Robert A. Kagan

Explaining Corporate Environmental Performance: How Does Regulation Matter?

Explaining Corporate Environmental Performance: How Does Regulation Matter? Robert A. Kagan Dorothy Thornton Neil Gunningham How and to what extent does regulation matter in shaping corporate behavior? How important is it compared to other incentives and mechanisms of social control, and how does it interact with those mechanisms? How might we explain variation in corporate responses to law and other external pressures? This article addresses these questions through an study of environmental performance in 14 pulp and paper manufacturing mills in Australia, New Zealand, British Columbia, and the states of Washington and Georgia in the United States. Over the last three decades, we find tightening regulatory requirements and intensifying political pressures have brought about large improvements and considerable convergence in environmental performance by pulp manufacturers, most of which have gone ‘‘beyond compliance’’ in several ways. But regulation does not account for remaining differences in environmental performance across facilities. Rather, ‘‘social license’’ pressures (particularly from local communities and environmental activists) and corporate environmental management style prod some firms toward better performance compliance than others. At the same time, economic pressures impose limits on ‘‘beyond performance’’ investments. In producing large gains in environmental performance, however, regulation still matters greatly, but less as a system of hierarchically imposed, uniformly enforced rules than as a coordinative mechanism, routinely interacting with market pressures, local and national environmental activists, and the culture of corporate management in generating environmental improvement while narrowing the spread between corporate leaders and laggards. I. Introduction I n what ways and to what extent does regulation matter in shaping corporate behavior? How important is it compared to The authors are grateful to scores of pulp mill managers, regulatory officials, industry consultants, and environmental activistsFall of whom must remain anonymousFfor their cooperation and insight. David Sonnenfeld, Kathryn Harrison, Peter May, and anonymous reviewers all gave us valuable advice on earlier drafts. Biyi Abesina provided valuable research assistance. The Center for the Study of Law and Society, University of California, Berkeley, provided space, administrative assistance, and social support for the research project that led to this article, and the Smith Richardson Foundation funded our research. Please direct correspondence to Robert A. Kagan, Center for the Study of Law & Society, University of California, 2240 Piedmont Ave., Berkeley, CA 94720; tel: (510) 642-4038; email: rak@uclink4.berkeley.edu. Law & Society Review, Volume 37, Number 1 (2003) r 2003 by The Law and Society Association. All rights reserved.

The “Criminology of the Corporation” and Regulatory Enforcement Strategies

Interviews mit staatlichen Aufsichtsamtern (regulatory agencies) und Wirtschaftsunternehmen in den USA fuhrten zu drei „Theorien“, warum Wirtschaftsunternehmen das Recht verletzen: wirtschaftliches Kalkul, grundsatzliche Ablehnung und Unkenntnis. Alle drei fuhren zu unterschiedlichen Steuerungsstrategien: Abschreckung, Verhandlung und Aufklarung. Durchsetzungsversuche, die nur auf einer der Theorien der Nichteinhaltung beruhen wurden, waren schadlich, wenn Abweichung aus einem der anderen Grunde erfolgt. Allerdings verhindern technische, burokratische und politische Zwange, das eine flexible Durchsetzung sich an den jeweiligen Nichteinhaltungs-Grunden orientiert.

Adversarial legalism and American government

Compared to other economically advanced democracies, the United States is uniquely prone to adversarial, legalistic modes of policy formulation and implementation, shaped by the prospect of judicial review. While adversarial legalism facilitates the expression of justice-claims and challenges to official dogma, its costs are often neglected or minimized. A survey of existing research, together with a case study of environmental regulation in the Port of Oakland, indicates the extent to which adversarial legalism causes (or threatens) enormous dispute-resolving costs and procedural delays, which in turn distort policy outcomes. Adversarial legalism, moreover, has increased in recent decades, as Americans have attempted to implement the ambitious, socially transformative policies of activist government through political structures, forms of legislation, and legal procedures that reflect deep suspicion of governmental authority.

Sources of Corporate Environmental Performance

What motivates business firms to significantly improve their environmental performance? Why do some companies achieve better environmental performance than others? Through a study of 14 pulp mills in the U.S., Australia, New Zealand, and Canada, this article shows that more stringent regulatory requirements and increasing political pressure have brought about large improvements and convergence in environmental performance over the last 30 years, with many mills exceeding compliance requirements. In addition, corporate environmental management style and social license pressures from local communities and environmental activists have prodded some facilities further beyond compliance than others, while economic pressures have limited just how far ahead facilities have been willing to move.

Introduction: Comparing National Styles of Regulation in Japan and the United States

The articles in this issue generally reinforce conventional images of American regulation as often adversarial and legalistic and of Japanese regulation as more informal and cooperative. They also suggest that, in regulating pollution and occupational safety in larger firms, Japan’s regulatory style is equally effective and more economically efficient than the American approach. But Japan’s style appears less effective when regulation requires changes in elite attitudes, as in the realm of workplace equality for women. Moreover, developments in Japan’s financial sector reveal ways in which informal regulation can result in undue deference to business and political interests.

What Socio-Legal Scholars Should Do When There is Two Much Law to Study

Twenty-one years ago, as the Oxford Centre for Socio-Legal Studies was taking form, I was working on my Ph.D. dissertation in sociology of law. It was a time of intellectual optimism, of hope for collective development of theoretically and empirically grounded understanding of how legal systems really worked. Each new empirical study cast a beam of light into a little-known, often humble province of laws empire, illuminating relationships between the law in action and the law on the books. The learning curve slanted upward sharply. These days, on the other hand, I feel a certain frustration. In the last twenty-one years, socio-legal studies have accomplished a great deal. But we are failing, I feel, to keep up with developments in the legal systems that surround us. The problem is this: in contemporary democracies, positive law, the law on the books, proliferates extremely rapidly so rapidly that it confounds our attempts to find out, in any systematic way, what is actually going on. Like Lewis Carrolls Red Queen, we seem to run faster and faster only to keep from falling further behind. The ecological outlook in the Amazon may be troubled, but the number of species in the legal rainforest keeps multiplying.

The dredging dilemma: Economic development and environmental protection in Oakland Harbor

Abstract Seaport expansion often generates tensions between the national interest in efficient transport and local interests in water quality and habitat preservation. The governing American permitting system, however, establishes an extraordinarily cumbersome, legalistic, and costly method for balancing environmental and economic considerations. A case study of the Port of Oakland illustrates the tendency. For four years, plans to find an environmentally acceptable site for dredged material have been stymied by a sequence of inconclusive regulatory and judicial proceedings. Meanwhile, large container ships can enter and leave Oakland harbor only at high tide, and not fully loaded. Despite the absence of any authoritative determination concerning environmental risks, the port was compelled to accede to progressively more expensive disposal methods. Such “adversarial legalism”; is not unique to the Oakland harbor case, but recurs in other policy spheres. It stems from a governmental structure that fragment...

Trying to Have It Both Ways: Local Discretion, Central Control, and Adversarial Legalism in American Environmental Regulation

AiH5S m. TRYING TO HAVE IT BOTH WAYS: LOCAL DISCRETION, CENTRAL CONTROL, AND ADVERSARIAL LEGALISM IN AMERICAN ENVIRONMENTAL REGULATION Robert A. Kagan Center for the Study of Law and Society University of California, Berkeley Working Paper 98-10 INSTITUTE OF dOVERNMENTAL STUDIES LIBRARY AU6 3 ^ 1998 UNIVERSITY (IF CALIFORNIA IGS INSTITUTE OF GOVERNMENTAL STUDIES UNIVERSITY OF CALIFORNIA AT BERKELEY

Adversarial legalism and transaction costs: The industrial-flight hypothesis revisited

Empirical evidence that firms respond to differences in environmental compliance costs among jurisdictions - the industrial flight hypothesis - has been mixed. In this paper we propose a new explanation for this ambivalence which also sheds light on an emerging paradox in overseas investment: U.S. capital outflows appear to be sensitive to rising abatement costs, yet the investment recipients are increasingly countries with comparably stringent environmental standards. Our explanation for this paradox is based on the role of regulatory process costs, usually left out of total compliance costs. Most empirical work has looked for capital movement in response to differential abatement costs, predicting that investment would flow from environmentally stringent regimes to those with more lax environmental regulations, for example, from the U.S. to some developing countries. But little evidence has been found of these pollution havens. If however, at the margin, it is the liability risks, uncertainties and other expenses generated by the legislative and adversarial approach to regulation in the U.S that constitute the most important compliance cost differentials, then we have been looking for U.S. capital outflows in the wrong places. We begin by providing some background on adversarial legalism and transaction costs. Since data are unavailable for directly testing our hypothesis, in Section IV we present evidence in an effort to refute, or at least cast doubt, on the competing industrial flight hypotheses. We find that the share of U.S. direct investment abroad (DIA) in dirty industries, relative to clean industries, is increasing within several OECD countries with relatively strict environmental regulations, but cooperative legal and regulatory regimes. Additionally, Europe has been increasing their worldwide share of dirty DIA from the U.S. At the same time, European shares of clean DIA are falling, suggesting that the increase in dirty DIA is not simply a response to Europe becoming an increasingly favorable investment location for reasons unrelated to environmental regulations. Though our empirical results are necessarily tentative and our analysis limited by available data, we conclude that the policy debate over harmonizing environmental regulations to discourage industrial flight is, at least, incomplete without considering the regulatory and legal institutions that create, monitor, and enforce those regulations.

Political culture and tobacco control: an international comparison.

This article describes and compares the politics of tobacco regulation in four industrial democracies: the US, Canada, France, and Japan. We argue that the degree and type of cigarette control has varied among these countries and that these contrasts reflect different political and cultural traditions concerning in dividual rights and the proper role of government, as well as differences in government structure. The US is widely regarded as having a highly individu alistic culture, suspicious of government control over civil society. In contrast, Japan is a hierarchical society, in which individual preferences are generally sub ordinated to group needs and state auth ority. France resembles Japan in its elitist decision-making and low level of group participation, but also differs in that it does not pursue social consensus or de value individualism. Canada, like the US, is characterised by more group particip ation than France or Japan, but is more willing than the US to let government define and pursue collective goals. These factors have played a major role in determining the scope and target of tobacco controls implemented in each country. We identify three types of tobacco regulation: informational, pat ernalistic, and protective. Because the four countries have such different con ceptions as to what constitutes the appropriate scope of governmental authority and responsibility, there is sig nificant variation in the types of tobacco control they have adopted. {Tobacco Control 1993; 2: 317-26)