An Inquiry into Contextual Variables That Impact Corporate Compliance with Environmental Self-Audit Reports: A Replication and Extension

By Clark, Brian; Stewart, Julie et al. | Journal of Legal, Ethical and Regulatory Issues, January 2015 | Go to article overview

An Inquiry into Contextual Variables That Impact Corporate Compliance with Environmental Self-Audit Reports: A Replication and Extension


Clark, Brian, Stewart, Julie, Clark, Thomas, Journal of Legal, Ethical and Regulatory Issues


INTRODUCTION

Frater & Lee (2008) argue for the importance of producing research relevant to the environmental law and policy. A case in point is the controversy over the use of the voluntary self-analysis environmental audit privilege. As a way of increasing compliance behavior through pro-active internal self-analysis, the EPA has promoted programs of voluntary environmental audits designed and conducted by companies' internal resources. Given that regulatory officials are not as likely to be as aware of environmental issues as a company's environmental assessment managers, voluntary compliance is theorized to lead to more timely and accurate identification and remediation of environmental concerns (Bartley, 2003; Davis et al., 2008; Reid and Toffel, 2009). While environmental audits are not required of companies subject to federal environmental laws, for both business and public relations reasons, many companies have adopted self-regulatory structures as part of a commitment to environmentally sound business practices (Short & Toeffel, 2008).

Scholars have both praised voluntary self-examination as a way of demonstrating how they can make environmental responsibility part of a company's institutionalized cultural norms (Dobbin and Sutton, 1998) and also criticized self-audits as vehicles for circumventing the intent of environmental regulations (Edelman, Fuller, and Mara-Drita, 2001; Cox, 2004). Neither account reveals much about the circumstances under which we might expect to see one or the other, critical to identifying the situational variables that would help predict the conditions under which a company is most likely to address or ignore compliance violations (Short and Toeffel, 2008). Such analysis is important, for as Gray and Scholz (1993) have argued, "as studies have made us more aware of problems of imperfect regulations and everyday enforcement activities by agencies operating within the legal, budgetary, and organizational constraints of public agencies, the effectiveness of enforcement in achieving desirable goals has become much more open to question" (pp. 177-78).

The research reported here focuses on internal, situational variables that may affect a company's compliance. A replication and extension of a previous study done by Clark et al. (2002), this test adds the variable of jail terms, given assertions by legal scholars that only jail terms, not fines alone, would be sufficient incentive to promote compliance. The earlier study tested the variables of solvability, profitability and size of fine: each variable proved to be related to level of environmental compliance.

Given the well-established bias of editors against replications (Hunter, 2001; Tsang & Kwan, 1999), this paper first justifies the value of replication and then shows its importance as part of what Tsang and Kwan (1999) identify a multi-modal approach to research progress. It then reviews relevant research on the importance of jail terms as motivators of compliance and of additional research on environmental compliance and prospect theory since the earlier study. The updated literature review shows a continuous and contemporary interest in this topic.

Subsequently, prior to describing the rationale for each variable studied, the research methodology and the results, this paper describes the EPA's Audit Policy and its rationale, highlights the dilemmas managers face when writing and reading environmental audit reports, analyzes the divide over how to best encourage managers to correct environmental deficiencies, and reviews relevant recent literature that provides the foundation for the variables tested in this study. Finally, it reports the results of three studies, discusses their implications for managerial practice, and suggests directions for future research.

IMPORTANCE OF REPLICATION

Hunter (2001) stresses the importance of replicating past studies to confirm or disconfirm their results. …

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