what the organization had intended. The issue of actual organizational action deviating from what was originally intended is important in the context of corporate responses to environmental issues. At the heart of all environmental issues is the matter of environmental risk. A primary goal of corporations with respect to the environment is to manage their environmental risk, and to minimize their liability with respect to environmental risks. Yet organizations sometimes find themselves out of compliance with environmental regulations, fail to reach stated environmental goals, or are faced with environmental crises. Even though these events may be accidents, they are evidence that the organization has not done what it intended to do (i.e., to minimize its environmental risk and liability). Therefore they often trigger a re-evaluation of the structures and processes used by the organization to manage its environmental risk. The experiencing of a crisis is an instrumental factor in motivating change in theories of bureaucracy. The model of bureaucracy that is described draws on the work of organization theorists such as Crozier (1964), Cyert & March (1963), Allison (1971), March (1981), March & Olsen (1976), and Breton & Wintrobe (1982). The next few paragraphs identify the salient features of bureaucratic systems as identified by these researchers. 68 Breton & Wintrobe (1982) proposed a model of bureaucratic conduct based on three elements: trust,41 selective behaviour and bureaucratic competition. The analytic structure of their model is that of neoclassical economic theory and they apply it to explain productivity differences among firms. Selective behaviour is the capacity of subordinates to be sometimes efficient and sometimes inefficient in pursuing the goals or objectives of their superiors. Bureaucratic competition refers to the competition between bureaus (i.e., departments or divisions) for more "territory" or for resources. As well, within bureaus, there is managerial competition for jobs. Both Allison (1971) and Crozier (1964) also include competition within bureaucratic organizations as central elements of their models. Crozier points to power as "the new central problem of the theory of organization."42 Cyert and March (1963) have pointed to bargaining among coalitions as an important method of allocating scare resources. This view has been further developed by Bolman & Deal (1997) and described as the "political frame." They describe how scarce resources and enduring differences give conflict a central role in organizational dynamics and make power the most important resource. They suggest that politics will be more salient and intense in difficult times and that managerial jobs come with a built-in "power gap" in that position power alone is insufficient to get a job done (Bolman & Deal, 41Their informal definition of trust (pg.5): An individual (A) trusts another individual (B) whenever A is confident in some degree that B will undertake to do what B has promised to do. Trust is not a given of nature, it is produced and accumulated by individuals. It is in effect a capital asset which can be increased through investment or vice versa (pg.64). 42"Each group fights to preserve and enlarge the area upon which it has some discretion, attempts to limit its dependence upon other groups and to accept such dependence only insofar as it is a safeguard against another and more feared one, and finally prefers retreatism if there is no other choice but submission" (Crozier, 1964:156). 69 1997:171) (contrary to the ideal view of bureaucracy in which the function of authority was to resolve conflict). Allison has described the relationship between factored problems, fractionated power, and parochial priorities and perceptions. "Factored problems" means that complex problems require the services of many specialized departments. At the same time, to avoid paralysis, primary power must accompany primary responsibility. The paradox is that primary responsibility for a narrow set of problems encourages organizational parochialism within organizational divisions (Allison, 1971:80-81).43 Allison's (1971) organizational process paradigm understands bureaucratic behaviour as the output of large organizations functioning according to standard patterns of behaviour, more formally referred to as standard operating procedures (SOPs). These are context-specific rules of behaviour which have "evolved through processes that are sensible but which obscure from present knowledge full information on the rational justification of any specific rule" (March, 1978:591). The ultimate significance of these bureaucratic routines is that they can explain the behaviour of firms; knowledge of the routines is at the heart of understanding behaviour (Nelson & Winter, 1982:128). Thus the locus of operational knowledge in a bureaucratic organization lies in the routinization of activity. The implication of such organizational routines is that they constitute the range of effective ^Organizational parochialism is enhanced by the following factors: (1) selective information available to the organization; (2) recruitment of personnel; (3) tenure of individuals in the organization; (4) small group pressures within the organization; and (5) distribution of rewards by the organization (Allison, 1971:81). 70 choices open to leaders confronted with any problem (Allison, 1971:79). As well, each member has a certain repertoire which severely constrains the range of their effective choice (Nelson & Winter, 1982:104). These routines are grounded in the incentive structures and norms of the organization; the attitudes of its members, and their operating styles (Allison, 1971). The actions taken by many decision agents are coordinated through hierarchy, or organizational structure. In its process aspect, hierarchy is a method of coordinating action. Under the organizational process approach (March & Olsen, 1976), structure has two key aspects: the right to participate in choice opportunities (i.e., the right to participate in making a decision), and the rights of access of problems and solutions to choice opportunities. Organizational structure can vary from unsegmented to highly segmented. Hierarchy serves to differentiate the levels at which decision making takes place. Inbar (1979:15) suggests that bureaucratic decision making can be visualized along a continuum where policy-making (at the highest hierarchical levels) constitutes one end, and its routinized implementation by lower echelons of the organization the other. The literature has consistently identified "dramatic performance failure" (Allison, 1971) or "crisis" (Crozier, 1964) as being the main motivation behind change in bureaucracy. Crises can develop at different organizational levels. Since one of the primary features of bureaucracy is stability and predictability, crisis is a necessary element in motivating change. 4.4.2 Model C: Bureaucratic Model: Organizational Action as Organizational Output. I. BASIC UNIT OF ANALYSIS: Following Allison (1971) this model understands actual events which transpire as organizational output. For example, if a company seeks an injunction against 71 an environmental interest group which is blockading their road, that event is understood to be "an organizational action." In most instances, organizational output is the result of thousands of decision agents carrying out their SOPs. II. ORGANIZING CONCEPTS Decision Agents: Decision making power is allocated between many different organizational departments and divisions. A defining characteristic of this model is the very large number of decision agents, and the fact that different departments or divisions compete for resources and territory. The assumptions about rationality are those forwarded by March & Simon (1958): factored problems, satisficing behaviour and bounded rationality. In addition to being boundedly rational, decision agents often display selective behaviour. Selective behaviour is usually manifested in one of three ways: information flows can be altered as they move through the hierarchical levels of the organization; the quality and quantity of information leaked to media or other special interest groups can be varied; and the speed of implementation of policies can be changed (Breton & Wintrobe, 1982:38-9). Selective behaviour can be both efficient and inefficient. Definition of the Problem: Bureaucratic organizations are based on specialization and the responsibility for jobs is divided on the basis of expertise (i.e., problems are factored). Because responsibility is divided between many different divisions, perception of the problem is fractured, there may be no central or cohesive idea of what the "problem" is. Organizational departments and divisions use their own terms of reference (based on their area of specialization) to frame the problem, which often results in parochial (and sometimes conflicting) perceptions 72 of the problem. One division's decision variables may be another division's parameters. The ability of respective decisions to map the political terrain and set the agenda will be instrumental in the resulting definition of the problem (Bolman & Deal, 1997:179-181). Goals: Goal setting in a bureaucracy does not necessarily follow a rational calculated pattern. Organizational goals are not necessarily consistent and evolve through a continuous bargaining learning process (Cyert & March, 1963:28). As with problem definition, the relative ability of departments to network, form coalitions and bargain and negotiate will be important in determining goals and the resources allocated towards meeting them (Bolman & Deal, 1997). Organizational objectives are fairly stable because of the limited time and capacity for the bargaining process, and there is strong motivation to accept precedents as binding. Mutual control systems such as budgets are explicit elaboration of commitment to goals (Cyert & March, 1963:30-32). Selection Among Alternatives: Under the assumption of satisficing behaviour, decision makers are not looking for the best solution to a problem, but only a satisfactory solution to a problem. Not only may environmental constraints refrain from imposing a unique solution, decisions depend largely on the order of presentation of the alternatives, as well as on changing aspiration levels of the organization (March, 1981:211). Search for alternatives is intensified when there is a clear problem and/or when organizational slack44 is low. Also, when slack is low, the use of power as a resource will be more influential with respect to selection among alternatives. •"Cyert & March (1963:36-37) define organizational slack as the difference between total resources and total necessary payments. Organizational slack absorbs potential variability in the firm's environment and plays a stabilizing and adaptive role. 73 Within departments, since the problem is narrowly defined (parochial perceptions), the choice among alternatives is guided by divisional objectives rather than organizational priorities. Choices are also constrained by existing routines within departments, and by previous departmental actions and output. Hierarchy: Bureaucracies are characterized by the existence of sharply defined hierarchies. There exists a highly differentiated (i.e., it consists of many levels) hierarchy. The hierarchy provides for formal roles, permanence, prestige differential and differential access to the system of rules (i.e., the people at the top set the rules, not the people at the bottom). The prestige differential emphasizes that there is a difference between the people on the top and the people on the bottom. From an individual point of view, moving up through the hierarchy is a motivator for action since it provides for a prestige differential as well as access to the rule system, in terms of defining the rules. Progress through the hierarchy takes place on the basis of skills, both technical (i.e., job-related) skills and political skills. Hierarchy provides a strong directive component and serves to allocate responsibility (and blame). Hierarchy is also important because it determines who has access to which decisions. Standard Operating Procedures: SOPs form the basis for organizational action and constrain the choices available to organization members. They also constrain the range of effective alternatives when organizational leaders make major decisions which have an impact on many areas of the organization. SOPs constitute the daily basis of organizational action. If there is a new sort of action that needs to be done, it is either not done (if it is not specified by an SOP), or it is done in a way which is a logical implication of the SOP, whether or not this makes sense 74 substantively. Management of External Stakeholder Relations: To whom is the organization accountable? Traditionally theories of bureaucracy have not elaborated on the relation of the organization to its stakeholders. Due to the large size of bureaucratic organizations they were considered largely immune to external pressures. It is assumed here that stakeholders45 are identified through the SOPs. That is, the stakeholders who were considered important yesterday are likely to be the stakeholders who are considered important today. Due to the large number of decision agents, and the fractured perception of problems which exists throughout the company, identifying important stakeholders on an organizational basis is a task which may not fall to anyone specifically. III. DOMINANT INFERENCE PATTERN: Organizational actions are described by organizational output, i.e., actual events or whatever the organization has actually done. SOPs are the basis for the dominant inference pattern, since they form the basis for the behaviour and actions of individual organization members. SOPs form the basis for goal setting, information gathering and distribution, formulation of organizational expectations and choice among alternatives. SOPs are stable over time, therefore if an organization performs a certain type of action today, it must have been performing a similar (or only marginally different) action yesterday. Existing SOPs constrain the choices available to leaders when they are faced with new problems. Choices regarding future organizational actions are also constrained by present 45In the context of the forest industry, environmental interest groups are seeking representation as legitimate stakeholders by "speaking for the trees." 75 organizational output46, and by the organization's existing capabilities. Although SOPs themselves are very stable, decision agents engage in selective behaviour as they implement them. Hierarchical participation is used to coordinate the actions of many decision agents. Decision makers and choices are arranged in a hierarchy such that important decisions must be made by important decision agents and important decision agents can participate in many decisions (March & Olsen, 1976). Key decision agents, i.e., those who are higher in the hierarchy play an important role in setting organizational goals. Organizational goals are not always decided on in a rational calculated manner. Sometimes they evolve as a result of previous organizational actions. At other times, they are constrained by existing organizational capabilities, previous organizational outcomes, current SOPs, and the information provided by various departments who have a vested interest in influencing organizational goals. The SOPs for handling information define what kind of information comes into the firm, distribution of information within the firm, and what kind of information leaves the firm 4 7 Who gathers the information is important because they screen, condense and distribute it. Whereas in simpler organizations, all information can be shared informally, large specialized organizations need rules for the transmission of information. There are two kinds of SOPs for structuring information flows: routing rules and filtering rules. An organization chart can be ^Organizational outputs structure the situation within the narrow constraints of which leaders must make their "decisions" about an issue. Outputs raise the problem, provide the information and take the initial steps that colour the face of the issue that is turned to the leaders (Allison, 1971:79). 47The substance of this paragraph is from Cyert & March, 1963:107-109. 76 viewed as a rule for routing information. Information needs and task specialization are highly correlated therefore it is appropriate to process information through a hierarchy defined with respect to task specialization. If information is unchanged and sent everywhere routing will only affect the length of time required to transmit the message. Routing affects rules through dead ends and through filtering at communication relay points. Final organizational output is reflective of the power balance between various organizational departments and divisions as they compete for resources, and bring their own parochial perceptions, as well as their specialized expertise to the solution of the problem at hand. In any situation, the greater the amount of expertise a division can contribute to the solution of a problem, the more likely it is that they will have power over decisions regarding that particular problem, and the larger the amount of organizational resources that will be allocated to them for that purpose. The consequences of these organizational processes may become evident through the problems of transformation and deviation amplifying loops (Warglien & Masuch, 1996:12). Transformation occurs at the organizational level when the purposive actions of individuals are not mirrored and systems appear to have irregular outcomes. Deviation amplifying loops refer to a situation where shifts from an original position continue to be amplified, thereby bringing the system out of its original state (Warglien & Masuch, 1996:12). Taken to an extreme, such a loop can lead the organization to a crisis situation. Crisis is a distinctive and necessary element of the bureaucratic system and provides the means for the system to change (Crozier, 1964:196). Change in a bureaucratic system must emerge from the top down and must encompass the whole 77 organization. During a crisis, individual initiative can prevail, and personal authority may be used to supersede the rules. IV. PROPOSITIONS CI: Organizational routines are the best predictor of organizational action. The organization will respond to new and unfamiliar situations with the same organizational routines which it used yesterday. C2: The locus of search responsibility for alternatives within the organization / determines the range of alternatives that will be considered.48 C3: The degree of goal fragmentation is positively correlated to the number of hierarchical levels, i.e., the greater the number of layers through which goals are passed, the higher the degree of goal fragmentation that is likely to occur. C4: The extent of organizational change that will occur is a function of the extent to which actual action continues to deviate from intended action. Change will be most extensive when deviation amplifying loops lead to a crisis. V . IMPLICATIONS OF PROPOSITIONS: These propositions suggest that when an organization (characterized by many features of bureaucracy) is faced with new environmental issues, its first course of action will be to rely on the SOPs already in place which are most closely related to that issue. The types of alternatives generated to address environmental issues will depend on the department to which that duty has been delegated. If an environmental issue is delegated to the public affairs department, the most likely alternatives that will be considered are those which generally fall within the realm of public affairs, e.g., different types of publicity campaigns. The degree of hierarchy within an organization will affect the formulation and implementation of environmental goals. The more hierarchical an organization, the greater the likelihood that the intent of goals might change as they are communicated from one level to the next. Corporate-'Cyert & March, 1963:83. 78 level goals (e.g., "environmental responsibility") need to be translated to the specific job context of employees at all organizational levels which are affected by that goal. For example, a corporate environmental goal relating to "reducing liability for environmental risk" may lead to an over-emphasis on paperwork at the expense of actual activities related to reducing environmental risk. Alternatively, a corporate goal relating to cost-cutting and efficiency may lead to unintended negative environmental consequences through reduced expenditure on maintenance of environmental equipment. Because bureaucracies are characterized by stability, change will only be stimulated when organizational output begins to deviate significantly from intended output. Environmentally-related crises, especially those which garner widespread public attention and criticism will be instrumental in motivating an organization to formulate new SOPs to replace ineffective ones and to develop new environmental goals. A crisis may induce deep-seated organizational change if the organization begins to perceive environmental issues in a different way. 4.5 Leadership Theory 4.5.1 Literature Review: Why was a leadership model chosen? Top management philosophy appears to be the single most important determinant of voluntary adaptation (bridging) activities of firms (Meznar & Nigh, 1995). Empirical literature on environmental management practice has consistently identified top management support as a crucial factor in the successful implementation of environmental management programs (Howatson, 1990; Piasecki, 1995; U N Benchmark Survey, 1993). Top management plays an important role in setting objectives, formulating strategy; and allocating resources for the implementation of these strategies (Gitlow, 1992). Values held by leaders determine the priority they attach to issues relative to corporate 79 objectives (Batten, 1994; Conger, 1991). Changes considered necessary by top management in response to environmental issues determine subsequent changes to organizational structures and processes (Flannery & May 1994). Leadership plays an important role in detennining a company's management style (Gibson, 1995; Harari 1996), which in turn affects change implementation depending on whether top management leans toward participatory or authoritative management styles. As evidence of the recognition of leadership in shaping organizational change, especially with respect to environmental issues, the 1994 volume of Leadership Quarterly devoted a special issue to the role of leadership in environmental management. The problems with using leadership models stem from the fact that existing leadership research is largely unintegrated with organization theory (Pawar & Eastman, 1997). Leadership Models: Leadership is one of the most studied yet least understood topics in the behavioral sciences (Knights & Morgan, 1992) and there are as many definitions of leadership as there are theorists (Chemers, 1993:293).49 The literature on leadership distinguishes between three general types of leadership models: contingency models; models based on leadership styles and behaviour (e.g. transformational/transactional models); and (most recently) models of "corporate strategic leadership". Contingency theories of leadership are based on the premise that the performance of a group or organization depends not only on the leader but also on the situation (Fiedler, 1993). Fiedler's contingency model of leadership effectiveness (Fiedler, 1964, 1967) postulates that leadership effectiveness depends on the degree to which the leadership situation gives the leader control 'For a review of the four stages of leadership theory and research the reader is referred to Bryman (1996). 80 over group performance and process and the degree to which the leader's primary goal is with task performance or with interpersonal relations. Two separate meta-analyses demonstrate that the model's predicted efforts are extremely reliable across studies (Strube & Garcia, 1985; Peters et al., 1985). The most important flaw in the contingency model is that it has remained a "black box" after 25 years of research (Fiedler, 1993:6). Much empirical research on contingency models has been in the context of leadership influences in small group settings. Process-oriented transactional models of leadership consider that a leader gives benefits to ) followers such as direction, vision, recognition and that followers reciprocate through heightened responsiveness to the leader (Hollander, 1993:33). Thus in the transactional approach, followers take on a more active role. Burns (1978) was the first scholar to specify a distinction between transactional and transformational leaders (Yammarino et al., 1993). The "transformational leader", is one who can change the outlook and behaviour of followers. There is controversy as to whether transactional and transformational leadership is mutually exclusive (e.g., Burns, 1978) or complementary (Conger & Kahnungo, 1988; Bass, 1985). Transformational leadership can be seen as an extension of transactional leadership to the extent that such transactional factors such as intellectual stimulation and individual attention to followers can be seen as intangible transactional rewards (Hollander, 1993:41). Increasing interest in the effects of leadership on corporate strategy and corporate culture has led to recent research on what has been termed by Knights & Morgan (1992) as corporate strategic leadership. Research in this area examines how leadership constitutes effective organizations through shaping values and culture. An example is Flannery & May's (1994) 81 "Environmental Leadership Model". Their model specifies four antecedents to an organization's strategic formulation process: moral norms and values for environmental responsibility; environmental attitudes of the CEO and top management; stakeholder influences; and perceived behavioral control of the firm given technological, financial and regulatory constraints. Pawar & Eastman (1997) have identified four contextual factors to identify organizational receptivity to transformational leadership: organizational orientation (adaptation versus effciency); task system (relative dominance of technical core and boundary-spanning units); organizational structure (simple, forms of bureaucracy and adhocracy); and mode of organizational governance (clan, market and bureaucracy). They hypothesize that context-harnessing transformational leadership processes will be required in organizations characterized by high receptivity to transformational leadership. In organizations characterized by low receptivity to transformational leadership, context-confronting transformational leadership will be required (Pawar & Eastman, 1997:101). Bolman & Deal (1997) have examined leadership as a crucial factor in each of their four organizational frames (structural, human resource, political, and institutional) to show how leadership plays out differently in different organizational contexts. They suggest that in a structural frame (i.e. when the degree of bureaucracy is higher), the role of the leader is that of analyst and architect (Bolman & Deal, 1997:303). In contrast, under a human resource frame, a leader is a catalyst for change and effective leadership processes revolve around support and empowerment. Leadership Activities and Behaviour: Burns (1978) noted that leadership can be used both as an 82 influence process between individuals and as an organizational process of mobilizing forces to change (Portugal & Yukl, 1994:272). Portugal & Yukl (1994) draw a distinction between internal and external leadership. Internal leadership includes setting objectives and strategies, organizing work activities to accomplish the objectives, and motivating commitment to those objectives and strategies. External leadership involves creating and maintaining a network of relationships with people outside the organization and influencing outsiders. Some of the examples they give of external leadership dealing with environmental issues include: learning about changes in environmental regulations; lobbying elected officials to influence environmental regulations, forming alliances with other organizations to solve shared environmental problems and promoting a favourable public image of environmental responsibility for the organization. Sources of Leadership Power: The legitimacy of leadership has been hypothesized to depend on the method of leader selection. The evidence indicates that there are differences depending on whether the leader is elected or appointed (Hollander, 1993:35). Leaders can then use their legitimate authority and political power to establish policies, programs, budgets and reward systems designed to direct and control the operations of the organization (Portugal & Yukl (1994). Leaders can use political tactics to advocate policies and enhance their power (Bolman & Deal, 1997). In particular, some of these tactics include clarifying what they want and what they can get; assessing the distribution of power and interests; building linkages to key stakeholders; and using persuasion, negotiation and coercion in that order (Bolman & Deal, 1997:311-313). The source of leadership power is also related to issues of corporate governance. To what extent 83 does the leader have control over the organization? The balance of power between shareholders and top management is now changing as shareholdings become concentrated with institutional shareholders, who then fight for increased representation on the board (Gitlow, 1992). Lawsuits have led to increased personal liability of directors. When the CEO doubles as the Chairman of the Board, he or she has the power to control nominations, the composition of board committees, agendas for board meetings and information flowing to board members (Gitlow, 1992:29). Leadership and Corporate Culture: A crucial element of leadership models is corporate culture. Culture is the point of contact where philosophy comes into contact with the organization (Davis, 1984). Successful leaders connect the minds of their followers with the prevailing culture (Fairholm, 1994:80). Culture shaping and value shaping have been recognized as essential leadership functions; tasks which are necessary in building the trust relationships upon which leadership depends (Fairholm, 1994:35). Gitlow (1992:121) suggests that the C E O is the major repository of corporate culture. Leaders can directly (through speeches, stories and other mechanisms intended to directly affect values and beliefs) and indirectly influence culture (Lord & Maher, 1990:150). At the same time, leaders are constrained by culture, especially when the environment is relatively stable or when established organizations have shared assumptions about the type of leader that is effective in that organization (Lord & Maher, 1990:152). Another source of cultural constraint which lies within the leader is the schema used by the leader to guide his/her own strategy, problem solving and social perceptions (Lord & Maher, 1990:153). For the purposes of this study (which deals with corporate responses to government and interest group actions), a leadership model is needed which examines the role of leaders in motivating 84 organizational change to solve the environmental problems which the organization is facing. Such a model must define the extent and stages of organizational change, the type of leadership behaviour and activities exhibited by the leader50, and the situational factors which constrain the leader's ability to implement change. The model must be generalizable to include the different types of leadership behaviour that have been identified as a continuum in the literature. This ranges from charismatic leadership at one end of the spectrum, through transformational and transactional leadership, to what has been termed "laissez-faire" leadership51 (Bass & Avolio, 1993). To this end, a model has been constructed here which draws upon the models presented by Conger (1989), Lord & Maher (1990), Bass & Avolio (1993), Flannery & May (1994) and Pawar & Eastman (1997). The model by Conger (1989:25-36) is useful because of its definition of leadership which is described as "the process of moving an organization from an existing state to some future state through four stages". Lord & Maher (1990) provide several insights into the situational constraints to leadership as do Pawar and Eastman (1997), (specifically for transformational leadership). The integrative model of transactional and transformational leadership by Bass & Avolio (1993) is useful because it identifies leader "types" ranging from laissez-faire to charismatic leadership on the basis of seven factors. The model by Flannery & May (1994) identifies the methods by which antecedent factors have an impact on environmental strategy. 50For example, research on transformational leadership provides helpful insights about the types of behaviours likely to be relevant for environmental leaders (Portugal & Yukl, 1994: 274). These include: articulating an appealing vision; changing perceptions about environmental issues and taking symbolic action to demonstrate a personal commitment to these issues. 51This refers to the situation where leadership is absent or intervention by the nominal leader is avoided (Bass & Avolio, 1993:53). 85 4.5.2 Model D : Leadership Model : Organizational Act ion as the Implementation of Leadership Vis ion . I. B A S I C U N I T O F A N A L Y S I S : To the extent that organizational change occurs, the model recognizes organizational action as the implementation of leadership vision. Little or no organizational change implies the lack of a vision to guide change, or the inability of leadership to implement change. II. O R G A N I Z I N G C O N C E P T S Decision Agents: The primary decision agent, the leader, is assumed to be the C E O . 5 2 The leadership behaviour of the C E O (which is largely influenced by his/her beliefs, values and attitudes) can be one of the following: charismatic/transformational; 5 3, 5 4 transactional; 5 5 or laissez-faire (Bass & Avo l io , 1993). Charismatic/transformational leadership is defined by the existence of "idealized influence", inspirational motivation, intellectual stimulation, and individualized consideration. Followers identify with and emulate these leaders who are trusted; seen as having an attainable vision and mission; hold high standards and set challenging goals; 52It is recognized that other members of the top management team also play a key decision making role. However due to the empirical difficulties associated with identifying the key players who have the CEO's "ear", so to speak, this model is limited to defining the CEO as the leader. It is assumed that the CEO is both influenced by the views of other top management, and is active in recruiting top executives who share his/her beliefs. "Charismatic leaders have (Conger, 1989): (1) sensitivity to the needs of their constituents, and (2) the ability to see the deficiencies of a situation as well as the untapped opportunities. How the leader describes his/her vision is very important. Charismatic leaders describe the current situation as unacceptable and their vision as the most attractive alternative. ^While charismatic and transformational leadership are not synonymous, most research examining transformational leadership has examined charisma (Bass & Avolio, 1993:63). ^Transactional leaders rely on positive-reinforcement based exchanges, i.e. appropriate rewards are provided when followers meet agreed on objectives. The emphasis is on facilitating the achievement of objectives agreed to by followers. Alternatively, the leader will "manage-by-exception", i.e. intervene only when things go wrong. Negative reinforcement is more likely to be used, i.e. punishment and/or discipline (Bass & Avolio, 1993:52). 86 and encourage followers to question their own way of doing things (Bass & Avolio, 1993:51-2). Transactional leadership emphasizes exchange between leaders and followers to facilitate the achievement of objectives, and includes management-by-exception behaviour (the leader intervenes when things go wrong. Under laissez-faire leadership, intervention by the leader is avoided (Bass & Avolio, 1993:53). Underlying these different leadership behaviours, there will be different bases of power. In charismatic/transformational leadership, the leader has high referent power and an ability to motivate decision agents sufficiently so that they adopt the leader's values as their own and take the necessary actions to implement a vision. They recognize themselves as being an important part of the overall organizational vision. Transactional leaders by contrast will rely more on the authority of their position in the hierarchy and their ability to provide positive or negative reinforcement. Positive reinforcement includes tangible rewards such as bonuses or promotions. Definition of the Problem: The leader plays an instrumental role in defining the problem and in determining the approach the company should take. The leader's personal norms and values play an important role in defining how the problem is perceived by him or her. For example, Flannery & May (1994) use moral norms as a factor to assess whether top decision makers believe that the organization or government is primarily responsible for environmental protection. Solving problems is largely achieved under transformational leadership through building a consensus and employee loyalty towards the described vision and mission. Under transactional leadership, there is unlikely to be a corporate vision of the solution to the problem. Rather, the solutions to the problem are likely to be defined in terms of the advantages to 87 different departments of divisions if they contribute towards solving the problem. The conception of the problem is least likely to be clearly defined under situations of laissez-faire leadership. Corporate Culture: In the leadership model, a prevailing corporate culture is assumed which can be but is not necessarily defined by the personal characteristics and values of the leader. The corporate culture provides a continuing context and basis for organizational action. Decision agents (i.e., employees) are chosen partly for their "fit" to the corporate culture. The culture may range from participative to authoritative in varying degrees. Decision agents, through their adoption of organizational values help in the continuation of the culture. Shifts in corporate culture are likely to occur only with very radical shifts in leadership, as when the leader changes, or many members of the top management team, as chosen by the leader change. More so in situations of transformational leadership than in situations of transactional leadership, the dominant values of the leader and the top management chosen by the leader will result in the diffusion of a fairly homogenous set of values throughout the organization. Fairholm (1994:35) identifies among others, the following salient features to describe organizational culture: the age of the organization and its history of development (and degree of centralization experienced over time); its ownership status; size; organizational goals; technology. An organization characterized by laissez-faire leadership may also have a strong corporate culture. Laissez-faire leadership can result because the existing corporate culture is so strong that a new leader is not able to make his/her mark on it. Such a corporate culture is likely to be a competitive one. Corporate Governance Structure: The leader's position within the corporate governance structure 88 is of crucial importance because it is instrumental in defining the extent of the leader's power, and therefore the ability of the leader to have access to, and to deploy the resources which are necessary to successfully implement the vision, or solve the problem as it has been described by the leader. III. DOMINANT INFERENCE PATTERN: Leadership is an important factor in shaping organizational action. It defines the process by which an organization moves from an existing state to some future state (or does not move as the case may be). The speed and direction of organizational change will depend on the extent to which the leader has: defined a problem; defined a vision as the "solution" to the problem; described the desirable extent of change; and the degree to which organization members believe this change is necessary. The process of organizational change occurs through various iterative stages: the leader defines a vision after assessing the situation; the leader communicates these goals in a meaningful way to organizational members; the leader builds commitment to, and trust in the vision by organizational members; and the leader demonstrates the means to achieve the vision. The extent of organizational change which takes place is contingent on certain situational factors: the prevailing corporate culture; the corporate governance structure; the leader's own personal beliefs and attitudes; and the financial, technological and regulatory constraints on the corporation. In a situation of charismatic/transformational leadership, cultural values reinforce the importance of employees and other organizational constituents, and foster mutual interactive trust. Trust flourishes in situations where individual workers have greater control in their job responsibilities 89 and an organizational structure which supports this independence will also support high trust relationships (Fairholm, 1994:138). Under situations of transactional or laissez-faire leadership, the role of the individual within the organization is de-emphasized, the prevailing culture is more impersonal, and there is greater reliance on rules as opposed to trust. Culture is dependent on the actions of leaders, at the same time, the total character of a culture determines the kind of leadership that is exercised (Fairholm, 1994:145). Leadership power is dependent on the extent of leadership control over the organization which may be, but is not necessarily related to ownership. It is also dependent on a leader's political skills and the ability to use political tactics which complement the organizational context. The corporate governance structure can constrain a leader's ability to implement change. On one hand diffused ownership can mean the CEO has greater power. On the other hand, concentrated ownership can also mean strong power for the leader if he/she is a major shareholder. The extent of leadership power is defined by the leader's control over the board and by the degree of ownership held by the leader. As chairman of the board, the leader can control nominations to the board, the number, type and composition of board committees, agendas for board meetings, and the amount and type of information flowing to board members (Gitlow, 1992:29). IV. PROPOSITIONS D l : The extent of organizational change that will occur depends on the leadership behaviour. The extent of organizational change is likely to be highest under conditions of tranformational leadership, moderate to low under conditions of transactional leadership, and lowest under conditions of laissez-faire leadership. D2: Culture constrains the extent of organizational change that a leader can effect. Under situations of transformational leadership, cohesive, communicative, 90 and collaborative cultures will contribute more successfully to organizational change than in situations of transactional leadership. Rule-based, sharply hierarchical cultures will constrain the ability of both transformational and transactional leaders to induce organizational change. D 3 : The ability of a leader to shape organizational change is inversely proportional to the age of the company and the number of leadership changes that have occurred since the founding of the company. D 4 : The ability of the leader to motivate organizational change depends on the position of the leader within the corporate governance structure. When the leader represents both management and shareholders (i.e. is both C E O and Chairman of the Board), his/her ability to implement change is higher than when the C E O holds only primary operational responsibility. V . IMPLICATIONS OF PROPOSITIONS: The first proposition implies that a leader's vision of the importance of environmental issues and their place in corporate strategy can be instrumental in determining the company's environmental strategy and the subsequent organizational change which occurs. When a leader perceives environmental issues to be important and articulates a vision which accords them a central place in corporate strategy, then organizational change is more likely to result. In contrast, it is hypothesized that when environmental issues are considered less important (or are viewed as "costs") and the leader does not clearly define their place in corporate strategy, then organizational change in response to environmental issues will be slower in taking place. Implementation of any change strategies with respect to environmental issues will be constrained by the type of corporate culture. Some cultures (e.g., a communicative culture), can facilitate the diffusion of strong environmental values, especially when such values have been endorsed and made a priority by the leader. Other types of cultures may serve to constrain the diffusion of a leader's personal vision of environmental values. In a rule-based corporate culture, emphasis on environmental values may be viewed negatively if they are perceived as interfering with an employee's ability to do the job 91 (as specified by existing rules). A leader will be in a better position to influence the corporate culture and motivate change if the company is younger (i.e., its culture is still being shaped), or if the leader has founded the company or is associated with the founders of the company. A leader who represents both management and shareholders will be in a stronger position to deploy resources towards an environmental strategy and to justify the necessity of these expenditures than a leader who holds only primary operational responsibility and needs approval from the Board for any planned changes which will require large amounts of capital and possibly reduce short term profits. 4.6 Integrating the Four Models A brief historical overview is useful in understanding the dialectic process shaping the development of the theories used in this paper.56 Knudsen (1995:135-6) points out how economic models studied agents (individuals whose main characteristic is their ability to take independent action) whereas sociological models studied actors (individuals who are assumed to play certain roles in accordance with the expectations of others in their environment). This dichotomy began to reconciled in mid- 1970s and the early 1980s with the emergence of institutional economics (e.g., the transactions cost approach), which broadened the behavioral basis of economics. At the same time, institutional theorists are increasingly recognizing the lack of explicit attention to self-interested behaviour by individuals. Literature on institutional theory reviewed in this paper dealt with its application to organizations, but it has also been developed in the fields of sociology, political science and economics. In political science, historical institutionalism addressed the same kinds of concerns with respect to rational choice models that were raised in organization theory and economics (Thelen & Steinmo, 1992). They argue that institutions play a much greater role in shaping politics and political history through defining actors' goals and strategies than is suggested by a narrow rational choice model. 92 The bureaucratic and institutional approaches also have much in common. Scott (1995a: 17-20) discusses how in the 1940s and 1950s, research in institutional theory was informed by research taking place at the time on bureaucracy. Knudsen (1995:162) cites Selznick's work as an early "transgression" of the disciplinary boundaries between economics and sociology. In fact, the old institutionalism with its emphasis on conflict of interest and vested interests as source of inertia (DiMaggio & Powell, 1991a: 13) is a precursor to organizational process models of bureaucracy. It was the eminent sociologist of bureaucracy, Weber (1921), who first coined the term charisma from which come theories of charismatic leadership (Hollander, 1993:41). As used in this paper, the four models approach the research question from different perspectives. The rational model implies that corporate choice will differ due to different cost/benefits of alternatives for decision agents, and due to differences in assumed preference orderings. Thus it points to relative costs and benefits (to the firm) of alternatives as the dominant imperative in determining organizational choice. The institutional model suggests that corporate stance (ranging from low to high resistance) is likely to differ due to differences in the cause, content, methods of control, and constituents who exert institutional pressures. This model suggests external pressures as the dominant imperative shaping organizational response. The bureaucratic model describes how organizational output will differ due to structural characteristics of the organization in question. This model hypothesizes that maintaining the status quo with respect to the organizational bureaucracy is the dominant imperative in determining organizational outcomes. The leadership model explains differences in corporate strategic change due to leadership behaviour and situational constraints. This model isolates leadership behaviour and certain situational constraints as the dominant imperative in shaping 93 organizational strategy. There are different ways to integrate the models. One method of integration is in terms of relativity. Do the models provide equally valid explanations, are they mutually exclusive, can they be used in association, or is one a special case of the other? Because of the fact that each model explains a slightly different facet of corporate response, this method was deemed unsuitable. Instead the models were examined in terms of their propositions, and variables to find some common axes which would represent their explanatory power in different situations. Figure 4.1 represents circumstances under which each of the four models are hypothesized to have the most explanatory power based on two broad sets of variables: uncertainty and conflicting demands from the external environment; and the degree of integration of organizational structures and processes. For example, the figure suggests that when organizational structures and processes are highly integrated and when there is low uncertainty and no conflicting demands from the external environment, the rational model may provide a satisfactory framework to explain organizational choice. As one moves to the right along the horizontal axis, organizational complexity increases and the actions of many different decision agents must be aggregated. To understand organizational responses in such a situation, a model which examines structural characteristics in depth, such as the bureaucratic model, may be more useful. However, since one of the primary purposes of the bureaucratic model is to explain stability and the maintenance of routines, in circumstances where the external environment is characterized by rapid change, the bureaucratic model may prove to be inadequate as actual organizational output continually deviates from intended output. In Section 8, this figure is further refined based on the results of the data analysis and serves as basis for discussing each 94 model's explanatory power in interpreting the reasons for differences in corporate response. Q O P < z _o_ H P H i—i H Z 3 # .2 1 ™ T I 2 & 6 J3 G 1X3 O »-i « u 23 ^ S3 re! OH N <U 'S3 P t-l "3 u HH H U P 3 Pi p P W Q O P W Q O < z o <u l - l a o 2 .2 O S O irt «a 5 0 c S « . H 2 M ^ N O 2 M A S Z H S3 S N i—i Z s o u < u a> U O o X ? 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Ta O a M 3 2 2 Cu • o ro «2 a « cu o a -5 o Cu a o o a cu & CU CA 8 O O a ta o o , X i CA O 73 -a 60 c3 o *s cu „ Cu o 60 C« "O .S CA © 1 8 a ^ § f O U 2 97 5.0 G O V E R N M E N T AND D E J E C T INTEREST G R O U P ACTIONS DESIGNED T O P R O T E C T T H E E N V I R O N M E N T This section provides the reader with an introduction to environmental issues faced by the forest industry in B .C . from the period 1983-1996, and the legislative context within which they occurred. It summarizes environmentally related government57 and direct interest group actions over the period 1983-1996, and identifies those actions to which the corporations in this case study were responding. Understanding the substantive nature of the government and direct interest group actions is essential to understanding the evolution of corporate responses. This section briefly outlines the types of actions and their impact on the companies. Supporting material to this section is in appendices A , B, and C (including chronologies), to which the reader is referred for details. 5.1 The Forest Industry in British Columbia Under the Canadian Constitution, the provincial government which owns 91% of B.C.'s land base (94.8 million hectares), is required to establish a management system for provincial land and resources. 91.5% of Crown land, or 86.7% of the land in B .C . is administered by the provincial government ministry—the Ministry of Forests (often in cooperation with other provincial ministries). There are different kinds of forest tenures: area-based (Tree Farm Licences or TFLs) and volume based (Forest Licences and Timber Licences). TFLs come with significant forest management responsibilities on the part of the licensee. 78.3% of the land in 57The term "government" will be used for the sake of brevity when necessary. As will be discussed later, the term "government" is an umbrella term for various levels of government (federal and provincial), various ministries (e.g. MOF, MOE), and different government bodies (e.g., LUCO, the Cabinet, etc.). 98 B .C . is in Timber Supply Areas (TSAs), 7.9% is in TFLs, and other forms of tenure (e.g. woodlot licences) comprise 0.5% of the land in B . C . 5 8 B.C.'s diverse climate, topography and soils have produced a province more biologically diverse (in terms of species and ecosystems), than any other in Canada. Six of Canada's ten forest regions can be found in B . C . and all nine main groups of soils found in Canada occur in B .C. (FRRRA, 1994:27). The forest industry is comprised of the following three industries: logging and related woodlands activities; solid wood industries; and paper and allied industries. The latter two industries comprise the forest products industry (FRRRA, 1994). The forest products industry is noted for being very cyclical. An outstanding feature of B.C.'s economy is the overwhelming contribution of the forest industry to economic activity. In 1995, B .C. manufacturing industries shipped $33.4 billion of products to domestic and export markets, with forest industry shipments accounting for 52% of this total. From 1984-1993, the forest products industry's share of manufacturing shipments in B .C . varied from 43% to 51% reflecting the cyclical nature of forest products markets (FRRRA, 1994). The forest industry directly contributes approximately 9% to the provincial GDP. From 1984-1993, this contribution ranged from 6.5% to 11.3%.59 B.C.'s forest industry currently provides about 90,000 direct jobs, or about 6% of the provincial total (FRRRA, 1994:197). In 1994, employment in the forest industry was approximately 10% lower than in the 1970s, largely due to technological advances in harvesting and processing (FRRRA, 58These, and other facts in this section are from the 7994 Forest, Range and Recreation Resource Analysis published by the Ministry of Forests. 59In assessing the contribution of the forest industry to the economy of B.C. it should be noted that (FRRRA, 1994:199): (1) Manufacturing shipments and export figures overstate the forest industry's importance because not all wealth in B.C. is generated by the production and sale of manufactured goods. (2) Direct contribution to employment and GDP understates the importance of the forest industry because it does not include activities which are totally /partially dependent on the forest sector. 99 1994:197). 6 0 The forest products industry in B . C . is heavily oriented towards exports, and forest products generally account for about 55% of all B . C . ' s exports of goods ( F R R R A , 1994:198). Because of this heavy dependence on export markets, exchange rates are one of the most important factors in determining international competitiveness in this industry. The forest industry is an important source of revenue for the provincial government, primarily through stumpage and sales tax ( F R R R A , 1994:198). The contribution to provincial government revenues of stumpage and corporate income tax follows cycles of the economy as demonstrated by the wide range in percent of government revenues provided directly by the forest industry: from 1984-1993, the high was 13% in 1987 and the low was 6% in 1990 ( F R R R A , 1994:198). The Forest All iance of B . C . in association with the Vancouver Board of Trade attempted to quantify the total economic impact of forest industry activity in B . C . in 1993 (i.e., considering the impact of government re-spending of provincial revenues derived from forest industry activity). This study (by the Chancellor Partners Management Consultants) suggests that while direct contribution to G D P was 8.8% in 1993, the total contribution to G D P was $14.2 bi l l ion or 17.7% of the total of $80.3 bi l l ion. While direct employment by the forest sector in 1993 accounted for 5.7% of B . C . ' s workforce, the total number of jobs supported by B . C . ' s forest industry was estimated at 16.5% of the total provincial workforce. 5.2 Government Actions '"The forest industry's share of total GDP is greater than its share of provincial employment, and the paper and allied industry's share of the forest industry GDP is greater than its share of forest industry employment. This is testimony to the capital-intensive nature of the industry, especially the paper and allied sector (FRRRA, 1994:198). 100 Government actions, primarily the development of environmental legislation is the single most important factor influencing the behaviour of industry in the field of environment (Welford & Gouldson, 1993:18). This is especially true of British Columbia where the forest industry is heavily regulated in both economic and environmental terms. Provincial forest management policies are the basic determinant of timber supply (the annual allowable harvest levels) and have a profound influence on the availability of timber supplies in the long run (Percy, 1986:1). In B . C . , the role of the provincial government in managing forest resources is one with conflicting demands because the government is the owner of the forest resource, the regulator of users of the forest resource, and the rent collector of the forest resource.61 Of the sources of external institutional pressures on corporations (governments, customers, suppliers, interest groups, the public) the government is unique in that it can legitimately exert coercion over a firm, both directly and indirectly. 5.2.1 Types of Government Actions: Government actions on environmental issues in the forest industry take many forms. The most obvious of these actions is legislation and related regulations.62 In Canada, provincial governments have clear constitutional jurisdiction over most areas of natural resource management but the federal government holds jurisdiction over inland and offshore fisheries and can legislate for the protection of human health as well (Schrecker, 1993:95). Thus the divisions between federal and provincial responsibilities are not always clearly set out: there are duplications, gaps, and instances where both may apply 61I would like to acknowledge that Dr. W.T. Stanbury pointed this out to me. 62Many Canadian laws which directly protect the environment consist of (a) statutes or acts that contain general prohibition against pollution and authorize the making of more specific regulations, and (b) regulations that limit the allowable discharges of certain kinds of pollution, or set standards of other kinds (Schrecker, 1993:95). 101 (Ibbotson & Phyper, 1996:14). The federal environmental acts of importance to the forest industry are the Canadian Environmental Protection Act, the Fisheries Act, and the Transportation of Dangerous Goods Act.63 The most important provincial environmental acts are the Forest Practices Code of British Columbia Act, the Environment Management Act, the Waste Management Act, and the Environmental Assessment Act.64 In addition to statutes and regulations, environmental law consists of a range of parts of statutes,65 common law, administrative policies and guidelines, which means that its limits are very uncertain. Other government actions include economic instruments66 which are policy tools which provide corporations with financial incentives to improve their environmental 63Besides regulating toxic substances, the Canadian Environmental Protection Act also contains provision for the coordination of provincial and federal regulation. MThe Environment Management Act defines broad environmental policy. The Waste Management Act establishes a permit and approval system to regulate the discharge of waste into the environment. It establishes a comprehensive regime for prohibiting the introduction of waste into the environment without a permit, approval or order, other than in compliance with the regulations. The Forest Practices Code of British Columbia Act and Regulations which came into effect on June 15, 1995 provides a single enforceable code of conduct for forest practices in B.C. The Code has jurisdiction over all public land and all private land in TFLs and woodlot licences. Under this Act, an independent Forest Practices Board representing a range of public interests, audits forest management performance by government and industry and investigates public complaints. The Environmental Assessment Act consolidated B.C.'s existing environmental assessment procedures and requires major projects to have a project approval certificate before they can be built. 65Before any statute has the force of law, it must be passed by the Legislature and receive Royal Assent. But some statutes have provisions to come into effect only upon proclamation (Ince, 1984:5). 66Opschoor & Turner (1994:10) point to the various kind of policy options: 1.Altering the sets of options open to agents: involves providing new alternatives or forbidding old ones. Typically this has been the route followed by environmental policy in most industrialized countries; it has been called the "command-and-control" approach. Instruments used in this approach include a range of "direct" regulations (regulatory instruments). 2. Altering the cost/benefits relevant to agents: application of economic incentives on the grounds that if environmentally more appropriate behaviour is made more rewarding in the eyes of the agent, then behaviour will automatically shift to these more socially desirable alternatives. Options can be made more or less financially attractive by applying charges or levies, granting subsidies, implementing tax differentiation etc. Use of such economic instruments leads to internalization of environmental concerns by altering the agent's context. Economic instruments include: deposit refund systems; direct subsidies, soft loans; fiscal incentives; enforcement incentives (non-compliance fees); insurance schemes in response to changed liability legislation; emissions trading; and quota auctioning. 3. Altering the structure of agents costs/benefits: entails approaches such as education, information extension, training, social pressure and other forms of moral suasion. Suasion instruments lead to full internalization of environmental concerns within the agent's preference structure. 102 performance. Examples of such tools are effluent charges and pollution credits.67 Some government actions which provoke corporate reactions are more directly observed than others. A government may pass a piece of legislation which comes into effect on a particular date, but may not devote any time or resources toward enforcing that legislation, until a later date. This later date, then becomes the time at which corporate reactions are actually provoked. Direct government actions include: legislation (and accompanying regulations); court orders; economic instruments (taxes, subsidies, pollution credits); and policy statements and guidelines. Indirect government actions include: changes in administrative structures and procedures and research studies (which may lead to future government actions). Of various policy instruments, regulatory instruments appear to have been most often used in B.C. In recent years, companies will have increased economic incentives to comply with regulations, because the government has incorporated enforcement incentives (substantial non-compliance fees) in its regulatory package, along with a policy of stricter enforcement. 5.2.2 Enforcement: Although regulatory instruments are the dominantly used regulatory instrument, regardless of the standards required by legislation, the extent to which they are actually met depends on the level of enforcement. Enforcement in Canada tends to be highly discretionary. Canadian environmental legislation has been described by Nemetz (1986:401) as a relatively closed, consensual and consultative approach with a small number of prosecutions. Others have agreed that the "Command/Penalty" model of regulation scarcely applies in the Canadian environmental context. Instead, negotiation and bargaining are said to be the main 67Effluent charges are simply a price charged to polluters for every unit of environmental pollution emitted into the environment. Pollution credits set an overall limit to the allowable discharge of pollution and then allow companies to buy and sell rights to pollute amongst themselves (Schrecker, 1993:98-99). 103 techniques employed to achieve compliance, enforcement being very much a secondary strategy (CLES, 1989: 1.4.03). Historically, governments in Canada have often been reluctant to adopt aggressive enforcement policies because of "job blackmail" whereby the corporation warns of impending layoffs should it be required to meet environmental standards (Schrecker, 1986:97). This is a tactic that has sometimes been used in B.C. where the provincial economy is especially dependent on the forest industry, and there are some small towns which are essentially dependent on one or two companies for a large proportion of employment. The provincial government agencies which have primary responsibility for enforcement on environmental protection issues are the Ministry of Forests and the Ministry of Environment. Until the early 1990s, the sole agency responsible for managing B.C.'s forests was the Forest Service and its 43 District Managers who administered policy at the local level (Cashore, 1997:186). Much of the administration of forest management practices was delegated to forest companies under the area-based TFLs. The number of government agencies involved in the B .C . forest policy community expanded considerably in the late 1980s and early 1990s. Cashore (1997:195) describes how numerous ad hoc and multi-agency bodies were created and how the Ministry of Environment moved from playing more of a policy advocacy role to being an active participant. There has been a drastic change in enforcement under the Waste Management Act by the Ministry of Environment since the early 1990s. Early research by Thompson (1980) suggests that a consensual compliance strategy featuring persuasion used to be the strategy utilized primarily by the Waste Management Branch of the M O E . Repeat offenders were not 104 singled out for criminal prosecution.68 The study concluded that administrative penalties were more effective than criminal sanctions in decreasing the enforcement deficit. Economic incentives were suggested to offer one of the most promising techniques in environmental law for achieving compliance, e.g., emission and effluent charges would eliminate the economic incentive to delay installation of pollution abatement equipment since it would be more costly to pollute than to abate. In 1989, amendments to the B.C. Waste Management Act significantly increased the degree and range of penalties available. The most important factor accounting for the low rate of prosecution for often flagrant, persistent non-compliance with the Waste Management Act was the lack of political will to enforce the pollution laws stringently (Thompson, 1980). A defining characteristic of forest policy formulation and implementation in B.C. is the extent to which it is tied with provincial politics. The most significant changes to the government members of the forest policy community occurred after the 1991 election of the New Democratic Party (NDP), which introduced a myriad of new land use and forest practices initiatives (Cashore, 1997:196). The NDP included environmental protection as a important issue on its 1991 election slate. After being elected it not only introduced many new pieces of environmental legislation, it made a concerted effort to increase enforcement and broadened participation in forest policy by different Also, WMB records probably understate the extent of non-compliance. A review of compliance by pulp and paper sawmills in two regions of B.C. revealed that even when a firm was consistently out of compliance (for the two years of the study), the most stringent corrective action that was apparently taken was the scheduling of a meeting with the permittee. In some instances, appropriate pollution abatement equipment was installed during the period under question, thereby bringing the firm into compliance. It is of course difficult to assess whether such corporate decisions could be attributed to the use of this persuasion strategy. Another noteworthy aspect is the use of Variance Orders- even when companies had been granted a Variance Order providing temporary relief from permit conditions for economic reasons, they did not even meet the relaxed terms of the Variance Order. 105 government agencies. 5.2.3 Government Actions By Issue: The range of issues with which B .C. forest policy is concerned has broadened considerably from allocating the available timber supply and managing it on a sustained yield basis. For an overview of B .C. forest policy till 1985, the reader is referred to Appendix B. Policy initiatives taken by the government in the last decade are concerned with the six broad issues listed below in Table 5.1. The first three (forest management initiatives; pollution control initiatives and land use planning initiatives) are directly concerned with environmental protection. Policy initiatives relating to sustaining the wood supply and transition and mitigation initiatives are indirectly concerned with issues of environmental protection. Of importance is the extent to which the government has engaged in land use planning in recent years and how complex the process has become in B.C. It comprises a number of levels of planning from broad strategic plans to detailed site-specific plans, including provincial, regional, sub-regional, local and operational plans (Price-Waterhouse, 1995:2). The government agencies and ministries involved in land use planning and coordination include the Ministry of Forests, the Ministry of Environment, Lands and Parks, the Ministry of Energy, Mines and Petroleum Resources, the Ministry of Small Business, Tourism and Culture, the Cabinet, the Commission on Resources and Environment (CORE), the Land Use Coordination Office (LUCO), the Inter-agency Planning Committees (IAMCs), and Community Resource Boards (CRBs). 6 9 Al l strategic or higher level land use plans are initiated by Cabinet. The exceptions are Site Specific 69Price-Waterhouse, 1995:2. o Cu, o 1 o 'o "g 3 o o & o U o 1-1 o 'S O '> Pi u t ° I I .1 £ CQ CU •a o ! l s s .a 55 <u OS « c o OS ON 3 O O U u CO CO cu 3 3 O 3 8 0> SP .S =3 I! ON 3 3 O 3 -S & cn 3 - 3 _ cn >..a o § • • 03 0> g 0 •fe .2 § 3 0 <-> =3 ' 3 s a s s c« ~ S g 'S ^ ' < ^ CQ 3 >> "E. a. s CO •o o I c •5 3 3 CO B "2 1—1 3 .2 -eg 0 .2P 6 s cs e o s o _ 4> GO S s" 5 . 3 OH _ .. A S 2 rj oi pq H • • • CO 8 o a. I OH "3 a 'So I *E o b e 107 Plans and Local Resource Use Plans. 7 0 5.3 Environmental Interest Groups Since the late 1980s, the number and types of environmental groups seeking to influence environmental policy on forest related issues in B . C . has changed dramatically. Some environmental groups became participants in policy making and there was an expansion of professional, expertise-oriented environmental groups (Cashore, 1997:179). Actions by environmental groups may be direct (aimed directly at a corporation), or indirect (aimed at the public or the legislative bodies). This paper is concerned only with direct actions by environmental interest groups since indirect actions (i.e., attempts to influence the government or general public), are incorporated into government actions. 7 1 "Direct action" techniques of interest groups are defined as those actions by interest groups which are aimed directly at one or more corporations. 7 2 The objective of these actions is to modify/change the behaviour of corporations often, but not always, on a public policy issue. The interest group literally tries to bring pressure (economic, physical or moral) to bear on the corporation. 7 3 Although CORE has been abolished, its primary role was to develop a provincial land use strategy. However since CORE was a commission at arms length from the government, it had no line authority and thus, no direct influence over government agencies (Price-Waterhouse, 1995). In order to coordinate land use initiatives within government, CORE sponsored two committees (the Government Liaison Committee and the Inter-ministry Policy Committee), and recommended that a land use coordinating body be established, which is now the Land Use Coordination Office (LUCO). "indirect actions by interest groups take various forms: educational campaigns aimed at the public, media campaigns, the organization of public demonstrations on broad environmental issues, and lobbying strategies aimed at the government. Occasionally civil disobedience tactics may be used by the more radical environmental groups. 72I would like to acknowledge the contribution of Dr. W.T. Stanbury for suggesting this definition, and for the classification of direct interest group actions which follows as sub-section 5.3.1. "For a discussion of the importance of values in explaining confict over forest policy in B.C., the reader is referred to Stanbury (1997). 108 5.3.1 Environmental Interest Group Tactics: Specific actions by interest groups take various forms, depending on the issues in question, and the modus operandi of the group in question (Stanbury 1993b:Ch.8). The following types of direct action tactics have been used by interest groups in B .C. : (1) Boycotts of the corporations products. These boycotts may be in domestic or foreign markets, and may be primary, secondary or tertiary. (2) "Bodies-on-the-Line" tactics. This includes blockading access to corporate property; disruptive behaviour at annual meetings; attempted sit-ins; demonstrations outside premises; picketing of premises; and invading corporate offices or plants to stop work. (3) Sabotaging the corporation's production process by tree spiking on their forest land or disabling heavy machinery. (4) Mass communication campaigns such as advocacy ads (designed to sell ideas in the context of a public policy debate). These may be published electronically or in print. Direct mail campaigns aimed at executives, shareholders (who may be institutions), employees, customers and suppliers which include requests regarding current production practices and may include the "personalization" of company actions by accusing a few top executives of misbehaviour. (5) "Shine-a-light" tactics on alleged malpractice include scientific research studies, attempts to seek out alleged violations of environmental protection laws, and/or soliciting coverage in the news media for any violations that might be found. Environmental groups have also handed over evidence of environmental infractions to law enforcement authorities, and encourage "whistleblowers". (6) Legal actions include private prosecutions under public law; and private civil actions (e.g. financing person(s) harmed; launching a class action with individuals who have "standing" on a justiciable issue); attempts to stop the M O F issuing cutting permits; and showing up at company-specific public hearings. 5.3.2 Environmental Groups: The most active environmental groups which have targeted direct 109 actions at the corporations under study are Greenpeace Canada, Greenpeace International, the Western Canada Wilderness Committee (WCWC), Friends of Clayoquot Sound (FOCS), and the Sierra Legal Defence Fund. Western Canada Wilderness Committee (WCWC): W C W C was founded in 1980 to participate in the dispute over logging of South Moresby Island. It defined its mission as "working for the preservation and protection of Canadian and international wilderness through research and eduction." It is a non-profit environmental society based in Vancouver with a current membership of approximately 20,000. Its mission as defined now is "to work towards preservation of the last remaining wilderness areas through research and education". W C W C was involved in land use conflicts with MacMillan Bloeodel in the following areas: the Carmanah Valley, South Moresby Island, Clayoquot Sound, the Walbran Valley, and the Tsitika Valley. 7 4 Its strategy, as defined by its Wilderness Campaign Coordinator Joe Foy, is to delineate an area on a map, and then work towards the objective of having legislation passed to prevent industrial logging in that area. Once legislation is passed to preserve the boundaries of the delineated area, it considers its objectives to have been met and the campaign to have been successful. Key tactics used by WCWC include trailbuilding (to facilitate public access), intensive media and education campaigns, and the establishment of research camps in disputed areas to gather scientific evidence pointing to the need for preservation. The group has also raised questions at MB's Annual General Meetings. 74It played a leading role in the Tsitika Valley conflict and the Carmanah conflict. On South Moresby Island, it supported the Haida Nation, and it was engaged in a supportive capacity in the Walbran and Clayoquot Sound disputes. 110 Greenpeace: The Greenpeace Foundation was established in Vancouver in 1971. Following the growth of several international branches throughout the 1970s, and a few internal disputes, Greenpeace International was established in 1980 to formally charter national Greenpeace organizations. Since Greenpeace is a large international organization, there are many differences with respect to its status in each country, the agendas of campaigns, and resources available at its disposal. Current membership in Greenpeace Canada is approximately 175,000, and that of Greenpeace International approximately 3,000,000. Greenpeace's mission as currently defined is, "Greenpeace is an independent campaigning organization which uses non-violent creative confrontation to expose global environmental problems and to force the solutions which are essential to a green and peaceful future." In this study, the Greenpeace campaigns of interest are: chlorine use in pulp and paper production, the European boycott of B .C. forest products and Clayoquot Sound. Greenpeace, chose to focus almost exclusively on MB in its forestry campaign. Like W C W C , Greenpeace which has a strong base of scientific expertise relies on public education campaigns and "shine-a-light" tactics such as conducting research studies and collecting evidence of violations of environmental laws. Unlike WCWC, Greenpeace, also relies heavily on the use of "bodies-on-the-line" tactics to draw public attention to environmental issues through the media. Other environmental groups which engaged in direct actions against the companies under study included groups which generally limited their attention to specific issues or geographical areas. These groups include Friends of Clayoquot Sound, the Carmanah Forestry Society, and the Valhalla Society and the Rainforest Action Network (RAN). The Sierra Legal Defence Fund I l l generally approaches environmental issues from a legal perspective. It's objective is to take environmental offenders to court on behalf of concerned citizens and groups across Canada; and to provide free legal representation and advice. It takes the perspective that in some cases the law is the barrier that can halt the destruction of wilderness and wildlife and that the best solution for strengthening and enforcing laws so they will be obeyed is to test them in the courts and prosecute violators of the law. R A N , founded in 1985 is a non-profit volunteer and member-based grassroots organization dedicated to protecting the world's rainforest and upholding the rights of native forest-dwelling people. It has 30,000 members and coordinates its activities with environmental and human rights organizations around the world. In 1997 R A N created the Clayoquot Forest Coalition consisting of itself, Greenpeace, the Natural Resources Defence Council and about twenty other members. Greenpeace and FOCS were closely associated with the Coalition which acted individually and collectively to create an indirect boycott of M B by bringing pressure on the buyers of MB's products in California, notably Pacific Bell Directories, in 1994, 1995 and 1996 (Stanbury & Vertinsky, 1997). The most frequently mentioned environmental issues related to forestry raised by environmental interest groups are the following: (1) the size of clearcuts (Greenpeace Canada wants them reduced to one hectare versus a maximum of 40 at present in Southern B.C.); (2) the preservation of old-growth timber and wilderness areas; (3) the loss of biodiversity associated with cutting old growth and replacing it with plantation/monoculture forests; (4) harvesting practices which result in damage to the environment such as excessive erosion resulting in siltation and reduced water quality; (5) visual aspects of timber harvesting; and (6) the sustainability of the level of annual cut (Stanbury, Vertinsky & Wilson, 1995:1). 112 In analyzing the actions by environmental interest groups in the case studies which follow this section, the following points should be kept in mind: In any one environmental issue, more than one interest group may have been involved, and they may not have had the same objectives, or agreement on tactics which should be used. Different environmental groups favour different tactics. For example, the W C W C declared in 1985 that it would not condone acts of c iv i l disobedience, whereas for Greenpeace, the motto was "c iv i l disobedience i f necessary, but not necessarily c iv i l disobedience". 7 5 In some cases, although the environmental group may have instigated the action against the corporation, due to the "bandwagon" effect, events may have taken place which implicated the environmental group as the instigator of subsequent actions, whether or not this was the case. In many cases, direct actions by interest groups have been of the nature of garnering public support, therefore members of the public who are participate in , or are arrested during demonstrations or protests may not actually be members of the interest group(s) in question. 15Globe and Mail, January 5, 1991 :D1. 113 6.0: M A C M I L L A N B L O E D E L : A C A S E STUDY Both the case studies are structured as narratives, each divided into four time periods. The discussion of each time period begins with a period overview. This is followed by an outline of the important environmentally related external events to which the company was responding. Then, the company's operating context during that period is summarized. Issues discussed under the operating context include general market conditions, the company's financial performance, general changes to organizational structure or strategy, and any unique circumstances faced by the company which affected its ability to respond to environmental issues. The purpose of the operating context is to provide the reader with an idea of the general constraints and opportunities faced by the company at that time. Company responses are then described and analyzed. The analysis within the case study sections follows the outline of the narrative. The four models of the conceptual framework are referred to as they apply to the unfolding circumstances. A comparison and integration of the four models is offered in Section 8.0. 6.1 "Survival Mode": 1983-1986 Period Overview: MB's corporate objective at this time was return to profitability following the recession of the early 1980s. The company was in conflict with interest groups (environmental and Native groups) fighting for preservation of MB forest land in Clayoquot Sound and the Queen Charlotte Islands. MB resorted to legal actions to resolve this conflict. Even though the conflict escalated at times to become an intense national media event, MB made no mention of the issue in its Letter to Shareholders in its Annual Report for 1985. 6.1.1 Significant Environmentally Related Events in this Period: MB's history of conflict with 114 environmental groups dates back to the 1970s. In 1983 MB was in conflict