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protection as a source of competitive advantage:
“CSC wishes to become one of the most environment-friendly steel company (sic) in the world. Please refer to our CSR reports. However, all investments need to consider economic, technical and practical feasibility. So we will do it if an investment:
1. Needs relatively lower capital and has huge environmental benefit 2. Is global trend and the cost is affordable
3. Has IRR [internal rate of return] higher than CSC’s benchmark”
The search for competitive advantage via environmental investment indicates a heavy private sector-based impetus. Notably, representatives from Sinotech engineering and TSIIA contradict the relatively high level of EAF firm agreement in the survey regarding competition and
customer expectations as positive sources of pressure for green investment. Huang stated that customers, even customers abroad, “don’t care” about environmental performance provided that they receive good value and reliable service for a reasonable price.
This input goes a long way toward fleshing out the foundations of EAF investment levels into environmental protection. The discussion section that follows builds on the integration of survey data with interview testimony to shed light on the possible connections between indicators of multi-sector pressure and EAF investment (as well as the role of intervening variables), how legitimacy and stakeholder theories can explain these connections, and how to
square these theories with the cost-benefit analysis reality behind firm decision-making.
5. Discussion
The tendency of surveyed EAF firms to point to the majority of stakeholder indicators as influencers in their environmental investment decision-making suggests that these firms are highly sensitive to societal mores and pressures — a key facet of CSR according to theorists.
Whether or not each indicator truly does impact firm decisions, though, a high degree of perceived social responsiveness is important as a legitimation strategy, particularly for firms whose negative externalities include cancer-causing agents like dioxins. Social responsiveness implies recognition that the company’s actions are integrated within a dynamic network
encompassing a wide variety of stakeholders. The following paragraphs explore how influential stakeholders (as determined through the survey instrument and supported by subsequent
interviews) may impact a firm’s cost-benefit calculus through inciting the will to seek legitimacy
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and secure the resources that legitimacy implies.
First, the survey indicator that elicited the strongest agreement over decision-making impact, and the most prominent issue raised by interview subjects, involves public sector
emissions standards. This indicator, along with impending EPA regulations, likely triggers strong approval-seeking behaviors from corporations because of the legal and financial consequences of falling short of public sector expectations. Huang (2001) mentions the special significance of fines for SME companies, as the amount of the fines corresponds with the severity of the environmental problem rather than the size of the company.83 Again, corporations are keenly motivated to maintain their legitimacy and to hold on to their resources (i.e., their profitability), while extensive fines, a criminal investigation, or the mandated suspension of operations has the potential to wreak havoc on a business. This is not merely due to the financial impact of
regulatory enforcement. The loss of financial and reputational resources incurred by government action also has ripple effects. Government action might stimulate neighborhood groups or environmentalists into action. Media coverage could reach current and potential investors.
Government action might even spur on banks to call in loans, as was recently the case for Ting Hsin Corp. following its involvement in a tainted food scandal in late 2014.
Although some environmentalists and academics in particular focus on the weaknesses of environmental protection emanating from the government, the public sector is undeniably a legitimating force in Taiwan. The power it wields in administering environmental impact
assessments controls whether or not companies can expand their operations — which effectively creates a potential ceiling for their future earnings. Furthermore, unlike its counterparts in many developing countries, Taiwan’s EPA has reached a level of regulatory and bureaucratic
development comparable to industrialized nations with a 20-year head start. Thus, government action taken against a firm can also have repercussions even beyond Taiwan and in the
international market, since international investors and customers recognize the power the government has to threaten a corporation’s economic viability. By the same token, these private sector actors can also point to EPA accolades as a legitimating factor for Taiwanese steel firms and a sign that recipients are unlikely to incur extreme regulatory sanction in the foreseeable future. The same goes for voluntary regulatory schemes such as participation in the Greenhouse
83 Huang Wei-min, a representative of the EPA’s air quality control department, confirmed this fact in an email sent Dec. 20, 2014.
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Reduction Act and carbon footprint labeling.
Indeed, customers and investors are important stakeholders in the literature, and surveyed firms generally point to both as a source of pressure for environmental upgrades. Heavy
industries, as opposed to manufacturers of consumer goods, have special considerations when it comes to luring customers and investment. For one, customers typically buy in large bulk orders for big construction projects or to satisfy regular demand for steel further along the supply chain.
This signifies that heavy industry firms typically function by attracting fewer high-value
contracts than would a business producing for mass appeal in the general consumer market. With profitability relying on relatively fewer large transactions, however, each contract becomes more important to company profits and to shareholders’ rate of return. Thus, customers and potential customers in need of a reliable source of steel will be more likely to turn to a reputable company with evidence of long-term stability. Shareholders also prize stable companies with consistently high rates of return, and so companies must aim to stay at least in the “maintenance” stage of the legitimation process (Suchman, 1995; O’Donovan, 2002; Tilling, 2004) to lure investment.
Besides the legitimacy that businesses acquire via compliance with EPA regulations and EPA accolades, independent industry standards such as ISO 14000 were also highlighted in the survey instrument and interviews as a key source of EAF firm legitimacy.
Unlike firm legitimation via public sector initiatives, ISO 14000 certification doesn’t work by levying fines or threatening companies with criminal investigation and other direct offenses to a business’ bottom line. Instead, ISO 14000 operates as a kind of status symbol that increases firm marketability by assigning it comparable status to effective corporate EMS around the world. In other words, the 70% of EAF firms in Taiwan with ISO certification have garnered a form of competitive advantage against other firms in the market. In addition to the
environmental protection benefits signified by ISO 14000, the demands of keeping the certification over long periods also indicate that ISO companies employ highly efficient management practices focused on long-term improvement. Coupled with the decreased
likelihood of regulatory sanction, ISO 14000 (and 9000) certification communicate stability, an optimizing orientation, and effective management in EAF firms — all of which are attractive to stakeholders wanting to do business or invest in the steel industry.
The final set of indicators worthy of mention from the private sector operate within the business itself: managers and employees. Ultimately, all corporate decision making regarding
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environmental investment comes down to managers empowered to direct corporate capital and shift company practices. These managers must be primarily concerned with the economic viability of their enterprise, but a manager’s understanding of environmental protection as a competitive advantage, or even a manager’s personal conviction about the importance of
environmental protection and its compatibility with profit-making, can potentially revolutionize the way a company conducts its business. Mission-centered managers are uniquely empowered to exercise a process of legitimation based not on congruence with external stakeholders’ values and expectations but chiefly with their own set of ethical mores. Moreover, as a generation of youth raised in an era of increased environmental education and action enters the workforce, companies may need to emphasize their environmental record in order to attract the best candidates for open positions. Perhaps more than at any other point in history, individuals are pursuing work in line with their personal values and convictions, searching for a sense of meaning and morale as well as a paycheck. These highly qualified, highly motivated employees are pivotal to the overall economic success of an enterprise.
Although arguably possessing much less control over the financial resources companies require to survive, voluntary sector initiatives are also an important aspect of EAF firms’
legitimation strategies. Most surveyed companies agreed that the threat of lawsuits compels them to upgrade environmental technology and practices. As was mentioned in Section 2.5, some nongovernmental organizations like Wild at Heart and the Environmental Jurists Association exist to make it easier for community groups to sue corporations to protect their health and land.
Organized citizens groups, neighborhood associations and self-help organizations also bind together to limit the transaction costs incurred by members seeking to impact a company’s bottom line. Lengthy and costly lawsuits definitely offer a strong disincentive for insufficient EMS, but most voluntary sector action affects companies’ profit margins only indirectly. Press coverage, for example, not only implies the possible dissemination of information endangering corporate legitimacy to the general public; companies also risk this information getting to current and potential customers and shareholders as well. Similarly, public hearings and protests (that may or may not be covered in the general media) can have a strong impact on the private and public sector stakeholders with more potential impact on firm profitability.
Finally, whereas the preceding discussion centered around stakeholder impact on corporate legitimation strategies centered on resource accumulation and safeguarding,
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intervening variables might affect firms in other ways. The most prominent intervening variable, company size, was discussed and critiqued earlier in Section 3.5 and the same interpretation applies here. In addition, small- and medium-sized enterprises like EAF minimills might have less institutional inertia, meaning they would be generally easier to change. With respect to industry type, although in general steel manufacturing is a high-visibility industry as defined by Branco and Rodriguez (2006), the industry subcategory of electric arc furnace facilities does not garner the same level of visibility in the public at large. This could actually result in less pressure on firms to upgrade their EMS. Similarly, the age of a company might also indicate its level of experience and expertise in conducting system upgrades, lessening the psychological pressure to enhance EMS while increasing a business’ capacity to do so. And, of course, EAF facility upgrades are rarely exclusively related to environmental protection (versus quality control or efficiency enhancement upgrades, for example), but the latest techniques and technologies are often designed with environmental implications in mind. Indeed, each surveyed company agreed with the statement that “Environmental upgrades are the result of routine factory upgrades.”
Figure 18 shows a conceptual framework for this study that integrates the theoretical basis of the research with survey and interview results. The most prominent sources of firm legitimacy within the political ecosystem/environmental governance structure of EAF steel production are highlighted.
Figure 18: Conceptual framework of legitimation pressures in EMS development