Previous studies on EMS adoption (Bremmers et al., 2007) propose a double layered stakeholder theory, which divides stakeholders according to the relationship and effect they have on organizations’ actions and policy. According to this theory, there are two levels of stakeholders. The first one consists of groups having a direct effect on firms’ actions and financial results through direct business relations (this group includes shareholders, customers and suppliers). The second level includes groups with indirect effect on firms’ performance but usually no direct business connections to a firm. These groups have, sometimes to a large extent, the power of influencing firms’ policies and strategic decisions (Bremmers et al., 2007).
In other words, this division distinguishes commercial from non–commercial stakeholders, by describing the latter as organizations or individuals with no means to impose direct sanctions on organizations or firms. Instead, these stakeholders reside in areas adjacent to industrial facilities (or in areas directly affected by them) and have daily contact with neighboring firms and employees. These communities might be driven into environmental action as a local initiative or by encouragement and assistance from green organizations. An even more effective non–commercial stakeholder is the Media, with its ability to create pressure on organizations through appeals to government institutions, protests and public campaigns as well as through use of favorable or unfavorable media coverage.
The public knowledge, awareness and pressure on organizations’ environmental performance created by the Media and green organizations have been suggested in several researchers as catalysts of EMS adoption by organizations (Albino, Balice, &
Dangelico, 2009; Bremmers et al., 2007; Darnall et al., 2008; Kassinis & Vafeas,
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2006). Various stakeholders can exercise pressure on organizations whose actions damage the environment. This can be done either through positive or negative reinforcements such as recommending environmentally friendly products and firms and/or by calls to boycott firms not showing any environmental responsibility. For instance, a company which is found responsible for ecological damages could suffer a decrease in sales, or a product which is pointed out as not eco–friendly could be taken off the shelves in case governments or public opinion agree with experts’
estimation of its hazards.
Accordingly, we suggest green organizations and Media as important sources of public pressures.
The number and influence of green organizations could be positively correlated with firms’ adoption of EMS methods. In a country with more green organizations we could expect more environmental activities like educational classes, public campaigns and rallies, as well as court appeals regarding environmental issues. These actions, in turn, increase public awareness about firms’ environmental performance and create more pressure on ecologically maleficent firms to improve their performance. This pressure on firms responsible for negative environmental effects could be exercised either by direct actions against polluting facilities or by introducing and promoting of alternative, eco–friendly firms and products, which can be used as substitutes or replacements.
Hypothesis 1a: More active green organizations within a society are more likely to lead to higher rate of adoption of ISO 14001.
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Media coverage holds both risks and opportunities for organizations, in regard to their environmental performance. The power to increase public awareness through newspaper reports or articles, TV reports or internet coverage could be regarded as a
“carrot–and–stick” tool for environmental issues. Organizations which have good environmental performance records, new plans for reducing ecological impact, or other green manufacturing processes records could be rewarded with free positive publicity, resulting in an improvement of their public image. Organizations could even use TV programs and channels which put more emphasis on ecological matters in order to receive free publicity this way. On the other hand, media coverage about neglecting of ecological issues or environmental damages traced back to an organization could create major public image problems which could affect firms’
financial performance on both the short and long run. A case in which this situation occurred is the KuoKuang oil refineries controversy in Taiwan in 2011, which made headlines for a long period of time in this country (Staff, 2011), and shows a good example of the Media’s power of bringing ecological issues to the public’s attention.
Threat of media exposure of ecological issues could serve as a strong incentive for organizations’ scrutiny of their operations, in order to avoid such repercussions. This so called Media threat intensifies when it comes to publicly traded firms, as the ones dealt with in this research, where public reaction could be immediate and significant to a firm’s financial status (Hamilton, 1995), as, for example, was the case for British Petroleum (BP) stocks after the 2010 Deepwater Horizon oil spill, which created large fluctuations in BP share price (Economist, 2010). Another possible outcome of media coverage is increased public awareness and attention to environmental issues. Media consumers receive encouragement to further examine products and services not only
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for information like price or nutritional value, but also for ecological footprint and post consumption handling issues.
Hypothesis 1b: More media coverage of environmental issues will be positively correlated with the likelihood of firms’ adoption of ISO 14001
B2B versus B2C Manufacturers Hypothesis
Just like any product manufacturing firm, both Israeli and Taiwanese firms can be divided according to their customer type. The most basic division is comprised of B2C or B2B firms – firms selling directly to end users compared with firms who sell their products to other firms which in turn use that product as part of a finished good they sell, usually to end users. B2C firms can generally be classified as firms who have their, or one of their brands’, logos on the product, allowing consumers to identify the product with the manufacturing firm.
Many EMS certificates held by B2B firms’ clients do not require similar ones to be held by the B2B firm itself. ISO 14001 certification is given for specific processes along the production line or supply chain and does not require EMS on other parts of the supply chain, nor does it actively encourage B2B producers to adopt similar methods. This attribute makes it is a strictly internal EMS certificate (Bremmers and others, 2007), which does not inquire regarding other supply chain stages. Therefore, EMS for an entire supply chain of B2B products could only be achieved should the B2B firm actively take such a step or if the downstream purchaser requires, for its own concerns, the B2B manufacturer to comply with certain environmental criteria.
Under such circumstances, the advantages related to good publicity and better corporate image, which are two main reasons for ISO 14001 certification, are
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naturally less relevant and less influential (Darnall, 2006). Furthermore, B2B firms who wish to apply for ISO 14001 could face a situation in which the significant investment incurred in this process would provide them with minimal, if any, long term profits.
This research claims reasons such as end–users lower awareness of the original manufacturer identity and coordination issues between environmental enforcement bodies in different regions could lead to lower public exposure and pressure regarding possible negative ecological effects, and serve as an incentive for a B2B firm not to adopt ISO 14001.
In some cases B2B firms are located in a different territory than the firm they manufacture the product for. ISO 14001, being a global standard, could simplify matters for outsider observers seeking to determine if a certain multi–national company is environmentally friendly or not. However, as we have found out during this research, ISO 14001 sometimes serves as merely a façade for firms whose choose relocating and off shoring part of their production line overseas to areas where environmental issues control is less strict than in their homeland. These NIMBY (Not In My Back Yard) circumstances could in fact enhance negative environmental effect on the planet, as many of these countries lack not only environmental regulations enforcement, but also the means for handling and solving ecological disasters are often insufficient (Darnall & Edwards, 2006).
Hypothesis 2: B2C firms are more likely than B2B firms to adopt ISO 14001 certification
Imitation hypothesis
According to the Institutional Theory, introduced by DiMaggio and Powell in the
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early 1980s (DiMaggio & Powell, 1983), firms within a certain industry will tend to imitate and use similar practices as industry leaders within their respective markets’
realm in order to obtain legitimacy and establish themselves as respected competitors in their business field (Toffel & Delmas, 2005).
In various industries and business fields, adoption of management or other economic measures exercised by market leaders (in terms of size or innovation) or simply other firms within an industry creates an imitation trend in which different firms adopt similar management procedures either in order to keep up with market competitors or simply in order to be able to communicate and maintain business relations within their industry (Berry & Rondinelli, 1998; Blind, 2004; Kolln &
Prakash, 2002). Another similar effect is an imitation trend in which firms copy industry leaders’ practices out of fear of becoming laggards or hopes of achieving similar success as their competitors. This trend could also occur when innovators within an industry start a wave of adoption of similar manufacturing or management techniques. Not always does such an imitation trend bring improvement or better results for a firm or for an industry as a whole, but in some cases this imitation trend indeed creates new production and management standards and facilitates the advancement of products or services created by that industry.
EMS adoption by market leaders or by a “critical mass” of firms within an industry could attract other firms to do the same, and create institutional pressure by making EMS a fundamental necessity for running business. Just like in the cases of building a website, opening a Facebook account, or offering online services – all of these trends which many companies found themselves almost obligated to create if they wish to “stay in the game” – firms which have not started exercising EMS might feel the need to do so either through real change in their production and
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management methods, or through “green washing” and adopting EMS only in parts of the production processes more exposed to the public eye or stakeholders attention, in order to remain a legitimate competitor in the eyes of industry rivals, as well as in the eyes of costumers and stakeholders. (Shang et al., 2010).
Hypothesis 3: Organizations in industry segments in which ISO 14001 adoption is more widespread are more likely to obtain ISO 14001certification.
Internal resources hypothesis
Implementation of EMS measures requires large investment of capital.
Estimations of costs vary between initial investment of US 24,000 Dollars to 130,000 Dollars, with additional annual maintenance costs such as inspection payments (Mohammed, 2000; Perez et al., 2009). These sums include the certification process itself, to which should be added the costs of production line changes, thorough logistics issues altering, employee training, and further transition costs, which in most cases are incurred only by the firm itself.
Larger organizations, with more abundant resources and financing abilities are more likely to initiate EMS implementation than smaller and medium sized organization (Darnall & Edwards, 2006). Conversely, smaller organizations are less probable to start the long and costly process of obtaining EMS certificates, even when the implementation of EMS can create long term profits, compared with current management and production methods (Florida & Davison, 2001). The reason for this phenomenon lies in the fact that lack of available funds due to low liquidity or difficulties in obtaining bank credit – a difficulty of the type small firms are more likely to face – might create a barrier for firms’ seeking EMS certification and prevent
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them from doing so.
The fact that, to the best of our knowledge, neither the Taiwanese nor the Israeli government offer subsidies or other type of support for small firms in applying EMS methods does not simplify or solve this situation, and might actually block managers with environmental awareness and concerns from acting in order to improve their firm’s environmental performance.
This research examines whether internal resources could be used as determinants of ISO 14001 adoption, assuming less resources mean lower likelihood of ISO 14001 certification.
Hypothesis 4: Firms with more substantial resources are more likely to adopt EMS than those not.
These hypotheses reflect, in our opinion a relatively wide range of factors and situations which might affect and bring firms’ to adopt environmental policies, and can hopefully give us an indication on possible causes for choosing or not choosing application of EMS.
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METHODS
Statistical Model
In this study, we chose the adoption of ISO 14001 as a measure of firms’ EMS adoption. We adopted Cox’s proportional hazards model (Cox, 1972) as our statistical method, as this approach appropriately handles right–censored data. The likelihood of adoption at time t, given that a focal firm has not adopted it prior to t for each firm can be expressed as independent variables are considered time–invariant during the observation window.
ISO 14001 was first set as a standard by the ISO in 1996, and so the first firm certification for the ISO 14001 standard was on the same year. Thus, 1995 is the year we have adjusted as start of the time frame based on, designated as the initial time period (i.e., t = 0). It should be noted that financial data for Israeli firms is only available starting 1998 onward and therefore hypothesis 4 as well as one of the control variables was only analyzed for the years between 1998–2009.
Dependent variable
This research uses ISO 14001 as dependent variable. Information regarding ISO 14001 accreditation of Taiwanese firms was retrieved from the standardization institute authorized by the ISO to provide ISO 14001 certification – The Taiwanese Bureau of Standards’ – database. Due to the nature of hypotheses and requirements for archival data usually available only for publicly traded firms, the list of firms holding ISO 14001 was cross checked with the Taiwan Stock Exchange (TSE) listings,
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in order to determine which firms have both ISO 14001 certification and are traded on the stock exchange. Out of 249 certificates given to facilities and firms Taiwan, 40 are traded on the TSE. These 40 firms were analyzed within their corresponding industry segment, according to the TSE database. After assigning each firm to its corresponding industry, all the other firms within that industry segment were added to our dataset in order to examine our hypotheses. Only firms from manufacturing industry sectors were included in this research, leaving out firms in the services industries.
Services firms were excluded from the research for a twofold reason. The first reason lies in the fact these firms tend to have much smaller environmental concerns due to the fact lack of manufacturing processes means these firms hardly create any pollution or waste different than that produced by normal households, and therefore are less likely to break (at least at a large scale) any environmental regulations or laws.
Services firms are also less likely to be viewed or addressed by the public and the media as responsible for environmental pollution. The second reason, related to the first one, is the fact services companies wishing to obtain ISO 14001 certification could do so more easily, compared with manufacturing firms, due to the fact no actual change in production methods would be required. Adding such firms to our sample could in our opinion create a distortion in the results, and therefore we chose to refrain from including them.
Indeed, within service companies, cellular communications firms might be viewed responsible for electromagnetic radiation related problems, an issue which might be viewed as environmental one. According to ISO, however, electromagnetic radiation issues belong to a different family of standards, those concerned with public safety and similar fields, and thus control of electromagnetic radiation is not part of
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the ISO 14001 certification (ISO, 2011). As a result we chose to exclude cellular communication providers from the research data. Another type of services which might have a heavier environmental effect are freight companies, however no such firms are traded separately on the TSE, and therefore could not be examined.
Altogether this research sample includes 71 more firms from the same industries as ISO 14001 certified firms which do not hold ISO 14001 certification, thus bringing our company sample size to 111. The industries included in this research are: Electric house wares (4 firms), Illumination devices (1 firm), Electrical transmission and distribution (6 firms), Optical equipment manufacturers (6 firms), computer manufacturers (5 firms), packaging and assembly (2 firms), Electric circuit boards imprinters (10 firms), steel manufacturers (15 firms), cement manufacturers (7 firms), glass manufacturers (3 firms), plastic products (5 firms), tire manufacturers (5 firms), rubber manufacturers (1 firm), pharmaceutical firms (6 firms), chemical products (6 firms), cleaning materials (2 firms), compound rubber products (4 firms), resin plastic (8 firms), fertilizers (2 firms), paper products (5 firms) and dairies (4 firms). For obvious reasons, industries with less than 4 firms were excluded from imitation effect hypothesis regression analysis.
A similar process was done in order to retrieve the data about Israeli firms with ISO 14001 certification. A list of publicly traded firms holding ISO 14001 certification was first obtained from the Standards Institution of Israel (SII). However, due to the fact that in Israel other non–governmental firms are also allowed to issue ISO 14001 certification, and since some of these agencies did not agree to share their list of clients (i.e. certified companies) with us, an alternative method was used. After reviewing the SII certified firms list, the Tel Aviv Stock Exchange (TASE) website
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database was used in order to ascribe each firm to its pertinent industry. A further research of all listed firms on the TASE was later executed, using each firm’s website, financial reports and through e–mail and phone correspondence with the firms, in order to obtain the complete list of all public certified ISO 14001 firms in Israel relevant to our research.
The total number of listed publicly traded firms with ISO 14001 was 50, out of which, as mentioned earlier in relation to the Taiwanese firms in our dataset, only firms in industrial sectors with actual product manufacturing were selected.
A total number of 181 firms divided to eight different industries has been obtained for this research, out of which 40 firms (leaving out 10 firms in the services industries) have ISO 14001 certification. Those firms belong to the corresponding eight industries as follows: Chemical and pharmaceutics (5 firms out of 19 in total have ISO 14001 certification), rubber and plastic (5/18), electrical and electronics (7/32), High-tech and computers (6/28), food (6/27), metal and construction materials (5/31) textile and clothing (1/10), wood and paper (5/16). It should be noted that subsidiaries were referred to using parent companies’ name.
Two different regression analyses were created for both countries. The main reason for this separation, instead of combining both countries in one large sample, is due to the fact stock exchange industry classification is different in Taiwan and Israel.
While the Taiwanese stock exchange uses a SIC based method to define the industries to which each firm belongs to, the Tel Aviv stock exchange uses a different arbitrary method, generally organizing firms on the stock exchange according to the type of firm (Services, Hi–Tech, Industry, Food, etc.). Another reason lies in the different nature of the data sources, as explained more thoroughly in the next section. Israeli
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green organizations differ from Taiwanese ones in their common activities and public recognition while datasets of media coverage were retrieved from significantly different types of databases. We believe these differences call for a separate analysis, in order to avoid disproportional balance for data from one of the countries at the other’s expense.
Independent Variables
Environmental awareness: Green organizations’ activities were collected through websites of the five most well–known and established organizations acting and participating in environmental protection activities in Taiwan – The Taiwan Environmental Action Network , Taiwan Environmental Protection Union, The
Environmental awareness: Green organizations’ activities were collected through websites of the five most well–known and established organizations acting and participating in environmental protection activities in Taiwan – The Taiwan Environmental Action Network , Taiwan Environmental Protection Union, The