Corporate citizenship and corporate environmental performance

Corporate citizenship and corporate environmentalperformance

Carole Gibbs

Published online: 17 February 2012# Springer Science+Business Media B.V. 2012

Abstract Corporate crime scholars typically seek to identify the characteristics thatdistinguish between criminal (or noncompliant) and compliant corporations,usually relying on amoral calculator models to explain offending. Yet, manycompanies comply and even overcomply with environmental regulations bypolluting significantly less than legally allowed. Broader theoretical modelsmay be necessary to explain this phenomenon. In the current study, I explorethe utility of corporate citizenship, conceptualized as the degree to which firmculture promotes or inhibits a moral commitment to society, for explainingovercompliance with the Environmental Protection Agency’s Clean Water Actregulations. Findings offer little support for the proposed relationship betweencorporate citizenship and environmental performance. The implications of thesefindings and directions for future research are discussed.

Introduction

Corporate crime scholars typically seek to identify the characteristics that distinguishbetween criminal (or noncompliant) and compliant corporations [19, 68]. Althoughimportant, this approach ignores an important dimension of corporate behavior.Environmental scholars have documented a high level of compliance with currentenvironmental regulations [41, 45, 62], with many plants and firms “overcomplying”with environmental regulations by discharging significantly less pollution than legallyallowed [7, 45].

Traditional theories of corporate crime assume that companies operate as“amoral calculators” and will only take costly measures to comply when it islikely that they will be caught and penalized [42, 64]. Yet, amoral calculation

Crime Law Soc Change (2012) 57:345–372DOI 10.1007/s10611-012-9365-2

C. Gibbs (*)School of Criminal Justice, Department of Fisheries and Wildlife, Michigan State University,508 Baker Hall, East Lansing, MI 48824, USAe-mail: [email protected]

does not explain why profit-maximizing companies would comply with laws that areweakly enforced [41].1 Additional explanations are required to understand why firmscomply and overcomply with legal requirements when regulation is lax. As Kaganand colleagues [41] state: “the degree of variation in, and the motivation for, corporatebehavior may be much broader than many researchers have imagined” (p. 52).

Regulatory scholars propose affirmative motivations for compliance that “emanatefrom good intentions and a sense of obligation to comply” ([50], pp. 41). These ideashave also been extended to the corporation itself. Haines [34] refers to “corporatevirtue” as the willingness of firms to do the right thing. Similarly, business andsociety scholars also argue that some (but not all) firms have a sense of moralobligation or duty to do more for society than make profits [12, 14, 75, 76]. Variationin firm’s sense of obligation, often referred to as corporate citizenship, may haveimportant implications for actual behavior. Theoretically, corporations that take dutyseriously, that are a different type of firm, may be less likely to violate the law, andmore likely to go beyond minimal legal requirements and overcomply.

Existing literature on corporate citizenship focuses primarily on whether it producesfinancial profits; it does not explore potential links to compliance. Several bodies ofwork contain findings suggestive of a relationship. Studies of corporate environmentalcrime indicate that proxies for corporate citizenship are associated with firm-levelviolations or respondent reports of overcompliance. In addition, plant-level studiesestablish a connection between managerial environmental moral commitment and plantenvironmental performance. However, these studies have not explored richer measuresof firm citizenship, a full range of corporate environmental performance (beyondviolations), or measures of corporate overcompliance derived from pollution data (ratherthan a survey). Thus, the link between corporate citizenship and corporate overcompli-ancewith environmental regulations has not been tested. In the following paper, I fill thisgap in the literature by examining the association between corporate citizenship and thelevel of corporate environmental compliance (referred to as corporate environmentalperformance), measured using Environmental Protection Agency (EPA) data on CleanWater Act discharges.

This work has significant implications for theory. Findings may support or refutebroader theoretical explanations of corporate behavior that indicate a need to movebeyond traditional amoral calculator models. Supportive findings will not suggest aneed to completely reject rationality or rational choice models of corporate behavior.Theoretical perspectives allow for the consideration of duty among economic actors.Although the economic actor will seek pleasure (profits), the actor will also seek duty[25]. For example, the subjective expected utility theory incorporates individualmoral views and cost/benefit calculations into managerial decision-making regardingcorporate crime [56]. Similar to manager’s moral views, corporate citizenship can beintegrated into rational choice models as a broader potential cost to be weighed (if the

1 Overall, responses to environmental violations tend to be fairly lenient. In examining more than 27,000enforcement actions over a 13 year period, Hunter and Waterman [40] find that the most severe sanctionsavailable (civil penalties or contempt action) were used in only 0.4 percent of cases. By far, the mostcommon responses to violations were informal (e.g., warning letters). When penalties are issued, they tendto be low. For example, the average administrative fine imposed by the EPA in 1995 was $34,000, but themedian range of fines was only $5 to $10,000 [20].

346 C. Gibbs

firm culture is violated). It may also create a set of decisions that are not subject toamoral calculation, or “non-market” areas [56].

Findings may also help shape regulatory practice. “Good” corporate citizens maybe more amenable to flexible and cooperative regulatory regimes, allowing regulatorsto target limited monitoring and enforcement resources toward the “bad corporateactors” ([6, 31, 58]; for an alternative view, see [10]). On the other hand, informationon corporate citizenship may offer regulators little insight into actual environmentalbehavior, suggesting that all firms require an equal level of scrutiny regardless of thelevel of citizenship.

In the following section, I review the relevant literature on corporate crime,environmental compliance, and corporate citizenship. I next introduce the data,methods, and analytic strategy that will be used to address the research question. Iconclude with a discussion of the results and implications for future research.

Relevant literature

Several bodies of literature are relevant to the current research. Characteristics relatedto corporate crime may also predict corporate environmental performance; thus, Iinclude a brief review of this work with an emphasis on studies of corporateenvironmental crime. Studies of compliance, largely focusing on environmentalcompliance among plants, are also reviewed. Finally, business and society scholarshave extensively discussed the notion of firm moral responsibility, referring to it ascorporate social performance or corporate citizenship. The literature review con-cludes with a discussion of theoretical notion of and relevant empirical literature onthis business and society concept.

Corporate crime literature

Corporate crime is often assumed to result from amoral calculation, or instrumentalanalysis of costs and benefits [42]. These assumptions have been extended tocorporate environmental crime as well [64]. Empirically, scholars often focus onthe relationship between corporate characteristics (e.g., size, profitability) and crimebecause the organizational context is typically viewed as an important predictor offirm outcomes [19]. In addition to instrumental approaches, opportunity theory,ignorance, and poverty have also been used to explain associations between corporatecharacteristics and crime.

Financial strain (or the need to make or save money for the firm) significantlyincreases the likelihood that firms will violate environmental laws and/or increasepollution levels ([2, 18, 19, 41, 52]; for exceptions, see [37, 51]). Cost-benefitapproaches would assume that offending brings some kind of value or benefit suchas cost savings, competitive advantage, or greater flexibility in cash flow [20].Poverty may also motivate noncompliance [60].

Larger firms are also more likely to violate environmental law ([2, 19, 37, 52, 78];for an exception, see [51]) and to have higher toxic release inventory emissions rates[27–29]. Larger firms may simply have more opportunities to engage in illegalactivities. Yet, in some cases, smaller firms may have higher levels of noncompliance,

Corporate citizenship and corporate environmental performance 347

as they often lack environmental staff responsible for learning about regulatory require-ments, resulting in ignorance of the law and noncompliance [11]. In addition, smallerfirms do not benefit from economies of scale that make compliance costs lower.

Finally, manufacturing plants embedded in more complex structures violate the lawmore often and discharge more pollution [27, 28, 30]. Rapid firm growth may outpacethe development and implementation of internal controls. Thus, noncompliance maybe an unintended outcome of employee efforts to operate in an ambiguous situation [9].

Corporate crime scholars typically focus on violations. From a risk and protectiveperspective, these predictors may also be related to compliance [77]. In addition, priorliterature indicates that larger and more profitable firms have a stronger reputation forcorporate social performance [66]. As such, it is important to control for these factorsin the current analysis.

Compliance literature: the environmental arena

As previously stated, corporate crime scholars most often focus on crime, but regulatoryscholars have explored factors that influence (mostly environmental) compliance andovercompliance. Instrumental explanations are common in this area of inquiry as well.For example, firms may engage in overcompliance to gain a more powerful andinfluential voice in the formation of regulations. Overcompliance (by firms with lowcosts in pollution control) would be a way to signal to lawmakers that tighter restrictionsare possible, and tighter restrictions could increase the costs for rival companies [36].Companies may also overcomply with regulations in order to anticipate and be incompliance with stricter future regulations [5]. In fact, facilities that place priority onanticipating future regulations are more likely to overcomply than those that do not [77].

Firms may also (over) comply to avoid non-legal costs and to gain favor with avariety of stakeholders. Larger firms that are more likely to have their emissionrecords covered by the media may overcomply to protect themselves from negativepublicity and associated stock price decreases [81]. Firms may also overcomply tomeet the demands of shareholders who want to avoid risky investments to maximizetheir portfolio’s value [36]. Community groups may also influence compliance bycreating a “social license” in the form of social expectations for emission reductionsbeyond legal requirements. Failure to achieve these stricter controls may produceadditional costs that plants want to avoid. In fact, plants with active local environ-mental groups and those that had been subjected to anti-chlorine campaigns byGreenpeace (i.e., those with a stricter social license) have lower pollution emissions([32, 41]; see also [77]).

Many of these theoretical ideas and empirical findings reflect an instrumentalapproach to compliance. However, the concept of corporate citizenship offers adifferent point of view. This theoretical idea is consistent with broader models ofcompliance that incorporate affirmative motivations (e.g., good intentions, obligation)for behavior [50].

Corporate citizenship: theory

The concept of corporate social performance or corporate citizenship begins with theassumption that business and society are interpenetrating and thus firms must be

348 C. Gibbs

socially responsible to this shared environment. Therefore, at the most basic level,businesses have some obligation to society beyond profitability. Company obliga-tions were originally described as social responsibilities, societal expectations ofbusiness that provide the moral imperative or motivation for socially responsiblecorporate behavior [76]. Over time the focus shifted to more pragmatic concerns dueto debates over whether companies had any moral obligation to society. Scholarsbegan to focus instead on the methods used to fulfill a social obligation, regardless ofmotivation, and the concept was referred to as “corporate social responsiveness” [1,13]. Thus, motivation was deemed to be less important than implementation of astrategy or method to meet broader business responsibilities [12]. Methods to addresssocial responsibilities would be considered evidence of social responsiveness if theywere developed for moral or instrumental reasons.

One of the most recent and comprehensive models—”corporate social perfor-mance” (CSP)—combines these two ideas (motivation and methods) into a singleframework with an additional outcome or performance-based component [75, 76].The specific models of CSP vary, but they synthesize the competing ideas regardingthe definition of citizenship in a consistent way. Corporate social performance involvesthe underlying interaction or configuration of principles of social responsibility(operating as motivators), processes of social responsiveness, and outcomes/performance [75, 76]. These conceptualizations recognize variation in each aspectof CSP (motivation, methods and outcomes). Thus, the best corporate citizens willbehave in ways consistent with all three aspects of CSP. These firms will have a senseof moral responsibility that provides the basis for creating systematic methods to actin socially responsibly ways, therefore producing socially responsible outcomes.

Other prominent models of citizenship continue to define it as a set of responsibilitieswhile acknowledging the importance of actual implementation and performance [13].2

Yet another prominent model focuses exclusively on performance/outcomes, specif-ically stakeholder satisfaction.3 In this model, any acknowledgement of obligations tomultiple stakeholders is evidence of corporate social performance, regardless ofwhether firms are motivated by morality or instrumental assessments [17]. Otherscholars suggest that firms may vary in motivations for stakeholder management,much like the social performance models [23].

Fundamental differences remain within and between the competing perspectives.Namely, the current models differ in the criterion for evaluating corporate citizenship.Firms might vary in citizenship according to 1) motivation, process, and/or outcomes;2) how well they perform a set of responsibilities; or 3) whether they have goodrelationships with multiple stakeholders. In addition, disagreements abound regarding

2 Carroll [13] uses a pyramid as a metaphor to describe four social responsibilities. He explicitly acknowl-edges economic responsibilities as the base of the pyramid, followed by legal, ethical, and philanthropicresponsibilities. Responsible firms will develop methods to deal with these responsibilities and the tensionsbetween them [13].3 Clarkson [17] defines social performance as the level of stakeholder satisfaction—the extent to whichfirms respond to stakeholder issues regardless of motivation. Advocates of a stakeholder approachexplicitly reject the CSP model because of its complexity [17], but stakeholder theory is compatible withother models. It can be used to define the groups to whom the firm has economic, legal, ethical, andphilanthropic responsibilities [13].


what motivation for these actions constitutes corporate citizenship and whethermotivation matters at all.

In the current study, corporate citizenship is conceptualized as the state of firm cultureregarding broader commitments to society. This conceptualization is consistent withcriminological work on the importance of culture in determining firm behavior [39, 59].Criminologists generally define corporate culture in terms of its potentially crimino-genic components [39, 59]. For example, industry culture has been defined as “a setof commonly shared attitudes, techniques, and rationalizations which condition thelikelihood that owners, managers, and employees within the typical industry enter-prise will use illegal means to pursue economic goals” ([8]: 555). However, culture islikely a broader construct than techniques of neutralization and may include attitudestoward the social role of business—concern for the publics’ wants and desires ([67],Stone 1991 [reprint of Stone 1975]). Qualitative work suggests that organizationalmessages regarding the moral importance of competing goals (e.g., profitabilityversus environmental safety) confront managers in the workplace [80].

Conceptualizing citizenship as one part of corporate culture is consistent withother work. For example, scholars have made theoretical arguments that ethicalclimate is only one dimension of organizational culture [21, 73]. In addition, Maignanet al. [46, 47, 48] find that citizenship is empirically associated with other elements ofcorporate culture

More specifically, in the current study corporate citizenship is conceptualized as acontinuum of commitment to broader responsibilities (in the firm culture). Most ofthe models of CSP (or citizenship) recognize that firms will vary in motivation forsocial performance. The motivation for developing methods or acting in prosocialways may be instrumental or deontological. Although some firms will engage inprosocial actions because it is good business practice (i.e., for instrumental reasons),some profit seeking firms will be motivated by a sense of duty to give something backto society. Theorizing this type of normative variation is consistent with businessethics approaches. For example, Victor and Cullen [72] find that employees are ableto discern different types of ethical environments. Some firms train employees to baseethical judgments on principle; some on joint-interest (meeting the needs of the firmand society); and others exclusively on self-interest. In other words, firms are likely tooperate on a continuum. This is similar to Sridhar and Camburn’s [65] argument thatorganizations can be characterized according to Kohlberg’s [43] stages of moraldevelopment.

Thus, in the current paper corporate citizenship represents the degree to which firmculture promotes or inhibits a moral commitment to society to produce outcomesbroader than economic profits. The “best” corporate citizens will have a culture thatpromotes a strong moral commitment to society, to produce as many sociallyresponsible outcomes as possible while also pursuing profits.4 Others may promotea culture that operates somewhat more on instrumental motives in which sociallyresponsible outcomes are pursued on a limited basis when they benefit the firm (i.e.,

4 Firms that take duty seriously will not ignore profits. Even the best corporate citizens (motivated byprinciple) are still corporations with investors and shareholders. For this reason Carroll [13] explicitlyintegrates economic responsibilities as one component of social responsibility (and stakeholder theoristsdefine shareholders as one stakeholder group). Good corporate citizens merely have a broader set ofconsideration in addition to profits.

350 C. Gibbs

joint interest). Finally, some firms may train employees to base decisions strictly onthe firm’s costs and benefits, without promoting social responsibility at all. Thisvariation in corporate citizenship may have important implications for firm behavior.

Corporate citizenship: empirical studies

Empirical literature on corporate citizenship is primarily limited to its impact onfinancial performance (for a review, see [55]), but anecdotal evidence indicates thatcorporate citizenship is related to other firm-level outcomes such as employeerelations and business performance [15]. Although evidence indicates that corporatereputation for social performance is influenced by firms’ legal emissions [66], the linkbetween corporate citizenship and (over) compliance with legal requirements has notbeen explored. Although not defined, measured or discussed in terms of corporatecitizenship, a small body of empirical literature suggests that corporate citizenshipmay vary and may covary with this aspect of environmental performance.

Some studies suggest that ethics may relate to corporate behavior [37, 61, 63]. Twostudies fail to find an association between ethical codes and corporate violations [49,53], but ethical codes can be created with little effort and may not be enforced. Codesof conduct may represent mere lip service to ethics. Stronger self-regulation programsand performance reviews based on broad criteria rather than profits alone may bebetter indicators of firm culture regarding ethics. Empirically, these more intensivecorporate ethical efforts are related to violations. Enforced self-regulation (i.e., anemployee was recently reprimanded or fired for unethical behavior) significantlyreduce intentions to offend among business students and executives [61]. Further,personnel reward practices based strictly on profits are associated with convictionsfor price-fixing, [63]. Companies that rely most exclusively on financial data toevaluate divisions also have higher levels of EPA and occupational health and safetyviolations.5 This “management by numbers” (using rate of return as the primaryevaluation criteria) may indicate that managers should do what is necessary toincrease profits in the short-run and ignore other (social) concerns [37].

Some plant-level literature provides more direct evidence that moral responsibilitycan produce specific (environmental) outcomes. Thornton et al. [69] find variation inplant’s environmental management systems produced by manager’s level of moralcommitment to the environment. In contrast to “Environmental Laggards,” among“True Believers” (managers driven to environmental excellence by moral commitmentto the environment) excellence was not contingent on the cost of investment inenvironmental performance [69]. Upper management’s moral commitment to theenvironment has also been linked to overcompliance. Plants in which upper manage-ment express strong environmental values are more likely to self-report overcomplyingwith regulations [77].

Two studies establish a relationship between environmental moral commitmentand environmental performance [69, 77]. However, these studies rely on small

5 The authors provide a list of items used in the survey questionnaire, but it is somewhat unclear whichitems specify “non-financial” considerations. However, some do seem to be more social in nature. Forexample, Hill et al. [37] asked managers about the extent to which industry relations were used to evaluatedivision performance.


samples of plants or survey measures of firm overcompliance. In addition, theconcept of corporate citizenship described in the business and society literature isbroader than environmental commitment [12, 13, 17, 75, 76]. Given this broadconceptualization, it is important to explore citizenship at the firm-level, as it is likelyto be determined by policies and practices typically established by the parent com-pany rather than the manufacturing plant. In fact, the stance taken by top managementis a critical determinant of corporate culture [39]. Firm-level studies indicate anassociation between proxies for corporate citizenship and firm-level violations, buthave not explored richer measures of citizenship or environmental performance(beyond violations).

The current study

In the current study, I fill this gap by examining the relationship between corporatecitizenship and corporate environmental performance, measured using pollution data.Based on the conceptual and empirical literature, I expect corporate citizenship to besignificantly related to firm environmental performance after controlling for theknown predictors of corporate environmental crime (e.g. firm size, profitability).Specifically, I hypothesize that firms that score higher on measures of corporatecitizenship will discharge significantly less of legally permitted pollution limits.

This research provides an opportunity to test arguments that firm behavior is basedon more than amoral cost/benefit analysis of firm profitability. The concept ofcorporate citizenship represents variation in moral commitment to broader responsi-bilities to society. Some firms may promote corporate citizenship for instrumentalreasons (making corporate citizenship redundant with good business practices of cost/benefit analysis), but firms that rank the highest in citizenship are likely to have anunderlying moral motivation. Otherwise these firms would do only the minimumrequired to satisfy social demands, selectively pursuing actions that equally benefitsociety and the firm (and ranking lower on citizenship). Excellent corporate citizens,on the other hand, are likely to go well beyond the minimum (and rank higher incitizenship) because in these cases, like Thornton and colleague’s [69] “TrueBelievers,” excellence is not strictly contingent on the cost of investment.

As a measure of moral commitment to broader responsibilities, a statisticalassociation between corporate citizenship and environmental performance will pro-vide support for a broader model of compliance, as it demonstrates that firm cultureregarding moral commitment actually influences behavior in other domains. If firmsmerely pay lip service to corporate citizenship or engage in socially responsibleactivities at a minimal level, the concept is unlikely to have any association withenvironmental performance. However, a statistical association between corporatecitizenship and environmental performance does not imply a rejection of theories ofrational choice or instrumental decision-making, as corporate citizenship does notrepresent non-rationality. Moral concerns can be considered in conjunction with cost/benefit analysis. The subjective expected utility theory, for example, recognizes thatmanager’s moral views may factor into rational decision-making in a variety of ways[56]. Thus, this research will shed light on whether these broader, firm-level moralconsiderations are also relevant to company outcomes (in addition to cost/benefitanalysis).

352 C. Gibbs

Data and methodology

The majority of the data used to test this hypothesis was gathered in a study funded bythe National Institutes of Justice to examine the relative effectiveness of punitive andcooperative strategies to control corporate environmental crime, defined as Environ-mental Protection Agency (EPA) violations of the Clean Water Act (CWA) [62]. In thelarger study, compliance and enforcement data were collected for a universe of U.S.based, publicly traded companies operating primarily in one of three StandardIndustrial Classifications (Pulp and Paper Mills; Petroleum Refining; Steel Works,Blast Furnaces, and Rolling) in 1995 that were linked to facilities (the EPA trackscompliance at the facility level) regulated by the EPA.6 Companies were retained forthe study if they owned at least one manufacturing facility operating in the sameindustrial classification in 1995 that is categorized as a major discharger in the CWAprogram.7 An interest in a firm-level analysis limited the sample to all major facilities(with CWA permits) operating in the same industrial codes as the parent company toensure a similar culture between parent company and facility. Firms/facilities weretracked for years 1995–2000. Therefore, any changes in either the company (mergers,bankruptcy, etc.) or the facility (closings, changes in ownership, etc.) were recordedthrough the year 2000.

Firm and facility EPA data were then matched to publicly available data on firmcharacteristics (e.g., size, financial performance, industry) collected from Mergent’sOnline and company annual reports. The final sample contains 67 companies as of1995 and drops to 55 by 2000, mainly due to mergers. In 1995, the majority of thecompanies in the sample operated in the pulp and paper industry (30), followed by theoil industry (19) and the steel industry (18). These companies were operating 212major facilities. Like the parent companies, the number of facilities declines overtime, mainly due to international mergers and sales. The full sample includes 378company years. Some measures of corporate citizenship were unavailable for all ofthe company years, resulting in a sizeable decrease in sample size in some analyses(160 to 169 company/years maximum in two different reduced samples) that iscompounded by missing data (discussed below). In the following sections,descriptive statistics are presented for the full and reduced samples and significantdifferences between the samples are discussed.

Dependent variables

The EPA sets national pollution standards and implements environmental lawsenacted by Congress by developing and enforcing regulations. Under the CWA, eachmanufacturing facility is assigned limits specific to its operations. Facilities/firms are

6 Pulp mills and paper industries were combined because many mills and companies engage in bothindustrial processes.7 Major industrial facilities are distinguished from minor dischargers by the facility’s potential for dis-charging toxic wastes, the volume and type of wastewater, and whether the receiving water is used fordrinking [79]. Although we developed an extensive procedure to match facilities to parent companies, wewere unable to overcome the lack of information on minor facilities. Given that ours was a national study,contacting every state for information on minors in specific industries was beyond the resources availablefor the project.


required to self-report permitted limits and actual discharges to the EPA, usually on amonthly basis, in the form of Discharge Monitoring Reports (DMR) (see [62] foradditional detail). Federal regulations specify different kinds of limits. The largestcategories of pollutants (described below) are measured in two ways. Quantitiesrepresent total loads; concentrations represent the percent of the pollutant in aspecified amount of water. Quantities and concentrations are reported in differentmetrics and permit writers sometimes use different measurement units (e.g., poundsvs. kilograms). To construct the dependent variables, limits and discharges wereconverted a common metric for consistency across plant. Quantity measures representpounds per day and concentration measurements represent milliliters per liter.8

Two general categories of pollutants are examined: conventional and toxic pollu-tants. Conventional pollutants are common pollutants, such as organic waste, acid,bacteria, oil and grease or heat that are well understood by scientists. These materialswill naturally break down in the water. Toxic pollutants are materials that cause death,disease or birth defects in organisms that ingest or absorb them [70].

Pollution discharge levels and limits were and then summed to create a monthlytotal of the amount of pollution discharged and the amount the firm was allowed todischarge. Specifically, limits and discharged amounts were summed across facilitiesowned by the same firm operating in the same industrial classification.9 A firm-levelmonthly compliance ratio was constructed by dividing the amount discharged by theamount of the limit. Thus, the compliance ratio captures the portion of permitted limitthat is discharged. Values closer to zero demonstrate a high level of overcompliancebecause the firm has discharged significantly less than its legal limit. Values greaterthan one indicate that the firm is in violation [7].

The variables of interest are measured in different time units. Although pollutionlevels are usually reported monthly, the most reliable data on firm characteristics isrecorded yearly. Thus, the data have been aggregated to firm/year. The complianceratio was log-transformed to reduce skew. The median of the logged monthlycompliance ratios is used as the dependent variable for each year [7].10 Conventionaland toxic pollutants were examined separately, as well as quantity and concentrationmeasures. Thus, I examine four compliance ratios: conventional pollutants (quantity

8 Plants may be required to report the minimum, maximum or average quantity or concentration ofpollutants each month. Minimums represent the lowest measurement of the month, maximums representthe highest measurement, and averages represent the mean. I focus on average values to examine the overalllevel of monthly compliance rather than extreme events (i.e., minimums and maximums). I also focus onmonitoring locations and measurements of water the facility was directly discharging into the waterways(effluent gross value). Water samples (taken to measure pollution levels) must be taken at various locationsin and around plants. I excluded measurements related to upstream and downstream monitoring.9 In some cases, facilities reported discharge values that are not possible (i.e., negative values). These arelikely entered in error. Consistent with Bandyopadhyay and Horowitz [7], these measurements wereexcluded from the sum, resulting in a small fraction of lost cases (i.e., 1.3% of all of the quantitymeasurements and 0.4% of the concentration measurements).10 The reported discharge was extremely high in a few reports to EPA. In these cases, the compliance ratiowas computed to compare the reported discharge to its associated limit. Most of the time the discharge wasextremely high because the limit on pollution was very high, suggesting that it was not an error. In threereports, the reported discharge value seemed unreasonably high compared to the limit and was likely theresult of a typographical error. These values were dropped, resulting in the exclusion of one report from theconventional pollutants quantity compliance ratio and two reports from the concentration complianceratios.

354 C. Gibbs

of pollution), toxic pollutants (quantity of pollution), conventional pollutants(concentration of pollution) and toxic pollutants (concentration of pollution).11

Descriptive data are presented in Table 1 prior to log transformation for ease ofinterpretation. On average, firm discharges are significantly below the legal limit. Thelevel of overcompliance is highest, on average, for the quantity of toxic pollutants(0.17) and lowest for the concentration of toxic pollutants (0.50). In fact, across all ofthe compliance ratios, company discharges are greater than one (the company dis-charged more than legally allowed for the year) in only seven company/years. Thus,the data provide an excellent test of the relationship between corporate citizenshipand overcompliance.

Information relevant to the compliance ratio is not available for every plant, forevery pollution measure and for every year in the data. Permits are usually written forindividual plants, as they are specific to its production processes and discharges. Forexample, plants that intend to discharge hot water from the production process mayhave to monitor temperature more closely than those that do not. In addition, thespecific measures may change over time as production processes are upgraded. Thus,the specific measurements taken vary significantly by plant and over time, evenwithin the same industry. Grouping these measurements into conventional and toxicpollutants helps reduce the lack of specific comparable pollution measures acrossplant. However, there are years in which a plant was not required to measure or reportthe data to form a compliance ratio for conventional and/or toxic pollutants. Theseomissions do not represent “missing data” in the traditional sense; the complianceratio is simply irrelevant to that particular plant.

In some cases, the EPA also monitors a plant’s discharge for a pollutant withoutimposing a specific limit on it. Again, the information to needed to calculate acompliance ratio is unavailable and the compliance (or noncompliance) ratio isirrelevant. As shown in Table 1, this issue creates a significant amount firm/yearsthat lack a compliance ratio. In the full sample of 378 company years, complete datais available for 83% of the conventional pollutant quantity compliance ratios; 52% ofthe toxic pollutant quantity compliance ratios; 67% of the conventional concentrationcompliance ratios; and 48% of the toxic conventional concentration complianceratios.

Independent variables

I use firm participation in voluntary overcompliance programs as one measure ofcitizenship. Participation in voluntary programs is theoretically consistent with thecorporate citizenship concept, as firms are volunteering to go above and beyond legalrequirements. Thus, the concept of citizenship is measured by firm participation intwo voluntary programs: the EPA’s TRI 33/50 Program and the Wastewise Program.

The EPA’s Toxic Release Inventory (TRI) is an information disclosure programcreated in 1988. Although the pollutants reported in the program can be legallyemitted, the EPA requires toxic waste producers with more than 10 employees tofile annual reports of emissions for approximately 300 toxins to the EPA. As a result

11 Log transformation resulted in the loss of one company/year for three of the compliance ratios in whichthe compliance ratio equaled zero.


of the information disclosed, the EPA developed a program called TRI 33/50 thattargeted 17 chemical emissions to be reduced by 33% by 1992 and 50% by 1995. Allcompanies in this sample would have been invited to participate.12 Wastewise is avoluntary partnership program that strives to reduce solid waste through wasteprevention (i.e., using fewer materials to do the job) and recycling. As Table 1 shows,firms that participated in TRI 33/50 account for 60% of the 378 total company/years;firms that did not participate in the program account for 32% of the total years;approximately 8% of the companies were ineligible because they did not exist in theircurrent form when the program was operational. Twenty percent of the company/years represent companies that participate in Wastewise and 80% of the company/

12 The EPA engaged in a heavy recruiting effort, beginning in 1991, to encourage firms to join the TRI 33/50 program. The EPA invited firms to participate in three stages with a total of approximately 8,000invitations. Two sources were used to verify that all companies in our initial sample were invited toparticipate. First, firms that discharged any one of the 17 chemicals of interest were invited. Thus, TRIfacility reports from 1988 and 1992 were used as verification. Second, Vidovic and Khanna [74] providedtheir EPA database which contained facility reports of TRI 33/50 chemicals and the parent companyparticipation status (participated, refused, never replied, etc.).

Table 1 Descriptive statistics for full sample

Variables Range Mean (Std Dev) sample size

Conventional Pollutants 0–34.50 0.39 (1.93)

Compliance Ratio (Quantity of Pollutants) 314

Toxic Pollutants 0–2.54 0.17 (0.24)

Compliance Ratio (Quantity of Pollutants) 195

Conventional Pollutants 0–32.16 0.41 (2.02)

Compliance Ratio (Concentration of Pollutants) 252

Toxic Pollutants 0–50.72 0.50 (3.77)

Compliance Ratio (Concentration of Pollutants) 181

TRI 33/50 0–1.00 0.66 (0.48)

348

Wastewise 0–1.00 0.20 (0.40)

378

KLD Score (replacement) −3.00–7.00 0.92 (1.82)

169

KLD Score (no replacement) −3.00–7.00 0.86 (1.76)

160

Return on Sales 0.30–5.02 1.20 (0.66)

339

# of Employees 291–112,900 15,419 (19,666)

336

Steel Industry 0–1.00 0.27 (0.45)

378

Oil Industry 0–1.00 0.29 (0.45)

378

356 C. Gibbs

years reflect non-participants. Because Wastewise is an ongoing program, data isavailable for all of the companies, including those formed later in the sample timeperiod from mergers.

These measures of citizenship are not ideal, as they are measuring actions orsignals that indicate good citizenship rather than firm culture. If firms volunteer forovercompliance programs because they have poor records and want to appear“green,” then participation in these programs is not really capturing citizenship. Onthe other hand, there is no apriori reason not to accept these measures as reasonableproxies for citizenship. Firms are unlikely to receive reduced EPA oversight of otherenvironmental regulations in exchange for participation.13 The only benefits forparticipation in the TRI 33/50 program are public recognition and special awardsfrom the EPA. In addition, the literature on emissions and TRI 33/50 participationdoes not suggest that firms merely use the program for appearances.14 Firms withhigher releases of 33/50 chemicals tend to participate [4] and firms with higherreleases of non-33/50 toxic chemicals are more likely to join [5]. Overall it seemsthat firms with higher levels of emissions were more likely to participate. Arora andCason interpret this association in terms of negative motivation; firms want to reduceemissions and the associated stigma (even though legal). However, it may also meanthat firms recognized a problem for the first time (new mandatory reportingrequirements) and took an opportunity to make a change. In addition, theevidence does not support the “free rider” argument. Firms that were alreadyreducing emissions prior to the program inception were no more likely to participate [4,5]. However, these firms were still eligible to participate.15 Finally, the TRI 33/50chemicals are legal pollutants; if firms that joined the program had poor records indischarging illegal chemicals it might still suggest that they entered the program forappearances. However, Arora and Cason [5] do not find an association between afirm’s TRI 33/50 participation and air violations.

These problems are less of an issue with the second set of measures—the Kinder,Lyndenberg, Domini & Co., Inc (KLD) social ratings data. These measures are moreobjective; the firms are actually engaging in the socially responsible activities, notmerely signing up for them. KLD compiles and provides investors with informationon corporate social activities derived from annual surveys, annual reports, proxystatements, quarterly reports, and articles in the general business press. The qualitativescreens include several dimensions (community; employee; environment; product;treatment of women and minorities; human rights; and corporate governance) with

13 Firms are not likely to experience reduced enforcement in exchange for participation for several reasons.First, the EPA structure keeps program offices relatively separate. Instead of integrating new legislativerequirements into an agency wide strategy, the EPA creates new, separate program offices when additionalregulations are passed. EPA enforcement has only recently become more centralized. In addition, much ofthe enforcement takes place at the state-level and the TRI 33/50 program is a federal program [4]. Finally,Arora and Cason [4] reviewed enforcement decisions and penalties under the Toxic Substances Control Act(a program separate from the TRI program) and find little evidence of enforcement reductions forparticipants. Thirty-five percent of the companies fined were 33/50 participants. The largest fine was alsoimposed on a 33/50 participant.14 Although there is a growing body of literature examining the antecedents and effectiveness of the TRI33/50 program, a similar body of literature has not developed on the Wastewise program.15 In fact, the TRI reports from 1988 are used as the program baseline to avoid excluding any decreases inemissions made by firms prior to the program inception in 1991 [5].


sub-categories on which the company record might be rated as neutral or as having a“strength” or a “concern” related to the issue.16 The collected data are largely objective,although KLD sometimes sets subjective “cut points” to rate the sub-topics as astrength or a weakness.17 These measures rate firms on a variety of activities acrossdifferent domains. Thus, they provide a more comprehensive view of firmperformance.

These measures have been used extensively in the prior literature on corporatecitizenship (e.g., [22, 38]). Again, these data only provide information on firmactivities that signal corporate citizenship rather than directly measuring firm culture.In addition, the social ratings data do not ensure that firms take the socially respon-sible actions out of moral or altruistic concerns. In fact, a lagged measure of“corporate social irresponsibility” (measured as the number of concerns in the KLDdata) predicts “corporate social responsibility” (measured as the number of strengthsin the KLD data), potentially indicating that firms engage in responsible activitiesmerely to redeem themselves [44]. However, it may also mean that firms recognize aproblem and take action to address it. In addition, KLD environmentalmeasures seemto be good predictors of actual environmental performance [16]. Thus, there is noapriori reason not to accept these measures as reasonable proxies for citizenship.

This study is the first to examine the implications of corporate citizenship forcorporate environmental performance; thus, it is logical to begin with the globalconcept of social performance. Although the specific categories used in the currentstudy differ slightly to reduce problems of endogeneity, I followed the approach ofprevious studies and created a single score to represent social performance/citizenshipby subtracting total concerns from total strengths (see Table 2 for a description ofspecific indicators used).18 Higher KLD scores are likely to indicate a moral com-mitment to society, as firms are unlikely to engage in the full range of activities forinstrumental reasons. Conversely, firms that rank lower are likely to act strictly onself-interest. Finally, firms that fall in the middle probably operate on a cost/benefit

16 For example, under “Community” KLD companies may be coded has having a “strength” for thefollowing actions: generous giving, innovative giving, non-U.S. charitable giving, support for housing,support for education, and other strengths. Companies that reach the criteria for “strength” are coded as aone and those that do not are coded zero. The “Community” dimension also contains a list of concerns onwhich companies may be rated a zero or one, including investment controversies, negative economicimpacts and other concerns.17 For example, only companies that consistently give over 1.5% of trailing 3-year net earnings before taxesto charity are rated as “generous givers” under the philanthropy sub-category. On the more subjective side,KLD determines whether a company is a “prominent participant” in partnerships that support housing(rather than simply measuring participation).18 The environmental ratings and product ratings are excluded because of potential endogeneity with theoutcome measure. The product ratings are excluded from the global measure because almost every“concern” within the product dimension is related to crime (e.g., paying fines or penalties for regulatoryactions relating to product safety). All crime related sub-categories are excluded from every dimensionunder study, again to reduce possible endogeneity. Criminologists would conceive of crime as an outcomeof corporate citizenship rather than a measure of it. Thus, any items related to fines or civil penalties areexcluded whether they refer to discrimination, pollution, antitrust or product safety issues. In addition, onlyone company is rated as a strength in the product dimensions at any time during the sample period. Thus,this indicator does not distinguish among the companies.

358 C. Gibbs

Table 2 Corporate citizenship (KLD Social Ratings) data description

Community (Strengths) Generous Giving. The company has consistently given over 1.5% of trailingthree-year net earnings before taxes (NEBT) to charity, or has otherwisebeen notably generous in its giving.

Innovative Giving. The company has a notably innovative giving program thatsupports nonprofit organizations, particularly those promoting self-sufficiencyamong the economically disadvantaged. Companies that permit nontraditionalfederated charitable giving drives in the workplace are often noted in thissection as well.

Non-US Charitable Giving. The company has made a substantial effort to makecharitable contributions abroad, as well as in the U.S. To qualify, a companymust make at least 20% of its giving, or have taken notably innovativeinitiatives in its giving program, outside the U.S.

Support for Housing. The company is a prominent participant in public/privatepartnerships that support housing initiatives for the economicallydisadvantaged, e.g., the National Equity Fund or the Enterprise Foundation.

Support for Education. The company has either been notably innovative in itssupport for primary or secondary school education, particularly for thoseprograms that benefit the economically disadvantaged, or the company hasprominently supported youth job-training programs.

Volunteer Programs. The company has an exceptionally strong volunteerprogram.

Other Strength. The company has an exceptionally strong giving programor engages in other notably positive community activities.

Investment Controversies. The company is a financial institution whose lendingor investment practices have led to controversies, particularly ones related to theCommunity Reinvestment Act.

Negative Economic Impact. The company’s actions have resulted in majorcontroversies concerning its economic impact on the community. Thesecontroversies can include issues related to environmental contamination, waterrights disputes, plant closings, “put or pay” contracts with trash incinerators, orother company actions that adversely affect the quality of life, tax base, orproperty values in the community.

Other Concern. The company is involved with a controversy that has mobilizedcommunity opposition, or is engaged in other noteworthy communitycontroversies.

Corporate Governance(Strengths)

Limited Compensation. The company has recently awarded notably low levels ofcompensation to its top management or its board members. The limit for arating is total compensation of less than $500,000 per year for a CEO or$30,000 per year for outside directors.

Ownership Strength. The company owns between 20% and 50% of anothercompany KLD has cited as having an area of social strength, or is morethan 20% owned by a firm that KLD has rated as having social strengths.When a company owns more than 50% of another firm, it has a controllinginterest, and KLD treats the second firm as if it is a divisionof the first.

Other Strength. The company has an innovative compensation plan for its boardor executives, a unique and positive corporate culture, or some other initiativenot covered by other KLD ratings.

Corporate Governance(Concern)

High Compensation. The company has recently awarded notably high levels ofcompensation to its top management or its board members. The limit is totalcompensation of more than $10 million per year for a CEO or $100,000per year for outside directors.


Ownership Concern. The company owns between 20% and 50% of a companyKLD has cited as having an area of social concern, or is more than 20% ownedby a firm KLD has rated as having areas of concern. When a company ownsmore than 50% of another firm, it has a controlling interest, and KLD treats thesecond firm as if it is a division of the first.

Other Concern. The company restated its earnings over an accountingcontroversy, has other accounting problems, or is involved with some othercontroversy not covered by other KLD ratings.

Tax Disputes. The company has recently been involved in major tax disputesinvolving more than $100 million with the Federal, state, or local authorities.

Diversity(Strength) CEO. The company’s chief executive officer is a woman or a member of aminority group.

Promotion. The company has made notable progress in the promotion of womenand minorities, particularly to line positions with profit-and-loss responsibilitiesin the corporation.

Board of Directors. Women, minorities, and/or the disabled hold four seats ormore (with no double counting) on the board of directors, or one-third or moreof the board seats if the board numbers less than 12.

Work/Life Benefits. The company has outstanding employee benefits orother programs addressing work/life concerns, e.g., childcare, elder care,or flextime.

Women & Minority Contracting. The company does at least 5% of itssubcontracting, or otherwise has a demonstrably strong record on purchasing orcontracting, with women- and/or minority-owned businesses.

Employment of the Disabled. The company has implemented innovative hiringprograms, other innovative human resource programs for the disabled, orotherwise has a superior reputation as an employer of the disabled.

Gay & Lesbian Policies. The company has implemented notably progressivepolicies toward its gay and lesbian employees. In particular, it provides benefitsto the domestic partners.

Other Strength. The company has made a notable commitment to diversity that isnot covered by other KLD ratings.

Diversity (Concern) Non-Representation. The company has no women on its board of directors oramong its senior line managers.

Other Concern. The company is involved in other diversity controversies.

Employee Relations(Strength)

Union Relations. The company has a history of notably strong union relations.

Cash Profit Sharing. The company has a cash profit-sharing programthrough which it has recently made distributions to a majority ofits workforce.

Employee Involvement. The company strongly encourages worker involvementand/or ownership through stock options available to a majority of itsemployees, gain sharing, stock ownership, sharing of financial information, orparticipation in management decision-making.

Retirement Benefits. The company has a notably strong retirement benefits program.

Other Strength. The company is noted by the US Occupational Health and SafetyAdministration for its safety programs, or has other strong employee relationsinitiatives not covered by other KLD ratings.

Employee Relations(Concern)

Union Relations. The company has a history of notably poor union relations.

Workforce Reductions. The company has reduced its workforce by 15% in themost recent year or by 25% during the past two years, or it has announcedplans for such reductions.

Table 2 (continued)

360 C. Gibbs

analysis that includes some consideration of society, as they only take limitedopportunities for socially responsible actions that will also directly benefit the firm.

Unfortunately, these data are not available for all of the companies. As shown inTable 1, the KLD data are available for 160 of the 278 company/years. In some casessubstitutions have been made when data are unavailable for subsidiaries and jointventures in the sample (i.e., parent company social ratings are used for the subsidiary;both parent company social ratings are used for the joint venture). These substitutionswere made for nine company/years.With both measures (with and without substitution),the summary score (total strengths minus total weaknesses) ranges from negative threeto positive seven, with a mean of approximately 1 and a standard deviation of 2. Theanalyses are run both with and without the replacements. In the following section, Ireview the differences between the full and reduced (KLD) samples.

Control variables include financial performance, firm size/complexity and indus-try. Financial performance was measured as Return on Sales (ROS), total salesdivided by total assets [3]. ROS indicates the sales generating ability of firm assets[19]. Altman [3] refers to it as a measure of management’s capability in dealing withcompetitive conditions. Previous work indicates that sales are related to environmen-tal violations [2]. In addition, return on sales is associated with environmentalviolations in the current data [62]. In the full sample, return on sales ranges from0.30 to 5.02 with a mean of 1.20. Firm size/complexity is measured as the number ofemployees. In the full sample, the number of employees ranges from 291 to 112,900with a mean of 29,666. Finally, dummy variables are included to capture potentialindustry effects (pulp and paper is the omitted category). Corporate wrongdoing maybe a reflection of the culture or structure of the industry in which the firm operatesand prior studies have found them to be more powerful predictors of compliance thanfirm-level constructs [19]. In the full sample, 27% of the companies operate in thesteel industry and 29% are oil companies

Missing data and analytic strategy

The lack of compliance data for some companies (when the specific measures are notrequired by EPA) combined with missing KLDmeasures reduces the sample significantlyin some analyses.19 As shown in Table 3, there are no significant differences in the

Retirement Benefits Concern. The company has either a substantiallyunderfunded defined benefit pension plan, or an inadequate retirementbenefits program.

Other Concern. The company is involved in an employee relations controversythat is not covered by other KLD ratings.

19 The pattern in the “missing” compliance ratio data numbers is similar in the samples lacking KLDmeasures. In the sample with citizenship measures, of a total possible 169 company/years, complete data isavailable for 89% of the conventional pollutant quantity compliance ratio; 62% of the toxic pollutantquantity compliance ratio; 81% of the conventional concentration compliance ratio; and 56% of the toxicconventional concentration compliance ratio.

Table 2 (continued)


mean compliance ratio between the full and reduced samples.20 However, three of thecontrol variables differ significantly in the full and reduced samples.21 The reducedsamples contain more company/years with a lower return on sales as well as morecompany/years with more employees. In addition, the reduced samples have signifi-cantly fewer steel companies than the full sample.22 These differences are taken intoaccount in the discussion of the study results.

The reduction in sample size also has implications for the analytic strategy. Ideally,panel models with fixed effects would used to test the hypothesis regarding therelationship between corporate citizenship and environmental performance. Controllingfor unobserved differences in firms that might explain citizenship and environmentalbehavior would strengthen any associations that are uncovered. However, this type ofanalysis is not feasible because of the data limitations, namely missing data and smallsample size. As such, ordinary least squares (OLS) regression models that include acontrol for multiple observations on each company (i.e., the STATA cluster command)are used to test the hypothesis.23

Analysis and results

Unstandardized coefficients from OLS regressions of corporate citizenship on cor-porate environmental performance are provided in Tables 4, 5 and 6.24 As shown inTables 4 and 5, participation in voluntary programs (TRI 33/50 or Wastewise) is notsignificantly related to the level of overcompliance in any of the models. Corporatecitizenship, measured using the KLD social ratings data, is significantly related to thelevel of compliance in two models. Company/years with higher levels of corporatecitizenship discharge significantly lower quantities of conventional pollutants thanlegally permitted (overcompliance) than company/years with lower levels of corpo-rate citizenship. The relationship is similar for the concentration of toxic pollutants,although the magnitude of the association is only marginally significant (p00.10).

20 The means presented and mean comparison tests are derived from the median of the log transformedmonthly compliance ratio. Thus, they do not match the means presented in Table 1. Significant differencesat the p00.05 level are included.21 In the reduced sample, ROS ranges from 0.56 to 5.02 with an average of 1.09. The number of employeesranges from 5,700 to 112,900 with a mean of 28,320. Finally, 15% of the companies are steel companiesand 34% are oil companies.22 The reduced sample with replacement (column 2) does not different significantly from the secondreduced sample (column 3) on any measure.23 Several model diagnostics were examined to address other potential problems in the regression models.The tolerance/variance inflation factor for the independent variables in each of the models was examined todetermine whether multicollinearity was a significant problem. The tolerance for each independent variableis never lower than 0.35. Generally the tolerance is at least 0.4 or 0.5, but usually greater. Thus, multi-collinearity does not seem to be a significant problem in these models. The Ljung-Box Q Statistic was usedto test for autocorrelation. It was not significant, indicating that autocorrelation is not an issue. Finally, theCook and Weisburg test indicated that heteroskedasticity is a problem. In addition, observations of the samecompany over several years are not independent. Consistent with the prior literature [26, 57, 33], theSTATA cluster command is used to adjust the standard errors for these two factors.24 For the regression models, the number of employees is divided by 1,000 to produce more interpretablecoefficients. The results do not vary substantively between the two reduced samples (KLD sample with andwithout replacement). Thus, the results for the sample without replacement are not presented. Thesubstantive results also do not change when the few firm/years in violation are excluded.

362 C. Gibbs

Overall, corporate citizenship is not strongly related to corporate environmentalperformance. However, the R2 for the conventional pollutants (quantity) model andthe toxic pollutants (concentration) model doubled with the inclusion of the KLDmeasures of corporate citizenship, the stronger measures of this concept. Thus, theKLDmeasure seems tomake a substantive and unique contribution to these twomodels.

Several significant relationships are present between the control variables andcorporate environmental performance. Company size, measured as number ofemployees, is related to environmental performance in some models. Larger companiesdischarge consistently higher quantities of conventional pollutants and concentrations oftoxic pollutants (relative to permitted levels) than smaller firms. In other words, largercompanies do not overcomply with these specific types of discharge limits as much assmaller firms. Company size is not significantly related to the other measures ofcorporate environmental performance.

Differences across industry are evident. Companies in the steel and oil industriesare significantly more likely to overcomply with conventional pollutant quantity

Table 3 Mean differences across sample

Variables Mean (Std Dev) sample size

(1) FullSample

(2) Reduced Sample I(KLD, replace)

(3) Reduced Sample II(KLD, no replace)

SignDiff

Conventional Pollutants −1.50 (0.69) −1.39 (0.59) −1.39 (0.60) NS

Compliance Ratio(Quantity of Pollutants)

314 150 143

Toxic Pollutants −2.49 (1.23) −2.69 (1.13) −2.69 (1.17) NS

Compliance Ratio(Quantity of Pollutants)

195 104 96

Conventional Pollutants −1.54 (0.74) −1.68 (0.80) −1.65 (0.80) NS

Compliance Ratio(Concentration of Pollutants)

252 137 130

Toxic Pollutants −2.41 (1.51) −2.48 (1.39) −2.49 (1.41) NS

Compliance Ratio(Concentration of Pollutants)

181 94 89

Return on Sales 1.20 (0.66) 1.09 (0.49) 1.05 (0.35) A,B

339 151 145

# of Employees 15,419 (19,666) 28,321 (23,249) 28,320 (23,249) A,B

336 143 143

Steel Industry 0.27 (0.45) 0.15 (0.36) 0.16 (0.37) A,B

378 169 160

Oil Industry 0.29 (0.45) 0.34 (0.47) 0.30 (0.46) NS

378 169 160

A 0 Full Sample (1) vs. Reduced Sample I (2)

B 0 Full Sample vs. Reduced Sample II (3)

C 0 Reduced Sample I (2) vs. Reduced Sample II (3)

NS 0 Non-Significant


limits than firms in the pulp and paper industry (the reference category). However,steel companies tend to discharge higher concentrations of toxic pollutants than pulpand paper companies; they overcomply less with these particular discharge limits.There are no industry differences in overcompliance with toxic pollutant quantitylimits or conventional pollutant concentration limits.

Table 4 OLS regression, corporate environmental performance on corporate citizenship (TRI 33/50) withcontrols, full samplea

Variables Conventionalpollutantscompliance ratio(Quantity)

Toxic pollutantscompliance ratio(Quantity)

Conventionalpollutantscompliance ratio(Concentration)

Toxic pollutantscompliance ratio(Concentration)

Unstandardized Beta (Standard Error)

Constant −1.30 (0.27)** −2.53 (0.54)** −1.30 (0.30)** −3.86 (0.67)**

Citizenship(TRI 33/50)

−0.02 (0.20) 0.50 (0.46) −0.01 (0.23) 0.27 (0.40)

Return on Sales 0.004 (0.15) −0.21 (0.20) −0.06 (0.28) 0.10 (0.29)

# of Employees 0.004 (0.002)+ −0.002 (0.006) −0.004 (0.004) 0.02 (0.01)+

Steel Industry −0.45 (0.21)* 0.40 (0.44) 0.01 (0.23) 1.56 (0.49)*

Oil Industry −0.49 (0.20)* −0.38 (0.44) −0.11 (0.29) 0.90 (0.56)

n0254 n0166 n0200 n0156

R200.14 R200.17 R200.03 R200.18

**P<00.01; *p<00.05; + p<00.10 a The STATA cluster command has been used to adjust the standarderrors for the dependence of observations over time

Table 5 OLS regression, corporate environmental performance on corporate citizenship (Wastewise) withcontrols, full samplea






Constant −1.32 (0.17)** −1.94 (0.40)** −1.30 (0.27)** −3.62 (0.57)**

Citizenship(Wastewise)

0.06 (0.19) −0.24 (0.46) −0.19 (0.31) 0.06 (0.44)

Return on Sales 0.01 (0.14) −0.33 (0.24) −0.05 (0.27) 0.04 (0.26)

# of Employees 0.003 (0.002) 0.001 (0.006) −0.002 (0.004) 0.02 (0.01)*

Steel Industry −0.47 (0.19)* 0.32 (0.41) 0.03 (0.21) 1.55 (0.43)**

Oil Industry −0.51 (0.19)** −0.42 (0.43) −0.14 (0.24) 0.94 (0.52)+

n0274 n0169 n0214 n0163

R200.14 R200.15 R200.04 R200.18

**P<00.01; *p<00.05; + p<00.10 a The STATA cluster command has been used to adjust the standarderrors for the dependence of observations over time

364 C. Gibbs

The results for firm profitability, measured as return on sales, are inconsistentdepending on the sample used. In the full sample (Tables 4 and 5), return on sales isnot significantly associated with corporate environmental performance. However, inthe reduced sample (with KLD measures), firm/years with a higher return on salesdischarge marginally lower quantities of conventional pollutants, quantities of toxicpollutants and concentrations of conventional pollutants (p00.10). As discussed below,this inconsistency is likely due to significant differences between the two samples.

Overall, the measures included in these models explained more of the variation inovercompliance with quantity limits on conventional pollutants and concentrationlimits on toxic pollutants. None of the predictors were strongly associated with thetoxic pollutant (quantity) or conventional pollutant (concentration) compliance ratios.As shown in Table 6, the R2 on the later two models were also substantially lowerthan the R2 for the other two outcomes when the KLD measures were included (e.g.,0.14 and 0.11 respectively compared to 0.34/0.35). The implications of these andother findings are discussed in the following section.

Discussion

Findings regarding the association between corporate citizenship and environmentalperformance are fairly consistent. In these data with these measures, there are fewsubstantive relationships between corporate citizenship and corporate overcompliance.Findings for the control variables are similar to those found in the corporate crimeliterature, but the firm characteristics explain more variation in some compliance ratiosthan others. The theoretical implications of these findings, limitations of the currentstudy, and directions for future research are discussed below.

Table 6 OLS regression, corporate environmental performance on corporate citizenship (KLD) withcontrols, reduced sample I (KLD, replace)a






Constant −0.97 (0.18)** −1.77 (0.54)** −0.77 (0.42)+ −3.68 (0.81)**

Citizenship (KLD) −0.10 (0.03)** −0.17 (0.14) −0.05 (0.11) −0.17 (0.09)+

Return on Sales −0.35 (0.18)+ −0.81 (0.45)+ −0.74 (0.37)+ −0.08(0.61)# of Employees 0.01 (0.00)** 0.01 (0.01) −0.002 (0.004) 0.02 (0.01)**

Steel Industry −0.22 (0.11)+ −0.20 (0.77) −0.00 (0.38) 1.97 (0.52)**

Oil Industry −0.38 (0.20)+ 0.08 (0.40) 0.25 (0.34) 0.89 (0.29)

n0128 n091 n0115 n086

R200.34 R200.14 R200.11 R200.35

**P<00.01; *p<00.05; + p<00.10a The STATA cluster command has been used to adjust the standard errors for the dependence ofobservations over time


Corporate citizenship

The overall lack of significant findings may suggest that corporate citizenship addslittle to our theoretical understanding of corporate environmental performance,providing little support for broader theoretical explanations of corporate behaviorbeyond traditional amoral calculator models. Moral and altruistic motives may be lessrelevant to company outcomes than theorized; instrumental models (based strictly onfirm costs and benefits) may be more relevant.

Consistent with amoral calculator models, firms may overcomply to gain a morepowerful and influential voice in the formation of regulations to protect their owninterests or to attract investors [36]. Firms may also overcomply to avoid reputationand other non-legal costs associated with environmental violations (Hamilton 1995;[32, 41]). It is also possible that firms overestimate the certainty and severity of legalsanctions [35] and therefore work to reduce discharges well below legal limits toavoid violations.

Overcompliance may also be related to command and control policies. Thesepolicies, coupled with increases in penalties in the 1980s, have reduced the level ofpollution and violations among industrial sources [71]. To meet those pollutionstandards, firms may have installed pollution control equipment to establish a marginfor error for compliance with current and future pollution regulations. Thus,overcompliance may be an accidental byproduct of command and controllegislation. Or, consistent with instrumental models, firms may have installedextensive pollution control equipment to avoid violations and improve reputation withenvironmental regulators.

Additional work that improves on the current study is necessary before any strongconclusions can be drawn regarding the theoretical ideas underlying corporatecitizenship, and their relevance in relation to amoral calculation in firms. Likeany empirical investigation, this study has limitations that should be addressedin future work. As with all agency data, there are issues with the EPA dataquality [24, 54]. In addition, the sample size is small and missing data is an issue.Perhaps more importantly, some of the measures of corporate citizenship were notideal and missing data was a significant problem with the stronger set of KLDmeasures.

The KLD measures may still prove useful in future studies. They are commonlyused measures of corporate citizenship and provide reasonable detail regarding firmsocial activities. Despite the limitations of the current data, the KLD citizenshipmeasures are substantively associated with two compliance ratios and when included,the portion of variance explained doubles. With a sample that contained less missingdata, the results may be more supportive of the concept and broader theoreticalmodels in general. Thus, additional research using the KLD measures would beuseful, particularly if the sample was developed from the KLD data to avoid theissue of missing data. Other potential measures of corporate citizenship, such aswhether firms reward employees for profits alone or a broader set of criteria, wouldhelp further test the concept.

Qualitative research may be used to assess corporate citizenship more directly. TheKLD measures and quantitative measures of reward practices capture signals ofcorporate citizenship rather than firm culture itself. Case studies of firms with

366 C. Gibbs

outstanding environmental records would be a useful next step to directly examinewhether and how firm culture regarding corporate citizenship influences behavior.

Future studies should also explore whether corporate environmental performanceis better explained by a deterrence or pure rational choice framework. Quantitativestudies using KLD or reward practices to measure corporate citizenship shouldinclude measures designed to capture other theoretical models. For example, researchmight compare the relative impact of corporate citizenship, prior experiences withsanctions (e.g., the certainty and severity of prior punishment), and pressure fromcommunity groups on environmental performance. These data could be supplementedwith survey data to capture whether firms anticipate stricter regulations or other non-legal costs. Factorial surveys could also be used to assess the relative impact ofperceptions of sanction threats and corporate citizenship on intentions to comply orovercomply (see e.g., [62]). In addition, case studies could also be conducted in firmswith a consistent history of violation or mere compliance, and compared to the role offirm culture and rational choice in firms with a history of overcompliance.

In addition to further testing the current conceptualization of corporate citizenship(in relation to amoral calculation), future work should also explore the effects ofcorporate citizenship in other data, samples, and locations. For example, corporatecitizenship may have more of an impact on other kinds of corporate misconduct.Other factors (e.g., command and control legislation, the installation of pollutionreduction technology) may have reduced violations and rendered citizenship irrelevantto environmental behavior, but good citizens may have fewer financial crimes, occupa-tional health and safety violations, or accusations of discrimination.

On the other hand, corporate citizenship may only be relevant to particular kinds oforganizations. The sample in this study is limited to publicly traded companies. Forthese types of firms, other explanations for overcompliance may be more relevant.For example, profit-seeking firms may be particularly vulnerable to public pressure orshareholder demands for environmental friendly behavior. These firms may maintaina good environmental record to gain a competitive advantage rather than for moralreasons. But, citizenship (moral motivations) may be relevant for other organizations,even other types of businesses. Privately owned businesses, where profit concerns donot weigh quite as heavily, may be more likely to develop a culture that supports amoral commitment to society to produce pro-social outcomes in a variety of domains.

Corporate citizenship may also be more relevant in other contexts. The currentsample is limited to companies based in the United States. If companies have (overtime) embraced the idea of corporate citizenship due to increased social pressure to doso, the association between citizenship and environmental behavior may be strongerin places that placed more pressure on companies in an earlier time period. InEuropean countries, for example, companies may have been forced to develop aculture of citizenship earlier and therefore, corporate citizenship may have a strongerimpact on firm outcomes in those places.

Firm characteristics and overall findings

Beyond the findings for corporate citizenship, the control variables and models haveadditional theoretical implications. Relationships between company size, industry,and corporate environmental performance were expected given prior theorizing


regarding these company characteristics. The lower level of overcompliance amonglarger companies is consistent with the positive relationship between company sizeand violations found in the corporate crime literature [2, 19, 37, 52, 78]. Largeroperations create more pollution. In addition, variation across industries in the mainpollutants and processes are thought to create differences in environmentalperformance. The relationship between firm profitability (return on sales) andenvironmental performance, however, was inconsistent. In the full sample thismeasure was not associated with environmental performance, but firm/yearswith a higher return on sales was associated with higher levels of compliancein the reduced model. It is possible that the marginally significant relationshipin the reduced sample is the result of a few outlier companies that have astronger influence on the results because of the smaller sample size.

Overall, the similarity in the relationship between firm characteristics andenvironmental performance and the influence of these factors on corporatecrime is striking. Although often explored at the plant-level, this researchdemonstrates that firm characteristics are relevant to at least some aspects ofenvironmental performance. As such, future studies should include parent companycharacteristics to further explore these dynamics.

Yet, the firm characteristics and industry controls explain much less variance insome of the compliance ratios (toxic quantity and conventional concentration ratios)than others (conventional quantity and toxic concentration ratios). It is possible thatvariations in production processes makes some discharges less controllable, creatinga null relationship for factors thought to influence environmental performance. It isalso possible that public pressure or enforcement attention has been directed at certaintypes of discharges more than others, leading more profitable firms (for example) tofocus on reducing those discharges. Better corporate citizens may also have directedattention to reducing pollution discharges thought to be more significant or harmful,producing more explained variance (for two compliance ratios) when the KLDmeasures were included in model. Future investigations should explore the meaningof and potential variation in attempts to control different pollution discharges andmeasurements.

Conclusion

In the current study, I explore the association between corporate citizenship andcorporate environmental performance using measures of Clean Water Act discharges.This work provides little support for moving beyond amoral calculator models towardbroader theories of corporate behavior. However, like any study, this one has anumber of limitations. In addition, it is the first to explore the association betweencitizenship and environmental performance. Thus, additional work is necessarybefore a strong conclusion can be drawn. Future research should explore the relativeutility of corporate citizenship and amoral calculation on environmental performanceusing additional quantitative measures of corporate citizenship and samples thatsuffer less from missing data. Comparative case studies would also allow for moredirect assessments of the influence of citizenship and cost/benefit assessment on firmbehavior. In addition, exploring the impact of corporate citizenship on other firm

368 C. Gibbs

outcomes, in other samples, and in other contexts will contribute to a fuller under-standing of the theoretical value of corporate citizenship as it is currentlyconceptualized.

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