Corporate compliance with environmental regulation in China : style, commitment, and proactive management

Abstract

A major question in the literature on environmental regulation and corporate environmental management concerns how industrial enterprises respond to external demands for environmental protection. Specifically, what compliance style do business enterprises employ to deal with external demands on environmental issues? How do institutional and organizational factors shape firms' adoption of compliance style and further influence corporate proactive environmental management? So far, neither the policy implementation nor the strategic management literature has adequately addressed these questions. To fill these research gaps, this study aims to develop a dimensional framework of corporate compliance style (CCS) and empirically explore how this concept can advance our understanding of the corporate compliance process. Specifically, I want to answer three core research questions: (1) Whether and to what extent regulated enterprises differ in adopting CCS towards environmental regulation, (2) How organizational capacity (OC) and external regulatory intensity (RI) jointly shape CCS adoption, and (3) How firms' normative green commitment (NGC) impacts proactive environmental management (PEM). Based on the literature on regulatory compliance and corporate environmental management, we formulate four CCS dimensions to capture major corporate compliance behavior patterns, namely formalism, accommodation, referencing, and self-determination. By integrating the natural-resource-based view (NRBV) and regulatory compliance literature, we explore how OC and RI affect CCS adoptions. By incorporating organizational commitment into corporate environmental management, we further explore how the indirect effect of OC on PEM (through CCS) depends on a firm's normative commitment to environmental protection. We adopted a mixed methodology, with a three-phase research study in the Pearl River Delta (PRD) region in China, involving: 1) a pilot study of 72 manufacturers in 2010, 2) a main survey with 120 manufacturers in 2010 and 2011, and 3) in-depth case studies and interviews in 10 environmentally progressive enterprises in mid-2012. Survey findings supported a four-dimensional conceptual framework of CCS, and the main and interactive effects of OC and RI in determining CCS adoptions. Enterprises' compliance styles are highly dependent on organizational capacity and vary in responses to different configurations of external regulatory pressures. We also find that corporate environmental capacity does not always lead to improved PEM. Referencing and self-determination translate organizational capacity into PEM progress only when firms have a high level of normative green commitment. Formalism and accommodation do not show any bridging functions even though they are more widely adopted than the voluntary dimensions. Post-hoc case study and in-depth interview findings add to the survey results by firstly showing a more detailed and dynamic picture of CCS, and secondly by supporting the hypotheses set in the survey study and providing answers as to why some were not supported in the empirical context in China. On the whole, this study contributes to the scholarly understanding of corporate compliance by suggesting that business enterprises adopt different compliance style dimensions to cope with the growing regulatory demands from various stakeholders (both individual and interwoven) and exhibit divergent green commitment in achieving proactive environmental management. It also helps to refine the theoretical framework, survey and interview instruments for performing longitudinal and comparative studies on CCS in the future. The practical implications of this research are twofold. To policy makers, it is important to consider firm-level diversity in environmental approaches and the degree of green commitment. Instead of being dictators, policy makers and enforcement officials may work as "public choice architects" to be held responsible for organizing the context in which regulatees make decisions. Meanwhile, collaborative efforts between government and non-government entities may push enterprises to adopt more innovative compliance style dimensions and subsequently stronger environmental protection practices. To business managers, careful resource management in CCS adoption allows firms to better comply with regulatory demands in the face of both external and internal constraints. Nurturing green commitment, however, determines whether a selected environmental approach or strategy can effectively achieve expected compliance goals.