saints and sinners: the environmental stance of multinationals in eastern and western europe

European EnvironmentEur. Env. 8, 202–209 (1998)

SAINTS AND SINNERS: THEENVIRONMENTAL STANCE OFMULTINATIONALS IN EASTERNAND WESTERN EUROPE

Julia Clarke1 and E. E. (Liz) Walley2*

1Leeds University Business School, UK2Manchester Metropolitan University, UK

This paper presents a framework withinwhich to compare the environmentalstance of multinational companies(MNCs) operating in both WesternEurope (specifically the EU) and Centraland Eastern Europe (CEE). It explores thehypothesis that the environmentalstrategies of MNCs tend to be reactiveto drivers in the external environmentrather than being motivated by thecompany’s own ethical stance. Thevarious external drivers – categorized aslegislation, market forces andlegitimation – are examined, anddifferences between the EU and CEEcontexts highlighted by specificallycomparing these drivers in more detail intwo countries, namely the UK andRomania. A model is designedcategorizing companies as ‘saints’,‘honourable players’, ‘pragmatists’ or‘sinners’, according to how they mightvary their environmental stance acrossthe two regions. The paper highlights theglobalization of the media and its use by

CCC 0961-0405/98/060202–08 $17.50Copyright ? 1998 John Wiley & Sons, Ltd and ERP Environment.

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environmental pressure groups as driversforcing would be ‘pragmatists’ to performas ‘honourable players’ and adopt thesame environmental stance in bothEastern and Western Europe. Copyright? 1998 John Wiley & Sons, Ltd andERP Environment.

*Correspondence to: Liz Walley, Manchester MetropolitanUniversity, Department of Business Studies, Aytoun Building,Aytoun Street, Manchester M1 3GH, UK.

INTRODUCTION

T he political and economic transition of thecountries of Central and Eastern Europe(CEE) and the common objective of many

of them to join the European Union (EU) providea unique opportunity for European policy makersto influence the development of those marketeconomies in the direction of more sustainablebusiness operations. This paper aims to providesome context to such policy making by seeking toestablish a framework within which to comparethe environmental stance of companies operatingin both Western Europe (in this context, the EU)and CEE. It examines the various ‘drivers’ actingon a company’s environmental strategy and seeksto explore how these factors differ between theEU and CEE by specifically comparing the UK andRomania. We intend to explore the hypothesisthat the environmental strategy and reporting ofmultinational companies (MNCs) tends to be
reactive to drivers in the external environmentrather than being motivated by the company’s
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own ethical stance. This exploratory work isintended to provide a conceptual framework forcase studies being researched of organizationsoperating in both environments.

The two country contexts which are beingexamined and contrasted are the UK andRomania. It is suggested that the EU is a main(if not the main) driver of UK environmentallegislation and a major influence on the UKeconomy. In these respects the UK is reasonablyrepresentative of the EU. However the political,socio-cultural and geographical context of the UKis less representative of the EU. The choice ofRomania from amongst the CEE countries ispartly a pragmatic one in that the authors havehad the opportunity to conduct primary researchthere. The extent to which Romania is represen-tative of the CEE countries is perhaps morequestionable. Although Romania’s politicalrevolution, like the other countries in CEE, was afull nine years ago, economic reform has onlyreally begun to make significant progress sincethe ousting of the ex-communists in the1996 election and the installation of PresidentConstantinescu’s democratic coalition govern-ment. Consequently, in terms of the progressmade in its economic transition, Romania (alongwith Bulgaria and Slovakia) is a member of thesecond tier group of CEE countries aspiring tojoin the EU. Thus, it differs from the moreeconomically and politically advanced countries(Poland, the Czech Republic and Hungary) thathave all recently been recommended by theEuropean Commission as being ready to beginaccession negotiations. Nevertheless, until thisdecision all six countries had the same pre-accession status and were therefore subject to thesame legislative approximation process with simi-lar ‘drivers’ potentially impacting their political,economic and environmental objectives. Howevereven though it is acknowledged that UK andRomania are not wholly representative ofWestern and Central and Eastern Europe (and notwo countries would be) they do provide acontext for the development of a comparativeframework within which to consider the genericissues.

CONCEPTUAL FRAMEWORKS

Before examining the drivers impacting onMNCs’ environmental stance in detail, it isperhaps appropriate to highlight the different

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literatures that our research potentially draws on.In terms of general background, literature on theeconomics of transition (Healey, 1997; Poirot,1996), the EU approximation/harmonization pro-cesses (REC, 1996; Caddy, 1997) and environ-mental issues in Eastern Europe (Carter andTurnock, 1996; Oldson, 1996) are clearly relevant.More specifically, there are two main analyticalthemes to this paper:

(i) environmental strategy: factors influencingstrategy formulation in general andenvironmental strategy in particular; threat/response analysis; external versus internaldrivers (Roome, 1992; Welford andGouldson, 1993; Porter and Van der Linde,1995; Starik et al., 1996) and

(ii) ethical behaviour of MNCs: the ethical stanceof MNCs overseas; business ethics andcorporate environmental performance; cor-porate legitimacy (Himmelberger andBrown, 1995; Dobson, 1992; Welford,1995; Sutton, 1993).

A key conceptual issue related to both of theabove is to what extent a company’s ethicalstance is an independent variable (determined‘exogenously’ by senior management) or isdependent on factors in the external environmentof the company, in particular by the need for theorganization’s operations and objectives to beaccepted as legitimate by society (Sutton, 1993).In this paper we refer to the external pressures oncompanies to operate in line with societal valuesas legitimation drivers. Of course, if a company’senvironmental stance is driven by external factors,then it might be argued that this is still an ethicalresponse, in that it is responding to the valuesystem of the society in which it operates, ratherthan determining its own ethical standards inisolation.

ENVIRONMENTALISM AS AN ASPECTOF ETHICAL PERFORMANCE

Corporate environmental performance is anaspect of ethical performance (Welford, 1995,Dobson, 1992) and as such may be usefullyconsidered by reference to the company’s ethicalduties to its various stakeholders. Writers such asPorter have argued against the traditional posi-tion that there is a trade-off between environ-mental and financial performance and have

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suggested that in some instances there may be noconflict between the two. However, where aconflict does exist a decision will have to be madeabout which stakeholder group’s interests shouldtake precedence. Moreover, it is doubtful to whatextent the ‘hijacking’ of the environmentalistagenda by business (Welford, 1996) arises froman ethical concern for current and future stake-holders. Rather improvements might be seen as‘cherry picking’ where companies select thoseenvironment policies which fit with the dominantcorporate strategy of maximizing financialperformance (for example, marketing policiesaimed at meeting green consumption patterns orcost cutting policies such as reducing costlypackaging). Yet they may ignore more funda-mental changes whose financial cost wouldadversely affect shareholder wealth or manage-ment remuneration, which in the UK is oftenlinked to reported profit figures. Managers andshareholders concerns to maximize their ownutility within a dominant economic paradigmwhich is organization centred rather than bio-system focused also conspire against the adop-tion of reporting systems which account forcompanies’ use of natural capital. As Gray (1992)points out:

‘‘The probability is that no Western company hasmade a ‘sustainable’ profit for a very long time, ifever.’’

One obvious limitation on business embracinga more radical agenda arises from the structuresof ownership and control. In the industrializedWest most large companies are private sectorinstitutions, owned by shareholders and run forthose shareholders by management. This separ-ation of ownership and control gives rise to thefiduciary obligation on management to run thecompany in the best interests of the share-holders. Whilst this duty to shareholders cannotbe set aside, companies do have moral obli-gations to other stakeholders which set limits onhow they go about fulfilling their fiduciaryobligations (Goodpaster, 1991). Thus the moreethical a company is the more far-sighted itwill be in recognizing (and doing somethingabout!) the environmental impact of its effortsto secure the best return for shareholders.Moreover, if this effort stems from anintrinsic concern, rather than from reaction toexternal pressures, it will not vary accordingto the region in which the company isoperating.


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EXTERNAL DRIVERS

There are various frameworks one can use toexamine the factors influencing environmentalstance. For example, Welford and Gouldson(1993) propose that the factors which togetherserve to encourage industry to respond to theenvironmental challenge are environmental effi-ciency (minimizing costs of raw materials andwaste disposal), the influence of government(legislation and market instruments) and thedevelopment of stakeholder influence (cus-tomers, trading partners, the community,employees, investors and insurers, media andpressure groups). Here we classify the driversslightly differently so as to highlight the legiti-mation issues, since these are most closely linkedwith the ethical concerns focused on in thispaper.

The first driver we identify is legislative.The MNC will have to work within differentlegislative frameworks in the different regions inwhich it operates. Secondly, companies will besubject to a market pull. The strength of this pulltowards environmentally friendly strategies willdepend upon, for example, the level of en-vironmental awareness amongst consumers andsuppliers and the resulting demand for greenproducts and services. The final category concernslegitimation pressures. Legitimacy theory arguesthat organizations will only survive (and prosper)if they are operating in line with the value systemof that society (Gray et al., 1996). The twocountries considered in this paper have, histori-cally, very different political heritages and are atdifferent stages of economic development. Someelements will be translated into law but legitimacypressures may move in advance of legislationsince societal demands are both constantly evolv-ing and made up of pressures from widely diver-gent groups (Sutton, 1993). In particular, concernsover environmental damage and degradationhave raised serious questions about the legitimacyof corporate power in the West in recent decadesand in order to close this ‘legitimacy gap’ (Grayet al., 1996) companies have responded byimproving (and/or by being seen to improve)their environmental performance.

The intention here is to only sketch out brieflysome of the main issues within each category inorder to determine whether there are signifi-cant differences between the UK and Romania ineach of these areas (legislation, market based,legitimation). Rather than providing a body ofempirical evidence this picture is simply intended

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to facilitate the conceptual modelling of acomparative framework.

Legislation

Government acts as a driver to companies boththrough environmental legislation and marketinstruments, the former having by far the mostdirect influence at present. In fact, some would saythat the development of environmental legislationhas been the most important factor influencing theenvironmental behaviour of companies to date(Welford and Gouldson, 1993). Within the EU,the objectives of environmental legislation aredetermined by the various institutions of the EU,particularly the European Commission, althoughin many instances the mechanisms through whichobjectives are to be reached are determinednationally, particularly in relation to the imple-mentation of EU policies. National legislationremains an important influence however, althoughits influence varies from country to country. Forinstance, in the UK the EU, through its Directivesand Environmental Action Programmes, is a major(if not the main) driver for legislative action whilstrelatively it is a less significant influence in othermember states that have more progressivedomestic environmental policies.

The EU has also been a very significant driverof the Romanian government’s recent environ-mental initiatives since it is an ‘associated country’and has been going through the process ofapproximating EU environmental legislationwhich is a prerequisite of EU membership. Thishas resulted in a new law, the EnvironmentalProtection Act (EPA), which has been passed byparliament and is waiting for its promulgation bythe President. The Environmental Strategy andNational Environmental Action Programme wasadopted by the government in 1995. One set-back has been the failure of Romania to beincluded in the ‘first wave’ of countries recom-mended by the European Commission in July1997 as being ready to begin accession negotia-tions to the EU. Yet it seems likely that thegovernment will continue to pursue this objectiveof joining the EU in the next wave. Thus the EUapproximation process will continue to be themost significant driver of environmental legis-lation and the associated institutions forimplementation and enforcement in Romania.

With the adoption of the EPA, the environ-mental law approximation process will be wellprogressed and we can say that in terms oflegislative drivers, the UK and Romania are


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converging quite quickly, at least formally. How-ever, it is widely recognized that the main prob-lems with environmental legislation in Romaniaconcern the implementation of, and compliancewith, laws and other regulations. REC (1996)identifies the main reasons as being related toenforcement alleviation, lack of incentives, insuf-ficient technology, financial implications andobstacles to public participation. These result inbig differences between the formalities of legis-lation and their actual influence on companybehaviour and performance. Caddy (1997) com-ments on this implementation gap in the contextof Central Europe as ’hollow harmonization’ andcalls for greater attention to be paid to thestrengthening of both informal and formalinstitutions.

Market Forces

Within this category we include those stake-holders who make their influence felt directlythrough market forces (customers, suppliers andinsurers), the market based instruments usedby government (such as carbon taxes, EMASand eco-labelling schemes) and environmentalefficiency drivers.

The supply chain driver has become a signifi-cant factor driving corporate environmentalstrategy in certain UK sectors, for example, super-markets and DIY stores. In Romania the supplychain has not yet developed as a driver ofenvironmental performance. Whether trans-boundary supply chain pressure is an issue for theMNC will depend on whether it is selling withinRomania or overseas. The growth of green con-sumerism in Western Europe is well documentedin the literature (Simintiras et al., 1994; Hutchinsonand Hutchinson, 1997) but its impact on corpor-ate environmental strategy tends to vary withthe type of product. It is more of an issue formanufacturers of consumer goods than for com-panies manufacturing capital goods. It appearsthat green consumerism is not yet an issue inRomania, but it will be interesting to trackwhether and how it grows with economicprosperity.

Within the EU, government initiated marketbased instruments are receiving more attention oflate. Welford and Gouldson (1993) suggest that interms of new policy instruments there has been ashift away from the use of ‘command and control’directives toward the application of market basedinstruments such as the voluntary EMAS. How-ever, to date in the countries of the EU there has

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been a relatively limited application of marketbased instruments (although it is growing) and thehistorical predominance of command and controlregulation remains. This is reflected perhapsmore significantly in Romania where the potentialof market based instruments remains largelyunexplored.

In relation to environmental efficiency, clearlyit is in the interests of companies to minimize theircosts and in the environmental context this meansthe cost of raw materials and waste disposal. Inthe longer term it is anticipated that the reducedability of the environment to continue to supplyraw materials will result in much higher rawmaterials costs. In the UK, companies are experi-encing tougher legislation - and, as a result, highercosts – of waste disposal and so this is alreadybecoming an important incentive towards wasteminimization. In Romania, until recently energycosts were kept artificially low, but since theabolition of the relevant price controls in early1997, the price of oil has now moved closer to EUlevels. Landfill waste is one area where Romanianlegislation (and proposed legislation) does notmirror the EU Council Directive proposal andthus progress in approximating this directive isquite poor (REC, 1996).

Legitimation

Under this heading we include those stakeholdercategories which are most closely linked withethical concerns: the community, employees,investors, media and pressure groups.

Looking at community and employeestogether, these groups in the UK are able in manyinstances to demand a high level of environmentalperformance from their industrial neighbour oremployer. For communities, the freedom of accessto environmental information is very important inthis respect since it is the means by which theygain power to question the activities of com-panies. The extent to which pressure is actuallyexerted is variable and relates to a range offactors, not least the state of the economy. InRomania, the new 1991 constitution does guaran-tee the right to information, but this is a veryundeveloped area given the context and culture ofthe decades before the revolution. Furthermore,given the desperate economic plight of Romaniaover the last 10–15 years, economic prosperity isstill a much higher priority for most people thanenvironmental quality. Therefore for an MNC inRomania legitimation is more likely at present tooriginate from providing job opportunities, job


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security and improved wage levels than fromoperating to a high environmental standard.However, there have been some horrendousexamples of environmental pollution in Romania(for example, Copsa Mica’s carbon-black plant,Zlatna’s copper smelter and Suceava’s artificialfibre factory) and recently environmental prob-lems have been receiving much more mediaattention. REC (1994) comments that one phe-nomenon noted by local observers is theincreased coverage of environmental matters bythe broadcast and print media which is likely tohave the effect of increasing environmentalawareness.

It is interesting to note that after the Romanianrevolution two ecological parties were set up andgained 4% of the vote in 1990. The partiesreceived strong support from highly industrializedareas but less from agrarian counties (Carter andTurnock, 1996). There is also a weekly environ-mental newspaper – Eco. However, Carter andTurnock comment that these developments havereceived a mixed reception from the generalpublic who associate direct political involvementwith the crude opportunism of pre-revolutionarypublic life. From a legitimation perspective how-ever, we would suggest that it is the westernmedia and pressure group activists, rather thanthe local media and pressure groups, who arelikely to act as a more significant driver on theenvironmental stance of the MNC (consider, forexample, the influence of media scrutiny on Shell’sactivities in Nigeria). Clearly investors in MNCs,and probably also insurers, are mainly located inthe West.

From the above discussion it is clear that foreach of the three categories external drivers arelikely to be a more significant influence in the UKthan in Romania. If we designate these drivers as‘high’ in the UK then for comparative purposeswe would classify the three variables as combin-ing to demand a ‘lower’ level of environmentalperformance in Romania. It is acknowledged thatthis is a rather simplistic approach but one thatis sufficient for the purposes of the purely concep-tual model introduced in this paper.

A MODEL FOR ANALYSING THEENVIRONMENTAL STANCE OFMULTINATIONALS

From the above discussion it is clear that com-panies are subject to different external drivers in

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Figure 1. Variations in the environmental stance of MNCs in Eastern and Western Europe.

the UK and Romania. If we hypothesize thatenvironmental performance arises either fromreaction to external drivers, or a pro-active ethicalstance, or a combination of both, then comparingthe performance of an MNC in the two regionsmay help us to isolate the effect of the latter.Various frameworks have already been developed


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for categorizing the environmental responses oforganizations to external drivers (Roome, 1992;Welford, 1995; Simpson, 1991). In figure 1 wesuggest a model that may be used to categorizethe environmental performance of organizationsoperating across different regions where they facediffering external drivers. Specifically, we compare

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Western Europe with Eastern Europe, whereexternal drivers combine to demand a lower levelof environmental performance.

MNCs which implement the same highenvironmental policies across all the regions theyoperate in, even where these exceed require-ments in certain localities, may be designated as‘honourable players’ in that they are taking apro-active environmental stance by performing tothe highest common factor. Indeed some organiz-ations, the ‘saints’, may exceed expectations in allregions in which they operate (one examplemight be the Body Shop). Other MNCs may takea more pragmatic approach and simply react tolocal legal, legitimacy and market requirements,implementing different environmental policies indifferent regions. Finally, the ‘sinners’ may takeadvantage of the lack of effective regionalsanctions to break local environmental laws. Forexample, Dobson (1992) discusses the dumping ofhazardous waste by US firms in Ireland wherethey faced ‘trifling’ fines for illegal disposal oftoxic materials.

CONCLUSION

This paper has argued that corporate environ-mental performance may arise from a combi-nation of reaction to external drivers and apro-active ethical stance. It has highlighted howthe external drivers in CEE (specifically Romania)combine to demand a lower level of environ-mental performance than the external drivers inthe EU (specifically the UK). Whilst it is recog-nized that UK and Romania are not necessarilyrepresentative of Western and Central andEastern Europe, this analysis does provide anexample of the general assertion that externaldrivers are higher in Western than Central andEastern Europe. A model was designed tocategorize companies according to how theymight vary their environmental strategies acrossthe two regions.

Designing a model is easy; testing it in practiceis much more difficult. A particular problem isthat environmental stance is multi-faceted. Forexample, an MNC might behave as a ‘pragmatist’on air pollution but a ‘saint’ on recycling. Giventhe problems of measurement that make environ-mental categorization so problematic a possiblemethod might be an issue by issue approach. Theintention is to move this work forward by carry-ing out case studies of the performance on specific


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environmental issues of MNCs operating inRomania and the United Kingdom.

It will be interesting to see how future devel-opments close the gap between the externaldrivers identified in this paper. The approximationprocess is already moving the legislation of theCEE towards that of the EU, although the imple-mentation and enforcement of that legislation ismore problematic. If living standards in the CEEimprove and countries continue their transitiontowards market economies, market pull can beexpected to be a stronger influence in the future.Finally, the globalization of the media and its useby environmental pressure groups may mean thatthe environmental and ethical stances of com-panies can be subjected to world-wide scrutiny.This may force would be ‘pragmatists’ to performas ’honourable players’ As these companies couldthen exert a more significant influence on localcompanies, particularly through the supply chain,local expectations of corporate environmentalperformance could be increased in a way thatincreases the pressure derived through the need tosecure legitimacy. Thus, it is possible (but far fromcertain) that the various pressures could becomeself-reinforcing. Clearly policy makers may be ableto encourage this virtuous circle in a number ofways, although it remains to be seen whether theharmonization process will generate such effects.

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Dobson, J. (1992) Ethics in the transnational corporation:the ‘moral buck’ stops where?, Journal of Business Ethics,11, (1), 21–27.

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Hutchinson, A. and Hutchinson, F. (1997) Environ-mental Business Management: Sustainable Development,McGraw-Hill, London.

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Oldson, W.O. (1996) Background to catastrophe:Romanian modernisation policies and the environment,East European Quarterly, 30, (4), 517–528.

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Simpson, A. (1991) The Greening of Global Investment – howthe Environment, Ethics and Politics are Reshaping Strategies,Economist, London.

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Welford, R. (1995) Environmental Strategy & SustainableDevelopment; the Corporate Challenge for the 21st Century,Routledge, London.

Welford, R. (1996) Hijacking environmentalism: theindustrial response to the environmental agenda, paperpresented at The Business Strategy and the EnvironmentConference, Leeds.

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BIOGRAPHIES

Julia Clarke is a lecturer at Leeds UniversityBusiness School, The University of Leeds, 11–15Blenheim Terrace, LS2 9JT.Tel: 0113 233 2645.Fax: 0113 233 2640.E-mail: [email protected]

Liz Walley is a lecturer in the Department ofBusiness Studies, Manchester Metropolitan Uni-versity, Aytoun Building, Aytoun St, ManchesterM1 3GH.Tel: 0161 247 3855.Fax: 0161 247 6307.E-mail: [email protected]

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saints and sinners: the environmental stance of multinationals in eastern and western europe

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