Deciding on ISO 14001: Economics, Institutions, and Context

ISO 14001 is an international standard for environmental management systems that was introduced in September 1996. It has gained wide recognition among businesses, much like its sister standard on quality management systems, ISO 9000. As a result, managers in almost every organization will evaluate whether the organization should become ISO 14001 certified. However, most analyses of ISO 14001 that are intended to guide managers in their evaluation have focused on the merits of ISO 14001, such as improved competitiveness, management control, and regulatory compliance. Very few articles provide a balanced picture of the costs and benefits of ISO 14001—including the conditions under which adoption will be most effective. This article redresses this gap by providing an analysis of not only why firms may choose to certify based on economic and institutional considerations, but also, when certification might be appropriate based on the firm’s context.In 1998, the Jutras division of Meridian Magnesium Inc., which manufactures magnesium automotive parts, reported that it saved almost $2 million soon after its $45,000 investment on an ISO 14001 certified environmental management system (EMS).¹ The company reduced its use of electricity, natural gas, and lubricants, while producing less solid waste and contaminated water. These were not just one-time savings; they were expected to continue into perpetuity. Not all their ISO 14001 projects were winners, however. Jutras implemented ten projects for their EMS in the first year with an initial goal of saving over $460,000 in costs. Four of the projects did not result in any savings and one had disappointing but positive results. The remaining projects, however, provided larger than expected returns. The cost savings increased the competitiveness of a firm that prides itself on being the low cost leader in an increasingly competitive automotive parts industry. The benefits to the environment were a bonus. And there was yet another bonus from ISO 14001 that had not been anticipated: the preference for ISO certified suppliers by its key customers, Ford and General Motors, and the social legitimacy earned from stakeholders pressuring for greener business practices. The company now posts its ISO 14001 certification on its web site as one of its main achievements.Although this type of vignette presents ISO 14001 in a positive light, not all firms have embraced the standard with enthusiasm. While over 22,000 facilities in 98 countries were ISO 14001 certified by December 31, 2000, many firms had decided to delay certification or reject it altogether.² The significant financial rewards realized by the Jutras Division of Meridian Magnesium have not been perceived by many of its peers, even though most analyses of ISO 14001 attempt to convince the reader that such a system is of significant strategic importance and a panacea of opportunity. Writers typically tout the potential for lower costs, increased competitiveness, market share growth, higher profits, and regulatory compliance, such as those experienced by Meridian Magnesium.³The costs of ISO 14001, however, are not trivial. Managers need to undertake a careful analysis of the relevance of ISO 14001 to their firm before they decide to jump on the ISO 14001 bandwagon. While managers can estimate the direct costs of certification with the help of good internal cost accounting, evaluating the intangible costs and benefits and the indirect impacts on the firm’s performance is more difficult. In this article, we provide background perspectives and evaluation criteria for those aspects of ISO 14001 certification, looking specifically at the marginal benefit of ISO 14001 certification over an in-house EMS. This article, then, identifies why firms may certify and in which contexts, based on economic and institutional considerations. Armed with relevant decision-making criteria, we present managers with an analytical tool to assist them in determining if ISO 14001 is appropriate for their firm.The insights provided here build on three studies:

1.

an investigation of the motivations of environmental responsiveness by interviewing members of 53 firms in the UK and Japan;⁴

2.

an investigation of the factors that influence the adoption of ISO 14001 based on a statistical analysis of 46 matched pairs of certified and non-certified firms and interviews with members of six firms in the US;⁵ and

3.

an investigation of the contexts that explain adoption based on interviews with 16 pulp and paper companies in Canada.⁶

Details of these studies are provided in text boxes later in this paper. While these studies form the foundation of this paper, many of the anecdotes provided here are based on published sources because the interviewees were promised complete confidentiality.     

Implementing ISO 14001—An International Survey Assessing the Benefits of Certification

The costs and benefits of ISO 14001 certification result in firms choosing this route as a tool for proactive environmental management, according to a survey of 131 companies across the world. The following paper examines the motivation to pursue ISO 14001 certification for companies in developed and developing countries. While the costs of ISO 14001 certification vary widely, almost all respondents report substantial cost savings as a result of implementation. This was especially the case in developing countries, where enthusiasm about the standard (among certified firms) is very high. Contrary to the concerns voiced by skeptics, many firms stated that they decided to implement an ISO 14001 in order to “be a good neighbor” and to raise their employee's level of environmental awareness. Surprisingly, very few respondents stated that their primary motivations for implementation were profit-related. The majority of firms appear to be using ISO 14001 as a tool for proactive environmental management, as its creators intended.     

A MODEL OF SITE‐SPECIFIC ANTECEDENTS OF ISO 14001 CERTIFICATION

ISO 14001 constitutes a major dilemma for many American firms. This new standard holds the promise of waste reduction and better process management, but the benefits and costs are very difficult to predict. This study attempts to identify and explain antecedents impacting the decision to pursue certification for some of the first plants certified in the United States. Using data from a large survey of U.S. managers and a Logit analysis, we find the factors influencing management decisions to actively pursue ISO 14001 certification to be distinctly different from those factors influencing management's decision not to pursue certification. For the latter, the decision is economically based; for the former, it is driven by other, more qualitative considerations.     

The Financial Impact of FSC Certification in the United States: A Contingency Perspective

This article focuses on an important and emergent standard for sustainable operations management: the Forest Stewardship Council (FSC) certification. Unlike similar certifications, its focus is on the entire upstream supply chain, reflecting the criticality of supply chain management to ensure sustainable products. We investigate the financial impact from FSC certification, offering valuable decision support for managers considering this certification. Taking a contingency perspective, we view a firm's supply chain position and its prior certification to the ISO 14001 standard as influencing the results. Drawing on signaling theory, we suggest that firms farther downstream in the supply chain realize significantly greater abnormal financial performance benefits than firms upstream in the supply chain. We further hypothesize that firms that were not ISO 14001 certified at the time of FSC certification realize significantly greater abnormal financial performance benefits than firms that did have the ISO 14001 certification. To test these hypotheses, we utilize financial data of all publicly traded firms in the United States that have obtained the FSC certification, and assess whether FSC certification leads to abnormal performance benefits considering the above contingencies. Data collected from the FSC Certificate Database and Compustat, employed in an event study, provide support for our hypotheses. Overall, our findings contribute to research on decision making in the context of sustainable operations management, and offer a plausible explanation for contradictory results in prior studies. We highlight the applicability of signaling theory to decision sciences research, and stress the need to consider contingencies in sustainability management research.     

Does family matter? Ownership,motives and firms’ environmental strategy

Extant research has primarily focused on the economic drivers and outcomes of corporate environmental performance. This trajectory oversimplifies the motives for environmental strategies across all firm types and particularly overlooks how firm ownership presents other motives for environmental strategies. In this study, we leverage institutional theory to examine how family motives, underpinned by family members' desire to gain or preserve family legitimacy and socio-emotional wealth, affect ISO 14001 certification. Using firm-level data, we find that family ownership has a positive effect on ISO 14001 certification. This effect is stronger for firms whose names include the family name and also for firms located closer to large cities. Our study contributes to nonmarket strategy literature by showing that family motives underpin firms’ environmental initiatives. It also contributes to institutional theory by delineating the levels of legitimacy that spur nonmarket strategy in family firms.     

American and European ISO 14001 accreditation requirements and their influences on registrar practice and environmental performance

In order to insure that ISO 14001 is audited consistently across the world, the International Standards Organization (ISO) has created ISO 66, a standard that accreditation bodies use to assess registrars with. However, there are international differences in interpretation of this standard, particularly between the United States and Europe. This paper highlights these differences and their implications to registrar practices and organizational environmental performance.A careful analysis of the requirements by the International Accreditation Forum (IAF) Guidance to ISO 66, the Dutch council for Accreditation (RvA), and the American National Standards Institute-Registrar Accreditation Body (ANSI-RAB) uncovered significant differences in registrar requirements. It is concluded that these differences may be responsible for the variability found in registrar practices. Which, in turn, may have influenced the level of environmental performance characteristics exhibited by their ISO 14001 certified companies. Broad differences in accreditation requirements ultimately leads to a loss of credibility for the ISO 14001 certification, thus losing a potentially effective tool for encouraging volunteer efforts towards environmental responsibility and sustainability.     

Governance structure and internationalization of family-controlled firms: The mediating role of international entrepreneurial orientation

Stemming from resource dependence theory this article investigates the mediating role of international entrepreneurial orientation on the relationship between the involvement of non-family members in the firms' governance structure and both pace of internationalization and international performance of family firms. Relying on a sample of 113 German family firms, the theoretical model proposed in the study is tested via structural equation modeling techniques. Our findings suggest that a high involvement of non-family members in governance structure has a positive impact on family firms' pace of internationalization, and that this relationship is mediated by the international entrepreneurial orientation of the firm. The discussion section offers implications for family business and international entrepreneurship literature, as well as practical implications.     

The Primary Importance of Corporate Social Responsibility and Ethicality in Corporate Reputation: An Empirical Study

We examine three assumptions commonly held in the corporate reputation literature: (1) reputation ratings of owners and investors are generally representative of all stakeholders; (2) stakeholders will generally provide a higher reputation rating to firms that emphasize corporate social responsibility versus firms that do not; and (3) profitability is the primary criterion of importance to all stakeholders when rating a firm's reputation. Using an exploratory in‐class exercise, our findings suggest that: (1) there are significant differences among stakeholder groups in their reputation ratings; (2) firms that emphasize corporate social responsibility are not rated more highly across all stakeholder groups; and (3) for all stakeholder groups, the ethicality criterion explained more of the variance in firms' reputation ratings than the profitability criterion.     

An Analysis of the Relationship between Environmental Motivations and ISO14001 Certification

The objectives of this paper are both to identify the environmental motivations associated with the decision to initiate the process for ISO14001 certification and to check whether such motivations undergo any changes once the company obtains its certification and experiences the actual effects of this process. Based on the work of Bansal and Roth, we distinguish between ethical, competitive and relational motivations, and compare the importance of these motivations in four company stages with respect to the ISO14001 certification: not considered, considered, in process and awarded. This comparison was performed through a logit analysis applied over the data supplied by 184 Spanish manufacturers from three different industrial sectors. It was concluded that the decision to pursue the ISO14001 certification responds to ethical and competitive motivations, and that once the company gets its certification, the company portfolio of environmental motivations does not change significantly.     

Adoption and Outcomes of ISO 14001: A Systematic Review

The objective of this paper is to analyze the adoption and outcomes of the ISO 14001 standard through a systematic review of the main studies on this issue published in peer‐reviewed journals between 1996 and 2015. The 94 papers analyzed make it possible to paint a comprehensive picture of the effectiveness of ISO 14001 in environmental management practices, performance in this area and social aspects such as employee awareness. The systematic review also sheds more light on the main pitfalls and success factors of the standard. Nevertheless, the similarities and even redundancies of the literature in terms of objectives, approaches and methods used tend to produce quite predictable and optimistic results, which do not reflect the complexity of the impact of ISO 14001. The paper highlights the importance of more diverse and critical approaches that might challenge the successful rhetoric of the dominant literature, which tends to focus on positive aspects and be limited to a few countries that are not representative of the wide international distribution of certification. The findings of this systematic review can also help managers in making decisions on the adoption and renewal of certification.     

How do shareholders influence international firms’ environmental strategies? The differential impact of strategic and financial investors

Debates about the drivers of corporate environmental strategy as well as the influence of shareholders on environmental investments have grown exponentially in the last decade. This paper provides a novel perspective on the influence of investors on a firm's environmental strategy by theorizing how the shareholders' orientation may provide different resources for firms to outperform environmental institutional pressures, and further analyzing how foreign market exposure moderates this relationship. Our results, produced from a longitudinal sample of 2237 observations between 2007 and 2017 from 276 US firms in 11 industries, show that having a higher percentage of strategic shareholders positively drives firms' environmental proactivity. Meanwhile, having a higher percentage of financial shareholders is positively related to firms' environmental proactivity only at high levels of foreign market exposure, but is negatively related at low levels. Our results contribute to the ownership and environmental strategy literature by delimitating the different influences of strategic and financial investors on firms' environmental strategy and making a bridge between institutional and resource-based perspectives.     

The ASARCO-EPA settlement agreement: Understanding the value of a corporate-wide EMS for regulators and strategists alike

State and federal regulatory officials are probing whether environment management system actually enhance industry compliance with environmental law. Already convinced of that fact, many corporate strategies have moved on to the work of integrating auditing, training, policies, procedures and other compliance related elements within an overarching environmental business strategy. A settlement agreement entered into between ASARCO Incorporated, a leading copper producer, and the U.S. Environmental Protection Agency illustrates ane firm's approach to that challenge using the ISO 14001 management system. This agreement, which includes the first corporate-wide implementation of ISO 14001-based management systems by EPA, shows that some within the enforcement community have already been persuaded that a properly designed environmental management system can improve an organization's compliance with environment requirements.     

A structural analysis of greening the supplier,environmental performance and competitive advantage

A clear research need has been identified to confirm the structural relationships between greening the supplier, enhanced environmental performance and improved competitive advantage, to provide an impetus for firms to green their suppliers. A mail survey was conducted and empirical data of 119 ISO 14001 manufacturing firms in Malaysia was gathered for this study. Structural equation modelling technique was applied in this research article. Results from the analysis, reveal the existence of a positive and significant linkage between green suppliers with both environmental performance and competitive advantage. At the same time, environmental performance has also been shown to positively and significantly affect competitive advantage; while environmental performance plays a partial mediating role between greening the supplier and competitiveness. Such significant finding is especially essential for the manufacturing sector registered with ISO 14001 who intend to enhance their environmental performance and carve a niche competitive edge in the business arena.     

The illusion of independence: Spun-off firms’ risk-taking as a function of status and attachment to the parent firm

This paper examines the post-divestiture behavior of spun-off firms. Drawing on the spin-off literature and middle-status conformity theory, we argue that spun-off firms—as newly independent and publicly traded firms—tend to limit their risk-taking behavior to match the expectations of a crucial audience, i.e., security analysts. Following the logic of middle-status conformity theory, we hypothesize that firms with mid-level status are particularly susceptible to analysts' pressures, whereas high- and low-status firms are free to take greater risks. Crucially, however, we propose that this relationship is less pronounced for spun-off firms that are more attached to their parent firms, as formal and informal linkages between these two types of firms can endure beyond the separation and limit spun-off firms' independence. Using a dataset of 102 spin-off transactions occurring between 1995 and 2010, we find empirical support for a U-shaped relationship between spun-off firms' status and risk-taking. This relationship is attenuated when spun-off firms are more attached to their parents. We contribute to the spin-off literature by demonstrating that a spun-off firm's post-divestiture behavior is determined by the capital market audience's expectations and the attachment to the parent firm. In so doing, we also contribute to the literature on middle-status conformity theory by identifying a boundary condition of the theory. Additionally, we make a methodological contribution by combining ideas from the spin-off and institutional theory literature to develop a particularly comprehensive measure of attachment.     

Explaining Investment Dynamics in U.S. Manufacturing: A Generalized (S,s) Approach

In this paper we derive a model of aggregate investment that builds from the lumpy microeconomic behavior of firms facing stochastic fixed adjustment costs. Instead of the standard sharp (S,s) bands, firms' adjustment policies take the form of a probability of adjustment (adjustment hazard) that responds smoothly to changes in firms' capacity gap. The model has appealing aggregation properties, and yields nonlinear aggregate time series processes. The passivity of normal times is, occasionally, more than offset by the brisk response to large accumulated shocks. Using within and out-of-sample criteria, we find that the model performs substantially better than the standard linear models of investment for postwar sectoral U.S. manufacturing equipment and structures investment data.     

The Effect of Competition on R&D Portfolio Investments

Although project portfolio management has been an active research area over the past 50 years, budget allocation models that consider competition are sparse. Faced with the competition, firms contemplating budget allocation for their project portfolio cannot limit their attention to the returns from their projects' target markets, as is the case for monopoly firms, but must also anticipate the competitive effects on these returns. Assuming firms allocate their budgets between projects offering incremental innovation targeting a mature market and projects offering radical innovation targeting an emerging market, we show that while the monopoly firm bases its budget allocation decision solely on the marginal returns of the markets, competing firms—as they take into account their counterparts' investment decisions—need to also consider the projects' average returns from their respective markets. This drives competing firms into incrementalism: faced with competition, firms invest larger portions of their budgets into projects targeting mature markets. This effect is amplified as the number of competing firms increases and firms allocate an even greater share of their budget into projects targeting a mature market. We further demonstrate the effects that changes to firms' individual budgets, as well as to market characteristics, have on firms' budget allocation decision.     

Sustainability in the Construction Business — A Case Study

Skanska is among the world's five largest construction companies, with construction-related activities and project development operations in some 60 countries. A strategic approach to environment was adopted in 1995. In 1998 a decision was made to introduce certified environmental management systems. The drivers behind these steps were pressures from the market, future legislation and public opinion.By the end of 2000, all business units of Skanska had environmental management systems certified according to ISO 14001. Newly acquired companies are required to have certified systems within two years after acquisition. While environmental management systems provide the necessary framework, more technical tools are also needed. Some examples of such tools are presented in this article.ISO 14001 is an important element in focusing the attention of the organization on environmental issues, but for leadership in environment, a number of guiding principles are also presented and discussed.Finally, corporate social responsibility (CSR) can be seen as a framework for all types of issues where a company is regarded as having certain obligations toward society at large, because of direct or indirect effects from its business operations. It is only logical that Skanska, following its work with ISO 14001 and the move toward leadership in environment, now has decided to develop a CSR platform.     

Managing stakeholder pressures: Toward a typology of corporate social performance profiles

Why do some firms ignore some stakeholders while courting others? We propose two key drivers of firms' social postures and derive from this analysis a novel typology of corporate social performance (CSP) profiles. Although we expect that other drivers exist, we argue that a useful starting point for understanding any given CSP profile is to consider the pressure exerted on an organization by its stakeholders in conjunction with its level of resource endowment. Our preliminary typology identifies six distinct CSP profiles that reflect different opportunities and risks for stakeholder management: the CSP Vanguard, Opportunist, Generalist, Minimalist, Specialist, and Laggard. All else equal, the first two CSP profiles imply more nonmarket opportunities than risk, whereas we expect Laggards and Specialists to face greater risk in their responses to social and environmental issues. According to our framework, Generalists and Minimalists probably operate between these two extremes of business risk. Our conceptual analysis seeks to advance research and practice for more strategic stakeholder management.     

Manufacturing management strategies for environmental protection: Toward the environmental upgrading of management and manufacturing systems to cope with environmental laws

Recent environmental problems have been caused by business activities and a lifestyle based on mass production, mass consumption and mass disposal. These problems have also become global in scale. Increasingly, global efforts are being applied to preserve and improve the environment. NEC, a worldwide electronics manufacturer, created its own environment action plan called Eco-Action 21. This is a continuously evolving plan applied throughout the NEC group and subsidiaries. Globally, 34 NEC manufacturing sites have received ISO 14001 certification. NEC Tohoku in Japan and NEC Ireland obtained BS 7750 certification even before this. NEC improves subcontractors' environmental behaviour with our accumulated expertize and technology derived from our ISO experience and our own development. Input for this paper was not only from NEC Tohoku and the NEC group, but also from outside NEC.     

Greening the health care supply chain: Triggers of change,models for success

A historic agreement signed in July 1998 between the American Hospital Association (AHA) and the U.S. Environmental Protection Agency (EPA) signals changes in waste management in the health care industry. The agreement, which calls for a fifty percent reduction of hospital waste by 2010, will not only have an impact on hospital facility managers, but throughout the entire healthcare supply chain. As this article argues, improving the environmental impact of the health care industry should start with the health care delivery institutions themselves. The health care industry has a long way to go in addressing its environmental impacts, compared to the energy and chemical industries, for example. One reason is that these industries are raising their suppliers' environmental performance. Health care delivery institutions can effectively pull environmental performance requirements through the entire supply chain as well. This can be accomplished by examining supply chain strategies of leading industries and firms and considering the role of environmental management systems such as a ISO 14001 throughout the entire chain.