Commentary on ‘corporate strategies and environmental regulations: an organizing framework’ by...

Strategic Management Journal, Vol. 19, 377–387 (1998)

COMMENTARY ON ‘CORPORATE STRATEGIES ANDENVIRONMENTAL REGULATIONS: AN ORGANIZINGFRAMEWORK’ BY A. M. RUGMAN ANDA. VERBEKE

JOHN McGEE*Warwick Business School, University of Warwick, Coventry, U.K.

A significant issue that is increasingly affecting the operations of companies is the policies ofgovernments with regard to the natural environment and the activities of nongovernmentalorganizations in promoting codes of practice and other forms of nonlegal regulation.1 Theonset of new regulations and codes of conduct is placing significant operational burdens onfirms to merely comply with new requirements and changed circumstances. Furthermore, thereis a need in strategic terms to anticipate and to plan for environmental concerns and toincorporate this thinking into corporate strategy. Thus a new subfield of strategic managementis beginning to emerge: that dealing with the natural environment as it affects corporatestrategy. Alan Rugman and Alain Verbeke in their paper ‘Corporate strategies and environmentalregulations’ organize the literature on environmental regulations and corporate strategy into anew managerial framework. They go on to develop a resource-based view of the interactionbetween the firm’s key resources (core competences) and environmental regulations includingthe implications for the development of ‘green’ capabilities. Finally, they analyze the deploymentof ‘green’ capabilities within a standard international business model and explore hypotheseson the relationships between environmental regulations, competitiveness, and corporate strategy.The question about how firms should respond to environmental regulations can be seen inbroad terms as part of the debate on corporate social responsibility. A fundamental problemin this area has been that there are no definitions of corporate social responsibility or corporatesocial responsiveness that provide a framework or a model for consistent systematic collection,organization, and analysis of corporate data relating to these important concepts (Clarkson,1995). 1998 John Wiley & Sons, Ltd.

Strat. Mgmt. J., Vol. 19, 377–387, 1998

DEFINING CORPORATE SOCIALRESPONSIBILITY

The first problem with social responsibility is theambiguity of the concept. For example the classi-cal definition of Davis and Blomstrom (1975: 6),

Key words: corporate social responsibility; environ-mental regulation; multinational enterprises; ‘green’strategies; stakeholder theory

*Correspondence to: John McGee, Warwick Business School,University of Warwick, Coventry CV4 7AL, U.K.1For example, the World Wild Life Fund has set up incooperation with companies a Forestry Stewardship Counciland a Marine Stewardship Council.

CCC 0143–2095/98/040377–11 $17.50 1998 John Wiley & Sons, Ltd.

states: ‘Social responsibility is the managerialobligation to take action to protect and improveboth the welfare of society as a whole and theinterest of organizations.’ The main concepts ofobligation, welfare, andself-interest of obligationsin this definition are very broad and are open toa range of interpretations. For example, the con-cept of welfare of societycould cover social oreconomic welfare or both. As it stands it is notclear what one should be considering. However,in this review, a selection of definitions is high-lighted, ranging from the purely economic tomore proactive approaches with a ‘social’ dimen-sion.

Starting with a purely economic focus onprofit

378 J. McGee

making only, Friedman (1970) sees the socialresponsibility of companies as making as muchmoney for their shareholders as possible. In short,the proponents of economic responsibility contendthat improving profitability is the only socialresponsibility of business (Wartick and Cochran,1985). Backman (1975) takes a primarily eco-nomic view, but one which is tempered witha ‘view of the firm’s social responsibility.’ Heincorporates actions taken for reasons at leastpartially beyond the firm’s direct economic ortechnical interest.

Moving away from the economic end of thecontinuum, McGuire (1963) and other authors,such as Davis (1973), Stone (1975), Carroll(1979), and Frederick (1987), include not onlyeconomic and legal obligations, but also certainresponsibilities to society which extend beyondthese. Thus, ‘The firm’s consideration of, andresponse to, issues beyond the narrow economic,technical, and legal requirements of the firm . . .to accomplish social benefits along with the tra-ditional economic gains which the firm seeks’(Davis, 1973: 313).

Manne and Wallich (1972) take the definitionfurther by suggesting that the behavior of thefirm must be voluntary. Jones’s (1980) definitiondevelops the notion that corporations have anobligation to constituent groups in society otherthan shareholders and beyond that prescribed bylaw or union contract. Two facets of this defi-nition are critical: first, the obligation must bevoluntarily adopted; second, the obligation is abroad one, extending beyond the traditional dutyto shareholders to other societal groups such ascustomers, employees, suppliers, and the com-munity.

The notion of public responsibilitywas intro-duced by Preston and Post (1975) and Buchholz(1977), when they said that the social impact ofthe business firm should be guided and appraisedwithin the context of external public policy. Theseadvocates of public responsibility focus more onthe social contract side of business and less onthe question of morality.

Most notable of other research in this vein areDalton and Cosier’s (1982) four faces of socialresponsibility. This conceptualization of corporatesocial responsibility addresses a major criticismof social responsibility by integrating the narrowdefinition of public policy with a broad constructof social policy. Dalton and Cosier’s framework

1998 John Wiley & Sons, Ltd. Strat. Mgmt. J.,Vol 19, 377–387 (1998)

is based on four types of corporate activities:(1) illegal and irresponsible acts, (2) illegal butresponsible acts, (3) legal but irresponsible acts,and (4) legal and responsible acts. The narrownotion of the social responsibility concept existsin the legal/illegal dimension of the framework.The broader definition exists in the linkagebetween the legal/illegal dimension and theresponsible/irresponsible dimension.

Strand’s concept (1983) of social responsibilitydescribes four concerns: (1) the cultural and eco-nomic environment, (2) material, social, andpsychological experience of constituents, (3)social demands and exceptions placed on organi-zations, and (4) the environmental texture oforganizations. In Strand’s model public responsi-bility is implicit in his category of social demandsand expectations placed on organizations. Strandequates these demands and expectations to legal,economic, and social pressures.

However, other writers offer an ethical perspec-tive in defining social responsibility (Hay, Gray,and Gates, 1976; Zenisek, 1979), conceptualizingit as the degree offit between society’s expec-tations of the business community and the ethicsof business. Carroll (1979), on the other hand,has brought together four aspects of socialresponsibility, namely the economic, legal, ethi-cal, and discretionary categories of business per-formance. Similarly Steiner’s (1975) concept ofsocial responsibility is presented as a continuumof responsibilities ranging from ‘traditional eco-nomic production’ to ‘government dictated,’ toa ‘voluntary area,’ and lastly to ‘expectationsbeyond reality.’

Proactive types of definitions elaborated bySethi (1979) as well as Ackerman and Bauer(1976) are still current today. Rather than provid-ing a focus on social responsibility which assumesan obligation and emphasis on motivation ratherthan performance, their definition brings in aconcept of ‘social responsiveness’ which suggeststhat what is important is not how a corporationshould respond to social pressures, but what theirlong-term role in a dynamic social system shouldbe. The idea is that the orientation of businessin any social dimension must be anticipatory andpreventive. This understanding of social respon-siveness has been incorporated into the definitionof ‘corporate social performance’ as a criticallink between social responsibility and responsesto social issues.

Commentary 379

Although both the concepts of social respon-siveness and corporate social performance areseen as the evolution of the concept of socialresponsibility, Clarkson argues that the difficultiesencountered in defining corporate social responsi-bility, corporate social responsiveness, and corpo-rate social performance can be attributed in partto the broad and inclusive meaning of the wordsocial. He states: ‘The connotation of social issociety, a level of analysis that is both moreinclusive, more ambiguous, and further up theladder of abstraction than a corporation itself’(1995: 102).

In short, social responsibility has been definedor conceptualized in a number of different wayswhich, while often ambiguous, can be presentedin a simple two-dimensional perspective. At oneend of this, corporate social responsibility isdefined in purely economicprofit making terms;at the other end, it is defined as socially orientatedin a proactive social responsiveness view. Thepoints in between those two poles encompasslegal obligations, voluntary perspectives, ethicalconcerns, public responsibilities, or a combinationof some of these aspects.

However, when considering the context of aparticular business sector in a specific country, itis common to observe that the most appropriatedefinition of social responsibility is one whichencompasses only legal obligations. The strongargument that corporate social responsibilityshould extend beyond mere legal obligations hasbeen made by Davis (1973), Stone (1975), Car-roll (1979), and Frederick (1987) and wasrecently clearly stated by Thompson, Wartick,and Smith (1991: 41): ‘Although compliance withthe law is certainly one attribute of corporatesocial responsibility, legally supportive behaviouris an expectation placed on all business. There-fore, measuring a company’s compliance withthe law may not truly capture corporate socialresponsibility behaviour’.

CONCEPTS OF CORPORATE SOCIALRESPONSIBILITY

Concepts of corporate social responsibility haveundergone continuous development. The basis ofall these approaches has the overall profit targetof a firm and therefore its traditional economicnature. But from this common starting point dif-


ferent academics have analyzed different ways ofmanaging corporate social responsibility.

Hay et al. (1976), in their analysis of socialresponsibility in a historical context, have pointedout three distinct phases: (I) profit-maximizingmanagement, (II) trusteeship management, and(III) quality-of-life management. Phase I orprofit-maximizing management was supported bythe belief that business managers have one singleobjective: to maximize profits. The only con-straint on this pursuit was the legal frameworkwithin which the firm operated. Phase II, whichmay be labeled trusteeship management, emergedin the 1920s and 1930s. According to this con-cept, corporate managers were responsible notsimply for maximizing the shareholder’s wealthbut rather for maintaining an equitable balanceamong the competing claims of customers,employees, suppliers, creditors, and the com-munity. The two structural trends largely respon-sible for the emergence of the newer view ofsocial responsibility were: (1) the increasing dif-fusion of ownership of the shares of Americancorporations and (2) the development of a plural-istic society. Phase III, or quality-of-life man-agement, has become popular in recent years. Asa result of the conjunction of declining socialand physical environment alongside economicabundance, society seems to be demanding thatbusiness, with its technological and managerialskills, and its financial resources, should take onbroader social responsibility. These responsi-bilities should encompass the traditional economicconcerns of Phase I and the demands of pressuregroups of Phase II.

Holmes (1976) discussed three major philo-sophies concerning business responsibility: (1)the classical view, (2) the managerial view, and(3) the public view. The classical view, whichdominated the nineteenth century, isolated busi-ness activities and business organizations fromother kinds of activities and organizations. Theprimary criterion of business efficiency andgrowth is the production of goods and services,and the primary goal is profit. The classical viewis, in essence, little more than Adam Smith’sinvisible hand. The managerial view, which prob-ably had its beginning in the 1930s and wasdescribed in 1976 by Holmes, has more relevanceto large organizations. The essence is that man-agers of large corporations are responsible forbalancing the claims and rights of many diverse

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groups, among them employees, customers, sup-pliers, and to local plant community, rather thanenhancing the wealth of shareholders. The publicview, deriving from Galbraith’s (1967) depictionof large corporations perceived to be exercisingenormous power over society, establishes what isneeded to ensure that business operates in har-mony with the public interest.

Another model was explained and summarizedby Zenisek (1979). His point of departure isElles’s (1960) conceptualization of social res-ponsibility as a continuum which ranged fromirresponsible to responsible. At one extreme ofthe continuum is the traditional corporation whichis backed by the position that the corporation isnothing but the organizational arm of its share-holders as private property owners. Profit maxi-mization for the owners is the sole legitimatefunction of corporate enterprise in this theory. Atthe other extreme is the model of the socialcorporation with a wide range of social purposesand objectives. It is a kind of mother corporationwith a host of interest groups under its protection.The traditional corporation is concerned only withthe ‘economic man,’ but the mother corporationthinks of the ‘whole man.’ Zenisek’s own model(Table 1) is based on three premises. The first isa definition of social responsibility based on anotion of a fit between business ethics andsocietal expectation. The second is the typologyof organizations which consist of four categoriesof persons (owners, members, clients, and public)and the third is the typology of the environment.The Zenisek model represents a continuum ofsocial responsibility in four phases from adecreased social responsibility (Phase I) to anincreased social responsibility (Phase IV) as sum-marized in Table 1. The Zenisek model adds tothat of Elles by describing the ‘types,’ from theperspective of the firm, employees and environ-ment.

Wartick and Cochran (1985) follow the con-cepts of Carroll (1979) and Preston and Post(1975, 1981) in defining corporate social res-ponsibility as a synthesis of economic respon-sibility, public responsibility, and social respon-siveness as their impact areas. In general theyargue that modern businesses, especially mega-corporations, are no longer mere economic insti-tutions. In contrast, public responsibility focuseson the social contract of business but as such hasbeen used as a substitute for social responsibility


Table 1. Zenisek’s phases of social responsibility

Phases Descriptions

Phase I The only objective ofbusiness in society is to

Owner/manager type make profitsBusiness is strictly aneconomic institutionLabor is a commodity to bebought and sold

Phase II Employees are much morethan a mere factor of

Organizational productionparticipant type A film has an obligation to

provide a stimulating workatmosphereA firm has an obligation todevelop and utilizeemployees’ talents to thefullest possible extentA firm should recognize allthe other ‘bread and butter’employee rights promulgatedby unions

Phase III A firm must not engage indeceptive product quality

Task environment type cutting, be abusive in itspricing policies, marketunsafe productsA firm must support the localcommunity welfare with bothmoney and effort

Phase IV A firm must not degrade theenvironment

Societal type A firm must provideopportunities to minoritygroupsA firm must actively work topromote social justice

Source: Zenisek (1979).

(Buchholz, 1977; Preston and Post, 1975). Publicresponsibility comes from the recognition of acorporation’s primary and secondary involvement.Primary involvements are the essential economictasks of the firm; secondary involvements are theconsequential effects resulting from the perform-ance of those primary functions. The market pro-vides direction for the corporation in relation toprimary involvements, and the public policy pro-cess provides direction for the secondary involve-ments. The organization should ‘analyze andevaluate pressures and stimuli coming from public

Commentary 381

policy in the same way it analyzes and evaluatesmarket experience and opportunity’ (Buchholz,1982: 435).

The problem that advocates of public responsi-bility are attempting to address relates toperceived ambiguity of the social responsibilityconcept. Preston and Post argue that socialresponsibility is ‘vague and ill defined.’ Buchholz(1977) suggests two major problems with socialresponsibility in principle and in practice: (1)how to allocate resources to be used in dealingwith social issues, and (2) how to developaccountability when business makes socialdecisions. Therefore ‘social responsiveness’ refersto the capacity of a corporation to respond tosocial pressure. The advocates of social respon-siveness see it as a more tangible, achievableconcept than social responsibility (Frederick,1987) in that it gives managers a clearer guideto policy development and implementation.

Wartick and Cochran (1985) argue that socialresponsibilities are determined by society, and thetasks of the firm are: (1) to identify and analyzesociety’s changing expectations relating to corpo-rate responsibilities, (2) to determine an overallapproach for being responsive to society’s chang-ing demands, and (3) to implement appropriateresponses to relevant social issues. Furthermorethe conception of corporate social responsibilityhas two dimensions. It has a micro level dimen-sion which relates to the interface between thefirm and its environment, rather than the relation-ship between business and institution and thesociety in which it operates. However, it doesretain an emphasis on the macro level by continu-ing to use social responsibility as the startingpoint for corporate social involvement. Table 2shows Wartick and Cochran’s corporate socialperformance synthesis as a summary of the threemajor challenges to social responsibility.

IMPLICATIONS OF CORPORATESOCIAL RESPONSIBILITY FORCORPORATE GOVERNANCE ANDSTRATEGIC MANAGEMENT

The mainstream debate about corporate socialresponsibility starts from the premise that com-panies face an inherent conflict between pursuingtheir own commercial goals and contributing tosociety’s goals. But are these contrary? An alter-


Table 2. The corporate social performance synthesisof the three major challenges to social responsibility

Challenges Corporate social performancesynthesis

1. Economic Incorporated as one levelresponsibility of corporate social

responsibility2. Public responsibility Incorporated as one level

of corporate socialresponsibility and theunderlying orientation formacro-level and micro-level concerns existingsimultaneously

3. Social responsiveness Incorporated as the action-oriented complement ofcorporate socialresponsibility and theunderlying approach to thedevelopment of responsesto social issues

native and more radical proposition is that it isthe role of business to have a social purpose thatis consistent with, and sometimes necessary to,its long-term economic interests and, therefore,that companies should have policies and programsfor active social and community involvement.Thus, corporate social responsibility would implya new perspective on corporate governance andstrategic management and on relationships withthe community in general. Firms’ activities in theareas of corporate philanthropy, social investment,commercial initiatives in the society (brandrelated) and business basis (core process related)are taken by many observers to characterize theextent of this development; see Marsden andAndriof (1997) for a summary of the ‘corporatecitizenship’ approach and the nature of the win–win argument.

A new perspective on corporate governanceand strategic management derives from one of itsmain functions—the management of the impactof the external environment on companies. Thisinvolves determining strategic direction, relation-ship management and strategic risk management.Clarkson (1995) argues that transferring corporatesocial responsibility into business objectives isbest undertaken through a stakeholder orientation.Transferring intangible social issues into tangiblestakeholder interests in itself is the operationali-

382 J. McGee

zation of corporate social responsibility. The inte-gration of these different vested interests intostrategic direction requires internal/externalrelationship management processes as well as newapproaches to strategic risk management.

Social responsibility and its implications forstrategic management

The focus of strategy has become vastly broaderthan the traditional product/market approach ofAdam Smith’s day. It now engages managers inconsidering a complex array of factors of whichthe social context in which the company operatesis an integral part. And it requires the value-generating function of the company to be thoughtof as constituting a set of relationships—withemployees, customers, suppliers, and communityinterests as well as shareholders—which can addor subtract value and from which the companyderives its ability to go on creating value.

Related to this is the ability of shareholdersand other stakeholders to appropriate the valuethey have created. Kay (1993) argues:

Who benefits from the firm’s success in addingvalue depends partly on the decisions of the firm,partly on the structure of the markets which itfaces, and partly on the sources of the valueadded itself . . . it is generally necessary to shareat least part of the returns among all the stake-holders in the business and to achieve their agree-ment, or at least acquiescence, in that distribution.

Kay identifies three ways in which corporatesocial responsibility is linked to strategy and stra-tegic management:

1. corporate social responsibility is an input tostrategy: a source of information and under-standing about key elements in the businessenviroment, and a source of strategic choiceand actions to go into the strategic plan;

2. corporate social responsibility as a supportactivity: part of the infrastructure that supportsthe value chain;

3. corporate social responsibility as a mainstreammanagement task; that is, an activity which asmuch as any other must be managed well.

Corporate social responsibility as an input hasreceived quite a lot of attention. Carroll andHoy (1984) emphasize the importance of social


policy and value creation so that social responsi-bility should not appear as a residual factor inthe environment. Aram (1989) applied gametheory to explore the implications for publicpolicy making. Atkinson, Waterhouse and Wells(1997) redefine strategic planning in terms ofprimary objectives, which are defined by theorganizations’ owners, andsecondary objectiveswhich are what the company expects from andgives to each stakeholder group in order toachieve its primary objectives. They distinguishbetween two groups of stakeholders. Theenvironmental stakeholdersare customers,owners, and the community. This group definesthe companies’ external environment that, inturn, defines the critical elements of its competi-tive strategy. Theprocess stakeholdersare theemployees and suppliers.

Corporate social responsibility as a supportiveactivity has been analyzed by Preece, Fleisher,and Toccacelli (1995). They use value chainideas for exploring corporate social responsibilitywithin a supportive context. Litz (1996) uses aresource-based model to incorporate socialresponsibility issues. Research from Owen andScherer (1993) shows that managers do believethat socially responsible corporate actions havean effect on market share and therefore an effecton competitive advantage.

There is less research which sets out how socialresponsibility becomes a mainstream managementtask, but see Polonsky (1995) on the design ofenvironmental marketing strategy and Murray andMontanari (1986) on its integration into man-agement and marketing theory. Burke and Logs-don (1996) suggest that win–win strategies areavailable and therefore social responsibility canbe seen as long-term investment decisions. Therelationship between public affairs managementstructure and social performance was studied incontrasting industries by Bhambri and Sonnenfeld(1988). In general, stakeholders rated firms withbalanced strength in their public affairs structureas more socially responsive. In terms of recep-tivity to public affairs information, depth ofinvolvement was more consistently associatedwith high social performance than was breadthof contracts. Ackerman (1973) observed andexplored three generic steps in the managementof social responsibility: (1) allocation of responsi-bility, (2) executive performance evaluation, and(3) management through systems.

Commentary 383

In summary, social responsibility programs createchallenges for companies in five major areas:

1. they need to be thought through in relation tostrategic goals;

2. they need to be incorporated into the strategicmanagement process;

3. they should have a clear business rationale;4. they should be aligned with the culture of the

company and its structures and processes;5. they need to be managed efficiently and effec-

tively.

A particular challenge for research is to understandwhat links might exist between corporate socialresponsibility and competitive advantage. Forexample, Kay (1993) argues that outstanding com-panies worldwide are consistently found to havebuilt into their corporate strategies a strong socialorientation which they have combined successfullywith high returns to shareholders. To sustain andconfirm this argument one has to explore the natureof corporate value and how value is created, andhow added-value can be measured. Furthermore, itis important to search for the underlying mecha-nisms which link corporate social responsibility tocompetitive advantage. Knowing this we can beginto observe how trade-offs occur and can be amanaged and in what circumstances ‘win–winrelationships’ can be developed. More particularly,we can begin to challenge conventional thinkingthat sees corporate social responsibility as some-thing that sits outside the core business, an activitythat is separated from and unrelated to the com-pany’s operations and undertaken as acts of char-ity or philanthropy. The paper by Rugman andVerbeke explores these ideas in the context ofenvironmental regulations. In this paper theauthors explore the nature of private value andsocial value, the interactions and linkages betweenthem and the implications for the strategic man-agement process. The particular context isenvironmental regulations and the strategies ofmultinational firms. We therefore have a clearcontrast between win–win and trade-off ideas ina complex institutional setting.

CORPORATE STRATEGIES ANDENVIRONMENTAL REGULATIONS

The Rugman and Verbeke paper contributes toanswering four fundamental questions in the fieldof strategic management.


1. It explains how firms behave in the area of‘green’ strategic management, an area which theStrategic Management Society first explored inits conference at Toronto in 1991. Here a rational,resource-based perspective is adopted. In this con-text, the paper criticizes environmental economicsfor neglecting the time dimension, a critical para-meter when firms need to adapt to environmentalregulation and to reassess their resource con-figurations in the light of long-term commitmentsby governments and by society in general topursue ‘green’ objectives by nonmarket means.The paper also implicitly suggests that a negativebias may exist against greening in the absenceof a new paradigm of sustainable development.In addition, the existence of environmental regu-lations at several institutional levels (the authorsrefer to multilateral (e.g., GATT/WTO), regional(e.g., EU/NAFTA), national, subnational, andmunicipal) may lead to internal information pro-cessing problems when choosing how to respond.Future research should investigate how variousbiases (underlying paradigms) may influencemanagers’ preferences in favor of—or against—greening.

2. The paper contributes to explaining whyfirms behave differently when faced with environ-mental regulations. It starts from the assumptionsthat existing resources and capabilities create pathdependencies which condition if not determine afirm’s response to environmental regulations. Theanalysis is therefore directly in the tradition ofthe resource-based view of the firm putting thisperspective directly alongside the tradition ofregulation in which firm compliance with govern-ment regulations carries implicit assumptions ofimmediacy and low cost. Future research shouldfocus on how strategic intent may alter a firm’senvironmental response and may allow it to devi-ate from ‘unavoidable’ paths of green or non-green behavior.

3. The paper provides an important contributionto assessing the impact of the firm’s multinationalnature (geographical diversification) on itsresponse to environmental regulation. Here thefocus is on sharing key resources and managingprocesses across borders—‘global benchmarking.’Thus the analysis is based on a long tradition ofwork in international business concerning inter-national trade and the nature of the multinationalenterprise (Dunning, 1974, 1981; Rugman andVerbeke, 1990). It also relates to more recentwork on the nature of cross-border managementand the nature of organization structures required

384 J. McGee

to sustain it (Bartlett and Ghoshal, 1989; Nohriaand Ghoshal, 1994). Future research shouldinclude in-depth empirical studies on the roleof MNE headquarters vs. foreign subsidiaries indetermining corporate responses to environmentalregulations. The differential impact of hetero-geneous environmental regulations in variouscountries on the relative performance of subsidi-aries also merits scholarly attention. An importantunanswered question is still how specificadministrative structures set up to deal withenvironmental regulations interact with a ‘green’strategy, especially in the complex context of aninternational firm. Does, for example, a centralgreen management function represent a new corecompetence (a systemic firm-specific advantageof an MNE) or is it only a tool allowing thecreation of new firm-specific advantages?

4. The paper is concerned with the fundamentalissue of what determines success or failure ininternational competition. This issue is addressedfrom two different perspectives. First, the paperstudies the impact of environmental regulationson country-specific (or location) advantages facedby both domestic and foreign firms. Second, thepaper analyzes the linkage between country-specific advantages and green capabilities. Itaddresses the question whether first mover advan-tage at the societal level and firm level reallyexist in practice. The paper does not analyzewhether specific countries and cultures may havean inherent competitive advantage in green man-agement. In this context, cross-cultural researchis clearly advisable. In addition this paper doesnot deal with the question whether environmentalregulations should be targeted by governmenttowards specific ‘green strategic industries.’ At afundamental level, the question still remainswhich type of corporate response to the glob-alization of environmental regulations will ulti-mately contribute most to long-run profitabilityand growth.

Sustainable development strategies

The paper raises questions regarding the need fora strategy of sustainable development. The con-cept of sustainable development is usually appliedat the level of the nation-state or at the globallevel and comprises a ‘triple bottom line’ ofeconomic, environmental, and social performance(Marsden and Andriof, 1997). However, this may


be equally important at the micro level. Thequestion arises, therefore, whether concepts suchas Porter’s three generic strategies can be made‘ecologically sustainable’—i.e., can the existingdominant strategic management theories be sim-ply augmented to incorporate environmental andsocial parameters by adding sustainability prin-ciples? Alternatively, an entirely new paradigmneeds to be developed with sustainabilityelements at its center (see Jennings and Zand-bergen, 1995).

Early mover advantage

The paper criticizes the Porter perspective (Porterand van der Linde, 1995) that early moverbehavior leads to innovation offsets. The paperis skeptical about the potential of early moverbehavior in greening, especially for firms andgovernments of small, open economies. Here, theextensive economics and strategic managementliterature on the optimal timing of innovation andthe relative merits of innovation vs. imitation(e.g., Spence, 1977, 1984; Lieberman andMontgomery, 1988) could usefully be applied.The interesting issue in this area is that thebenefits of early mover behavior fundamentallydepend on reaction patterns abroad, thus leadingto interesting game theoretic questions on issuessuch as the role of commitment in settingenvironmental standards, reputation building, sig-naling and the strategic management of pro-prietary know-how, (see Saloner, 1991; and Wei-gelt and Camerer, 1988). In addition, sizeasymmetries among countries and firms may alterthe ultimate outcomes of greening games in termsof benefits resulting from respectively environ-mental regulations and corporate responses tothese regulations. Perhaps strategic trade theoryas developed by scholars such as Krugman (1986)and extended by Rugman and Verbeke (1990) inthe context of trade and industrial policy couldbe usefully applied here.

‘Green’ strategies and sources of competitiveadvantage

The paper emphasizes the point that cross-sectionand longitudinal views clearly lead to differentconclusions regarding the impact of environmen-tal regulation on firm behavior. The longitudinalview adopted in this paper is consistent with the

Commentary 385

idea that isolated ‘big decisions’ do not lead tocompetitive advantage (Barney, 1991). It is thecumulative impact of thousands of small, almostinvisible, decisions that lead to competitiveadvantage because duplication and imitation aredifficult to achieve (Itami and Roehl 1987; Reedand De Fillippi, 1990; Dierickx and Cool, 1989).This is especially true for firms adopting a proac-tive response to environmental regulations. Agreen strategy is developed over long periods oftime and is difficult to understand or imitate byoutsiders. Given that substantial ambiguity existsregarding what the ‘best’ strategy may be whenfaced with environmental regulations, an equilib-rium at the level of an entire industry cannot bedeployed as a short-run analytical device, butonly over longer periods of time (Nelson andWinter, 1982).

The role of stakeholder theory

A stakeholder approach is not adopted in thepaper. An interesting question is whether firmsshould adopt a stakeholder perspective when deal-ing with external demands for greening. The pa-per implicitly suggests that a stakeholderapproach may be detrimental to industrial per-formance because it would force firms to deviatefrom introducing green technologies and man-agement systems only where synergies with exist-ing technologies and management systems arestrong. A stakeholder perspective would lead toa focus on distributive equity rather than micro-level efficiency, but see both Jones (1995) andDonaldson and Preston (1995) for an extendeddiscussion. However, even if a stakeholder per-spective involving many external actors is notadopted to explain and to prescribe firms’ reac-tions to requirements for greening, the existenceof many external actors with varying levels ofcommitment to specific courses of actions withinlarge organizations may be very important whenfaced with demands for greening (Bowen, 1987).For example, marketing managers may be moreinclined to answer positively to consumersdemanding green products than production man-agers who need to alter the content of productsor production processes. This leads to interestinggreening challenges relating to the coordinationand control of different functional areas withinthe firm.


Strategy and structure

The strategy vs. structure discussion is importantin the context of green corporate behavior. Aprerequisite for a green strategy should be effec-tive structures and systems to enable compliancewith environmental regulations. However, thecriticisms voiced in this paper directed againstsome of the themes in the green environmentalliterature precisely result from the absence ofeffective structural arrangements in firms toimplement green strategies in practice. Althoughthe paper explicitly refers to the important prob-lem of optimal organizational structure(Hammond, 1996) the design of green strategiesis not fully explained in structural terms. If amultiproduct and geographically diversified firmhas a functional structure (U-form), the infor-mation on market requirements, technologicalpossibilities, and financial implications as regardsthe optimal response to environmental regulationsis likely to be unevenly distributed among (orunderstood by) different functional departments.Hence, severe biases may be expected in thefirms’ internal information processing systemsleading to specific idiosyncrasies in firms’responses. However, a multidivisional firm (M-form), as found in many MNEs, does not neces-sarily solve this problem as different subsidiariesand product–market units may be faced withdifferent incentives to adopt greening and differ-ent costs resulting from country-specific or prod-uct-specific regulations.

In conclusion, the Rugman and Verbeke paperraises key questions about the nature of the stra-tegic management task for MNEs faced by acomplex array of actual and potential environ-mental regulation. The broad context of the paperlies in the concept of corporate social responsi-bility wherein the fundamental dilemma of narrowself-interest vs. a broader social responsibility isexplored. The paper takes no direct position inthis debate about intentions, rather it describes aproactive social responsiveness mode ofoperating. In terms of the Zenisek (1979) modelits characterization of MNEs lies high on theevolutionary scale, probably Phase III or PhaseIV. The paper is clearly in sympathy with Kay’s(1993) analysis in seeing strategic managementas being systematically infused with socialresponsibility as an input, as a support activity,and as a mainstream management task. Finally,

386 J. McGee

and most important, it does not offer any win–win panaceas. Social responsibility in this analy-sis calls for complex trade-offs among multipleparties in complex institutional settings. Perhapsit was ever thus. Nevertheless there are conjec-tures and hypotheses about patterns of responsive-ness and their implications for strategic man-agement.

ACKNOWLEDGEMENT

I would like to acknowledge the very helpfulcontribution of Jo¨rg Andriof of the Centre forCorporate Strategy and Change at WarwickBusiness School.

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