REVISTA BRASILEIRA DE GESTÃO DE NEGÓCIOS ISSN 1806-4892 RBGN Review of Business Management e-ISSN 1983-0807

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Investigating Environmental Received on 02/02/2018 Performance Management Approved on 05/17/2019 Vipin Gupta¹ ¹The Jack H. Brown College of Business and Public Administration, Responsible editor: California State University, San Bernardino, USA Prof. Dr. Leire San José

Yi Zhang² Evaluation process: ²College of Business, Zayed University, Abu Dhabi, UAE Double Blind Review

Abstract

Purpose – Even though there is a growing recognition of the externality costs of low environmental performance by firms, there continue to be significant inter-firm differentials in environmental performance management. We build on the theories of strategic management to inquire into the factors contributing to these differentials. Design/methodology/approach – Using a 2015 survey sample of Chinese small and medium enterprises, we empirically investigate the alternative thesis that the profit maximization motive constitutes the appropriate heuristic for the performance management of corporate social responsibility factors. Findings –The green capability of a firm is an aggregate of green trading and the investments that the firm has made in green initiatives that are complementary to its strategic business model. The profit aspiration level of firms has a negative influence on their green programing, while transformational leadership has a positive influence. Originality/value – We develop seven propositions represented as algebraic relationships to interpret these factors. Keywords – Environmental performance management, Green capability, Profit aspiration level, Transformational leadership, Small and medium enterprises

Review of Business Management

DOI:10.7819/rbgn.v22i1.4034

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1 Introduction also have more capabilities. As holders of central positions, they are likely to have more resources, One of the major dilemmas for and possibly more organizational slack, to invest environmental performance management is in building the capabilities for environmental the presence of externalities (Tirole, 2008). The performance management. However, if they did environment as a resource is a public good, so not focus on building these capabilities in the the costs of its depletion are shared collectively, past, then they may have to rely on sourcing from even if the conversion of environmental resources outside. Given that environmental performance yields private benefits. Similarly, the benefits of its management capabilities are becoming critical accretion are shared collectively, even if the costs differentiators (Hoffman & Nembhard, 2014), of this accretion are private costs (Goodstein, it may not be possible to source such capabilities 2011). Greater environmental consciousness from other central firms who will be very at the social level, however, has helped foster protective of those capabilities as being at the core awareness about this issue. Society has become of their strategic business models. conscious of holding firms accountable for Even among less central, less powerful, and environmental resource depletion and rewarding younger firms, the capabilities for environmental firms for accretion, such as through preferential performance management may be quite strong relationships, penalties, and premiums (Hoffman (Hofmann, Theyel, & Wood, 2012). Some of & Nembhard, 2014). Firms have also become these firms may be environmental specialists more conscious, building transparency into their and missionaries, who have chosen to apply environmental accountability, recognizing their their environmental performance management liabilities for depletion, building capabilities to capabilities to specific markets or industries. The lower depletion and raise accretion even at higher environmental missionary Tesla, for instance, costs, recognizing environmental capabilities and has chosen to invest in the automobile industry. the costs of investments in these capabilities as Environmental performance capabilities may baseline costs of doing business, and educating be quite heterogeneously distributed among their customers so that they pay these pass- less central firms. Some may have greater through costs and sustain what we refer to as environmental capability than the compensation “environmental performance management.” they can get from the market, and be willing to In this study, following the fundamentals trade their extra capability. Some others may of strategic management theories (e.g. Drnevich have below-median operating costs, and be a & Kriauciunas, 2011; Duncan & Barrett, 2007; great potential collaborator for central firms to Eesley & Roberts, 2010; Hart, 1995; Teece, source green products and services. Of course, Shuen, & Pisano, 1997; Zott, 2003), we propose many non-central firms may neither have that the inter-firm variations in environmental sufficient environmental capability nor below- performance management are a dynamic function median operating costs, and so may not be viable of firm motivation and capabilities. Central, participants in the common global market. more powerful, and enduring firms, have greater Considering the viable participants in the structural, behavioral, cognitive, and emotional common global market, then, two of the tactics motivations for this environmental performance available to a central firm for building capability management. Being more visible and central, for environmental performance management is they have more to lose from social exclusion, and to either trade supplementary green capability so they are more likely to evidence loss aversion from other (central or) less central firms, or to (Kahneman & Tversky, 2000; Krishnan & have these other firms service its sourcing needs Kozhikode, 2015). The question is whether they for competitive green resources as intermediate 6

Rev. Bras. Gest. Neg., São Paulo, v.22, n.1, p. 5-28, jan/mar. 2020. Investigating Environmental Performance Management inputs. We refer to these as supplementary Extant literature on proactive green- capability trading and competitive resource oriented firms is guided by three major theories. servicing tactics, respectively. A third, final tactic The first is a predominant theory of social is for firms to make investments in building their legitimacy in which a proactive green orientation as own environmental performance capability, if concordant with the norms of social responsibility such investments are complementary to their own (Suchman, 1995). Stakeholder endorsement of core capabilities. The environmental performance social legitimacy empowers a firm to translate its management decisions of firms will be a dynamic proactive green orientation into above-normal function of the conditionality that shapes the green performance, through two paths: (1) The benefits and costs of these different tactics. servicing path. Stakeholders who service the In this study, we use the first principles formative legitimacy of a firm are less likely to method to ontologically derive the dynamic impede its green-oriented behaviors, for the sake conditionality for environmental performance of normative profiting. For instance, regulation management for a firm. In philosophy, “first stakeholders – such as investors, mentors, and principles” is synonymous with an axiomatic or ontological method. A first principle is a guides – may provide not only resources but basic, foundational, self-evident proposition also political leverage to a firm, empowering that is not conditional on any other assumption. it to engage in compensatory consumption In mathematics, the first principles method as a responsible citizen. (2) The trading path. is also known as a delta method, because it Stakeholders who trade formative legitimacy helps us evaluate changes in the value of the from a firm are more likely to compensate it for conditionality, as a function of changes in the green-oriented behaviors, thereby mitigating the value of a decision variable, at a constant value of trade-offs with normative profiting. For instance, a co-conditionality. After presenting the algebraic market stakeholders, such as workforce, vendors, equations for the dynamic conditionality, and customers, may gain reputational benefits we show exploratory empirical evidence for from having an intense spirit of technological the core factors that influence environmental innovation, if they socially network with performance management, or what we refer proactively green-oriented firms. to as green programing, using a 2015 survey The second is a dominant theory of sample of small and medium enterprises from institutional identity, where green performance China. Specifically, we apply the proposed is discordant with the norms of market efficiency axioms to demonstrate why a strong profit (Grossman & Kreuger, 1991). The institutional maximization motive may compete with the identity of green performance as a trading green programing objective. Environmental effect of preferential investments by regulation performance management is undermined when stakeholders may limit the sustainability of firms operate according to Milton Friedman’s green performance, because of two forces: (1) doctrine on profit maximization as the firm’s sole objective (Friedman, 1962). Finally, we discuss the Investment forces. Market stakeholders may managerial and research implications. view the transformative (supernormal) green performance of a firm as a sign of inherent 2 Literature Review invisible trade-offs with market performance, and consequently impose subtle informal pressure In order to set the context for our on the firm to ascend its market performance ontological analysis, we first review extant and aspirations. For instance, they may pressure emerging literature and highlight pertinent the firm to apply a non-systematic political conditions for dynamic environmental risk multiplier in its investment decisions. (2) performance management. Capability forces. Regulation stakeholders may 7 Rev. Bras. Gest. Neg., São Paulo, v.22, n.1, p. 5-28, jan/mar. 2020. Vipin Gupta / Yi Zhang

view the transformative (supernormal) profiting for institutionally-managed global governance of firms that have a constant formative green structures, the local market experiences decreasing orientation as a sign of inherent invisible trade- growth, while the global market experiences offs with social responsibility, and consequently increasing growth. impose strong formal pressure on them to Together, when all three theories are at self-regulate their profiting. For instance, they work, then the firms who rely on the servicing may strengthen the capability standards to be of local regulation stakeholders to legitimize identified as green-oriented, thereby increasing their proactive green behaviors end up with an the institutional costs of compliance of proactive increased cost of servicing global stakeholders. green leaders. On the other hand, the firms who sensitize global The third is a deciding theory of the regulation stakeholders regarding the value of survival of green performers as being discordant being proactive in their green behaviors enjoy with the norms of regulatory selection fitness increased benefits of management rights over (Porter & van der Linde, 1995). The survival of the local market stakeholders who are seeking green performers as a servicing effect of market alternatives to the local regulation stakeholder- stakeholders may raise questions regarding the mediated green performance. Thus, there is a fitness of regulatory selection forces, under critical gap in the literature on how the market two conditions: (1) The exchange condition. for green performance might work without self- Alternative ecosystem stakeholders may view the attracting the cost-increasing servicing of global normative presence of green performers as an stakeholders. Recently, three new ideological invisible sign of the target ecosystem’s abundance perspectives have emerged that highlight of green factor endowments, and may therefore pertinent conditions for dynamic environmental seek to exchange their alternative (regulatory performance management within local markets. and market) resources to trade these green To begin with, the first new perspective, endowments. They may identify local regulatory advanced by Gupta and Zhang (2019), is that stakeholders as being strong, and local market the firms in a market engage in an exchange of stakeholders as being weak. Consequently, they environmental performance with society. We refer may seek to exchange local regulatory stakeholders to this as the proficient market perspective. When with global regulatory stakeholders whose values the society puts a low value on environmental are concordant with the value of the global market performance, the firms tend to put less emphasis stakeholders, who are the protagonists of the on environmental performance management. global exchange system guided by setting stringent Conversely, when the society puts a high value green norms that are beyond the capability of the on environmental performance, then the firms global market to fulfill using its own resources, will put more emphasis on environmental and therefore inspire global stakeholders to seek performance management. We refer to this as the innovative linkages with alternative cost-effective market system-social system exchange condition. The resources. (2) The growth condition. Target social aspirations for environmental performance ecosystem stakeholders may view the normative management operate as a contingency factor in absence of green performers as an invisible sign of firms’ decisions to emphasize both environmental an alternative ecosystem’s abundance of regulatory and technical (i.e. core or strategic) performance and market factor endowments. Consequently, versus mostly technical performance. they may seek to exchange the services of the The firms within a market engage in global regulatory and market stakeholders trading environmental performance management to manage the local exchange system. As the capabilities with other (central and/or) non- stakeholders exchange self-managing local firms central firms. When the non-central firms

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Rev. Bras. Gest. Neg., São Paulo, v.22, n.1, p. 5-28, jan/mar. 2020. Investigating Environmental Performance Management have greater environmental capability than the market and possibly even the society with what the society values and are willing and their proactive green orientation as well. We able to compensate for them, they are likely to refer to this as the organization system investment identify this extra environmental capability as complementary condition. Stronger investment supplementary to their business model and be complementarity operates as a risk mitigation open to trading it such as by freely sharing it factor in the firm’s decisions to make proprietary with their preferred collaborators as a way to gain and captive investments in environmental social capital. Similarly, when the non-central performance management capabilities. When firms have below-median operating costs at a investments in environmental performance given level environmental capability, then they management capabilities are complementary will enjoy a competitive advantage for servicing to a firm’s core technical capabilities that form sourcing needs for the green inputs of the central the basis of its strategic business model and its firms. We refer to this as the market system trading differentiated competitive advantage, then the and servicing condition. Weaker organizational costs of investment in such capabilities tend to aspirations, but stronger social aspirations, be lower and the benefits greater. for environmental performance management, The third new perspective is the empirically operate as a catalyst factor in firms’ decisions to substantiated view of firms as using the global engage in trading environmental capabilities or market to decouple investment in environmental green servicing with other firms. The fact that performance management capability from growth organizational and social aspirations are different in their core technical capabilities (Jackson, and have a different effect on firm behavior has 2009). We refer to this as the proficient social been demonstrated in recent research (Kim, ecosystem perspective. We propose that as Finkelstein, & Halbelian, 2015). firms prioritize leading the global market with The second new perspective we use is the their proactive green orientation, they attract scientifically well-established view of firms as locally active green-oriented firms seeking to organizations that use the force of heuristics to be their followers. The locally active green- guide their decision-making (Groner, Groner, & oriented firms are not conscious of the fact that Bischof, 1983). We refer to this as the proficient the proactive green-oriented global firms are regulatory (at the national level of inter-national only seeking to discover a path to manifesting exchanges), governance (at the local level of green performance management – they do not inter-organizational networks), management actually have green performance management (at the corporate level) perspective. We propose capability. Consequently, they are motivated that the firms use the following followership- to exchange their active green orientation with leadership heuristic for intuitive decision-making additional responsibilities for growing their green about environmental performance management performance management capability. On the leadership. As long as social aspirations for other hand, global proactive green-oriented firms environmental performance exceed their are able to grow their environmental performance environmental performance management capability through the investment of locally active capabilities, they continue focusing more on the green-oriented firms, and invest in increasing management of exchange with the social system returns for growth in their core technical and the management of trading within the market capabilities. Overall, the global social ecosystem system. However, if they are able to conceive thus enjoys disproportionate economic growth, investment in environmental performance with little, zero, or even negative environmental management as complementary to their core costs. On the other hand, the local social technical capabilities, then they prioritize leading ecosystem enjoys disproportionate environmental

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costs, as it seeks to accrue proportionate economic has linkages with these values. We refer to these benefits to manage its growing responsibility for activated green social culture linkages of a firm as servicing the challenging green technological its green social culture effect. mandates of the global leaders. Together, when all three ideological Green cost α Green social culture effect (1) perspectives are at work, then the global firms that place a greater mental priority on environmental Second is the dominant trading effect performance management end up with increased of institutional identity theory. Green trading value from trading within the global market. opportunities are more likely to be discovered and In the global market, nations enjoy increased recognized when organizations have a strong green ecological as well as economic value addition, identity and values and the firm’s strategic business contributing to positive psychological as well as model has linkages with these organizational social well-being. On the other hand, in local values and identity. We refer to these green societies, nations see increased ecological as well organizational culture linkages of a firm as its as economic costs of social responsibility – i.e. green organizational culture effect. Organizations responsibility for servicing the extrinsic social with activated green identities are likely to be ecosystem, with increased psychological stress transparent about their green initiatives, and also as well as social pressures. The firms within local be proportionately alert about the green initiatives societies experience a loss of face for not keeping of other firms. up with their cultural reputation for being green performance oriented (mental harmony with Green trading α Green organizational culture effec (2) nature). The firms within the global market experience a boost in their self-concept based on Third is the deciding servicing effect of the mental mastery of nature through a focus on organizational fitness theory. Green servicing their core technical capabilities. We refer to this opportunities are more likely to be discovered as the proficient (mental) programing perspective. and recognized by a firm when not only the organizations have strong green identifies, but 2.1 Ontological Derivation of the Dynamic the society also values green performance. The Conditionality for Environmental latter condition should allow firms to leverage Performance Management the market for sourcing as well as to meet their Next, we ontologically derive the aspirations for green organizational identity. decision conditionality of environmental performance management, or what we refer to Green servicing = Green organizational culture effect as green programing, through a set of dynamic x Green social culture effect (3) mathematical equations. These equations are from the unpublished Ph.D. dissertation work Fourth is the metaphysical exchange of Gupta (1998). Based on the literature review, effect of the proficient market perspective. Firms we identified five steps of dynamic conditionality. will respond to the market system-social system First is the predominant cost effect of exchange condition through green trading and social legitimacy theory. The environmental green servicing within the market system. They cost that firms are willing to bear and take will strive to ensure that green trading and accountability for is a proportionate function of green servicing together are able to match their the extent to which society values environmental aspirations for green exchange. performance and identifies with being green, and the organizational strategic business model Green exchange = Green trading x Green servicing (4)

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Fifth is the dynamic investment effect Green programming = Green organizational culture of the proficient management perspective. effect x Green social culture effect x Green corporate Firms will seek to make proprietary investments effect x Green trading (7’) in environmental performance management capability if they are able to service market sourcing Based on 2 and 7’, needs through their green investments and if these investments have strong complementary linkages Green programming α Green organizational culture with their strategic business model. We refer effect x Green social culture effect x Green corporate to these complementary linkages as the green effect (7”) corporate effect. Put differently, firms are more likely to Green investment = Green Servicing x Green engage in environment management practices corporate effect (5) when they have strong ecological consciousness, when their social linkages have strong ecological Sixth is the technological capability effect consciousness, and when they have knowledge of the proficient social ecosystem perspective. about how green initiatives can be aligned Firms will respond to the market system trading to complement their strategic performance and servicing condition by appraising their own management model. environmental capabilities. If their environmental 2.2 An empirical investigation into capabilities are complementary to their core Friedman’s profit maximization doctrine technical capabilities (i.e., their strategic business model), they are likely to be able to create value The dynamic principles of green through servicing the sourcing needs of the programing mean that firms take green costs into market. Otherwise, they are likely to seek to account when society values being green. Now, capture value through trading supplementary this leads to the classic dilemma of firm behavior, green know-how with their preferred partners, which is often referred to as Friedman’s doctrine as a way to gain social capital. (Friedman, 1962). Shouldn’t firms that use the simpler heuristics of merely prioritizing profit Green capability = Green corporate effect x Green maximization (i.e. growth) be automatically able trading (6) to achieve superior levels of green programing? Why should firms strive to be conscientious about Finally, there is the consequential effect of their social responsibilities, such as environmental the proficient (mental) programing perspective. performance? Therefore, we hypothesize that: A firm’s environmental performance management will vary as a function of its proprietary and H1 (Alternative to social cost-escalating complementary investment in environmental legitimacy theory): Firms’ profit maximization performance management capability (i.e. its green motives are positively associated with their investment) and its capacity to indirectly capture green programing. the value of its supplementary green know-how If Friedman’s doctrine is valid in explaining through social trading. the behavior of firms, then a firm’s green programing should be fully explained by its Green programming = Green investment x Green trading (7) profit maximization motive. However, if the Based on 3, 5, and 7, ontological principles we have derived are valid, then we should find significant power in the green

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corporate effect, green organizational culture H3 (The social cost of managing effect, and green social culture effect. organizational fitness theory): The negative Profit aspiration level as a sign of the Green relationship between firms’ profit aspiration corporate effect: We propose that higher profit levels and their green programing is stronger aspiration levels may be interpreted as a sign of when the firm’s profit maximization motive supplementary green capability (i.e. organizational is strong than when this motive is weak. slack). Strong profit aspirations indicate to firms that they have greater capability than what they Transformational leadership as a Green have activated. As we noted earlier, supplementary organizational culture effect. We consider green capability implies that the firms are not able transformational leadership as a dominating to capture value strategically from their entire force in activating green organizational identity. green capability through market-based servicing. Transformational leadership tends to promote Instead, they look for more tactical opportunities, an integrative and futuristic perspective (House in the form of free trading of their uncompensated et al, 2004). It helps firms visualize how socially green know-how with strategic collaborators in desirable performance dimensions actually make an effort to build social capital. To the extent that business sense as well (Angus-Leppan, Metcalf, social capital gains are only indirectly related with & Benn, 2010; Waldman et al., 2006). It should growth, and in the future that is uncertain, firms therefore help firms transform their operating are likely to perceive such trading in less attractive models, in ways that help them endogenize terms. Therefore, we hypothesize that: social benefits and social costs and encourage a complementary perspective of firm capabilities. H2 (The social cost of institutional identity When firms are able to more effectively integrate theory): Firms’ profit aspiration levels their environmental know-how into their core are negatively associated with their green operating model, then they are more likely to programing. perceive environmental performance management in positive terms. Therefore, we hypothesize that: We now investigate if profit aspiration levels make heuristics based solely on the profit H4 (The social benefit of the proficient maximization motive inadequate. We propose market perspective): Firms’ transformational that the profit maximization motive does leadership is positively associated with their moderate (i.e. behaviorally and inappropriately green programing. bias) the relationship between profit aspiration level and green programing. When the profit We investigate if transformational maximization motive is strong, then firms may be leadership also makes heuristics based solely more inclined to lower their priorities on green on the profit maximization motive inadequate. programing as their profit aspiration level increases We propose that the profit maximization – since, based on their aspirational signals, they motive does moderate (i.e. behaviorally and are likely to believe that a lower level of green inappropriately bias) the relationship between programing is needed to achieve their high profit transformational leadership and green programing. aspirations. Firms are likely to perceive less need Transformational leadership may not be as effective to reduce green programing with increasing profit in sustaining green programing, if the profit aspirations when their profit maximization motive maximization motive is strong. Transformational is weak. Thus, the positive effect of the profit leaders take a rather broader and futuristic view, maximization motive on green programing will pursuing a multiphase strategy to reposition decrease as the firm’s profit aspiration level rises. today’s businesses while finding new ways to grow Therefore, we hypothesize that: (Anthony & Schwartz, 2017). Therefore, viewing 12

Rev. Bras. Gest. Neg., São Paulo, v.22, n.1, p. 5-28, jan/mar. 2020. Investigating Environmental Performance Management environmental performance management through the game are still being formed, and firms are a strategic lens of alignment with the core business in a better position to inform and shape these model may be very transactional and constraining rules, and to establish being green as part of the to transformational leaders. They are likely to dominant operating model for success (Utterback focus more on trading their environmental & Abernathy, 1975). On the contrary, in know-how through social relationships, as a normative phases, firms tend to operate in more way to strengthen social consciousness and the competitive spaces, where different constituents capacity for green performance management. A are more invested in defending their value shares. strong profit maximization motive may inhibit The firms and their constituents are likely to this social approach. Conversely, if the profit show loss aversion, and avoid any moves that maximization motive is weak, then the need for might potentially reduce their growth. The firms strategic alignment of green programing with the in dominant positions tend to be insecure about firm’s core operating model will be low. Then, their positions, and are more willing to embrace transformational leaders may find more space for negative behaviors (Krishnan & Kozhikode, both complementary as well as supplementary 2015). Therefore, we hypothesize that: initiatives for advancing their green programing. Therefore, we hypothesize that: H6 (The social benefit of the proficient social ecosystem perspective): Firms’ product- H5 (The social benefit of the proficient market context normativity is negatively management perspective): The positive associated with their green programing. relationship between firms’ transformational leadership and their green programing is Consequential green programing as a social stronger when a firm’s profit maximization benefit cost ratio of the proficient programing motive is weak than when it is strong. perspective. Transformative leadership motivates the global workforce to seek cost-effective follower Formative product-market context as a social networks using local search heuristics. Green social culture effect. If profit aspiration levels Profit aspiration levels manipulate follower as well as transformational leadership become social networks to diffuse the value of their inadequate when the profit maximization motive green performance to help the socially-minded is strong, then how can a firm mitigate these entrepreneurial workforce to fulfil its aspirational inadequacies? We investigate this issue in terms of objectives. Responsible management of the the role of the context. In other words, are firms ascending global demands for green development in some contexts more likely to experience the with local worker social costs contributes profit maximization model as competing with the to increasing global worker social benefits. green programing objective, than those in other However, there may be a limit to the capability contexts? We propose that formative product- market contexts reflect the contemporary green potential and/or kinetic investment power of social culture effect. Since societies have become local firms. Under the conditions of escalating increasingly environmentally conscious, firms costs of environmental performance, local predominantly engaged in formative product- governments may set supernormal environmental market contexts are likely to be more connected management aspirational goals, as a path to with the green social culture effect. Additionally, if motivate global firms to countertrade their the product-market context is formative in nature, entire green programing traded from diverse then firms may have greater degrees of freedom local social networks around the world with local in taking accountability for the environmental firms. Large firms with a supernormal market, costs. In formative phases, competitive rules of regulation, and social ecosystem resources may 13 Rev. Bras. Gest. Neg., São Paulo, v.22, n.1, p. 5-28, jan/mar. 2020. Vipin Gupta / Yi Zhang

seek to fulfill the mandates of local government surveyed SME (small and medium enterprise) through investment into researching alternatives firms by enlisting the support of trainers and to global green programing practices, as a path for administrative officers of local Chinese SME developing that into corporate green capability. administrative organizations. In China, firms are On the other hand, small and medium enterprises, considered SMEs if they have fewer than 2000 with limited market, regulation, and social employees and an annual turnover of less than ecosystem resources, may seek to sustain their 300 million RMB (Li & Rowley, 2008). survival by trading and capturing the investment We translated the original scale items value of global green programing practices, using into Chinese and then translated them back the global, unique, inclusive, diverse, engaging, into English three times using three different and responsible (GUIDER) management of the bilingual Chinese experts. We piloted both global leaders. Through self-organizing national English and Chinese language surveys on 80 networks, large firms may discover the global senior managers, and used the responses to make cost-effective value of the green programing further modifications in the Chinese language practices of local small and medium enterprises. survey. We followed up on the distributed surveys They may perceive the value of their discovery three days later with phone calls. The respondents to be a consequence of their own conscious were given three weeks to return the completed determination, as evidenced by the investment in surveys in confidential, sealed envelopes. At the discovery-oriented research and the capability for end of the three weeks, 386 completed surveys were received, giving a response rate of 63.4%. developing social networks. Local governments, 96.6% of the firms had an annual turnover on the other hand, may perceive increasing of 300 million RMB or less. 90% of the firms green programing as well as increasing economic had 500 or fewer employees; 99% had 2,000 or cost-saving benefits as the consequence of their fewer employees. The median age of the firms was managerial willpower to advance next-generation 7 years. While 51% were single product firms, green programing standards. Global institutions nearly 6% offered ten or more products. 80% of may consider this as unfair competition, and pull the firms were selling in the domestic market only; out from the transnational aspirational goals of but more than 12% generated a fifth or more of increasing environmental performance as well their sales from overseas. The respondents had a as creating expectations for their large firms median age of 40; 79% were males. About three to weaken their linkages within local nations. quarters had a bachelor’s degree or higher. About Under these conditions, local small and medium three quarters were c-level executives or owners, enterprises need to identify alternative, diverse and another fifth were mid-level managers. global channels for sustaining the positive worker social benefit cost ratio of green programing, or Dependent variable else they may not be able to responsibly manage Green programing (α=0.87): we used Judge their green programing. Therefore, there is a and Douglas’s (1998) measure, where respondents need to empirically substantiate the power of rated a firm’s overall environmental performance the small and medium enterprises in a local management relative to others in their industry emerging market to responsibly manage their on four seven-point scale items. One sample green programing. item, for example, was: “Over the last 12 months, 3 Method compared to other firms, how well has your firm prevented and mitigated environmental crises?” Sample and data. The east coast of China This variable measures the perceived worker social is considered to be “the land of SME seeds cost-benefit ratio of the green programing that a and buds.” Along this coast, in early 2015, we firm has. 14

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Independent variables Product-market context normativity: We used Lumpkin and Dess’s (2001) measure. Strength of profit maximization motive: The participants reported a percentage of firm Since asymptotically the profit maximization revenues accounted for by products/services at motive is aligned with the growth maximization four lifecycle stages: introduction (I), growth (G), priorities of a firm (Latouche, 2013), we asked maturity (M), and decline (D). Product-market the respondents to rate the importance of context normativity is a weighted average that growth in three dimensions over the past 12 uses the following formula: 1*I + 2*G + 3*M + months – sales, profit, and market share. We 4*D. This is a single continuous stage of product computed the factor score composite of these lifecycle measure, where a higher score reflects three dimensions (accounting for 63.33% of the the firm’s average involvement in a later (mature) variance; α= 0.71). We then scored the strength stage of the product lifecycle. The sample average of the profit maximization motive using visual is 2.34, indicating a group of firms whose product examination and natural breaks in the spread of portfolio is between the growth cycle and the the firms along the approximate quartile cut-offs: maturity cycle, i.e. is beginning to experience <-.5 = 1; -.5 to 0 = 2; 0 to .8 = 3; >.8 = 4. Social product-market context normativity. A post- importance of growth is a measure of extrinsic growth context implies that the growth of the value aspiration, i.e. a firm’s motive. Firms that firms is cooling down, because of escalating cost place disproportionate social value on profits may trade-offs and challenges in sustaining aspirational invest these profits in growth of sales or market profit-making due to social ecosystem, regulatory, share, or seek to retain these profits as returns and/or market factors. to investors in the form of dividends or capital Transformational leadership: We measured appreciation. this as the mean of two measures. The first Profit aspiration level: We measured measure is Waldman, Ramirez, House, and this as a factor score composite of two indices: Puranam’s (2001) charismatic leadership scale growth and productivity (r=0.41; p<0.01). (α=0.89), where respondents rate their leaders on The growth index (α=0.75) is the average of seven seven-point items (1=much worse, 7=much the standardized values of reported growth better). One sample item, for example, was: over the past 12 months in (a) employees, (b) “Compared to other leaders, how well can your sales, and (c) profits. The productivity index leaders provide a vision of what lies ahead?” The is the logarithmic value of revenue/employees. second measure is Montoya-Weiss, Massey, and α Following Kim, Finkelstein, and Haleblian Song’s (2001) political skill scale ( =0.86), where (2015), we consider productivity growth to be respondents rate their level of agreement with six a crucial performance outcome that managers seven-point scale items regarding their ability to pay attention to and take into consideration connect with people. One sample item was: “I when forming their profit aspirations. Growth usually try to find common ground with others.” A politically savvy followership that believes in is a measure of intrinsic value aspiration, i.e. the the social charisma of its leadership constitutes a workforce’s profiting psychology. Firms whose dynamic unit of market exchange – in the sense of workforces psychologically value profiting may being highly motivated to exchange cost-effective express their profit aspirations by investing in programs by transcending the local search- additional workforce, or in growing sales as a oriented transactional followership mindset, path for growing workforce, or in generating instead developing appropriate global market profit as rewards to the principal leaders that are linkages as holistic units of transformational catalyzing growth. leadership. 15 Rev. Bras. Gest. Neg., São Paulo, v.22, n.1, p. 5-28, jan/mar. 2020. Vipin Gupta / Yi Zhang

Demographic variables: We controlled for The descriptive statistics and the correlations two demographic variables: firm age and firm size among the dependent and independent variables (numbers of employees). SMEs’ age and size may are shown in Table 1. shape environmental performance management.

Table 1 Correlations among the dependent and independent variables

N Mean SD 1 2 3 4 5 6 7 Firm Age -1 365 7,28 4,47 No. of employees -2 378 238 249 ,37** Green Programing -3 379 5,47 ,89 -,10^ -,01 Profit maximization motive -4 381 2,49 1,05 ,05 ,06 ,22** Profit aspiration level -5 296 0 1,00 ,27** ,06 -,31** 0 Transformational leadership -6 370 5,27 ,72 -,19** -,08 ,51** ,10^ -,21** Product-market context normativity -7 301 0,46 ,48 ,07 -,02 ,23** ,12* ,17** -,08 Notes. ^, <.10, *, p<.05; **, p<.01

Validation check. When using the survey if the first factor accounted for a majority of the method, the systematic survey method effect could variance in the variables (Harman, 1976). We substantially inflate or deflate the relationship further compared the one-factor model with the between the independent and dependent multi-factor model using the chi-square difference variables, and thus threaten the validity of the test in confirmatory factor analysis (Craighead, findings. One of the recommended techniques Ketchen, Dunn, & Hult, 2011). Both types of to minimize the threat of the common method analysis did not provide any evidence of common effect is “methodological separation” – i.e. using method variance. different formats to measure various variables 3.1 Findings (Craighead, Ketchen, Dunn, & Hult, 2011). Both our survey and the transformations were We used multiple regression analysis guided by the use of different formats to measure to test our hypotheses. The results are shown our independent variables. To further statistically in Table 2. Model 1 is the null model using validate for the common method variance, we used only the demographic variables. Neither of the Harman’s single-factor test. We first subjected all demographic variables is significant. variables to exploratory factor analysis, to check

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Table 2 Model 2 includes all the independent Multiple Regression Analysis – Standardized variables accounting for 40% of the incremental beta coefficients variation in green programing. We found

1 2 3 support for all our hypotheses (see Table 2). As Step 1 predicted, the profit maximization motive has a -,10^ ,04 ,04 statistically significant positive effect on a firm’s Age of the firm (-1,71) (,73) (,72) green programing. While profit aspiration level ,01 ,04 ,03 No. of employees has a negative effect, transformative leadership has (,14) (,73) (,46) statistically significant positive effects. Product- Step 2 market context normativity also has a significant ,15 ,97* Profit maximization motive (2,94) (2,51) negative impact. Model 3 adds the moderating -,22** -,04** effects, accounting for an additional 2% of the Profit aspiration level (-4,25) (-,37) incremental variation. As predicted, the profit Transformational ,50** ,66** maximization motive negatively moderates the leadership (9,74) (7,60) relationship between profit aspiration level and Product-market context -,16** -,17 green programing, and between transformational normativity (-3,15) (-3,33) Step 3 leadership and green programing. In our sample, Profit aspiration level x -,20^ though, once the moderator is included, the main Profit maximization motive (-2,20) effect of profit aspiration level becomes non- Transformational significant. Figures 1 and 2 show how the profit -,85* leadership x Profit (-2,14) maximization motive moderates (i.e. behaviorally maximization motive biases) the two relationships. R2 ,01 ,40 ,42 Adj. R2 ,00 ,38 F 1,63 27,10** 21,77** N 354 252 252 Note. **: p<.01; *: p<.05: ^: p<.10

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Figure 1. How profit maximization motive moderates the relationship between profit aspiration level and green Programing

Figure 2. How profit maximization motive (growth priority) moderates the relationship between transformational leadership and green programing.

4 Assumptions & Limitations has green consciousness, the systems for reward and punishment may not be fully developed. We proposed that the firms would Information asymmetries may impede establishing be willing to take greater accountability for clear accountability (Gupta & Zhang, 2019; environmental costs, if the society values Hoffman & Nembhard, 2014). Firms may also environmental responsibility and is willing to manipulate information, such as by investing in reward and/or punish them for their accountability impression management, which may either help or lack thereof. In practice, even if the society them sustain higher levels of green initiatives, or 18

Rev. Bras. Gest. Neg., São Paulo, v.22, n.1, p. 5-28, jan/mar. 2020. Investigating Environmental Performance Management allow them to maintain minimalist level of such customers are willing to compensate them for, and initiatives (Talbot & Boiral, 2017). Members uncertainty about the value of their unexploited of society may not be homogenous in their green know-how in the future. Therefore, firms attitudes towards environmental consciousness, may show a tendency to hoard some of their or in their willingness or capacity to pay for supplementary green know-how, and to share – green programing. Some members may be more i.e. freely trade – some of their complementary and others less green conscious and demonstrate green know-how. greater willingness to support and compensate We further noted that firms’ trading of for green initiatives, such as employees, partners, green know-how would be directly proportionate investors, or customers (Hardcopf, Shah, & to their green organizational culture effect. Mukherjee, 2017). In practice, even if firms are environmentally We further proposed that firms would be conscious, they may not be able to trade greater willing to invest more in green programing if their green know-how with other firms if they are strategic business model for customer servicing in a low-trust institutional context (Mabey & is based on a green platform and if they know Zhao, 2017). When there is low trust, firms are how to align green initiatives as a complement to less willing to freely trade their supplemental their strategic business model. In practice, firms know-how for social capital reasons. Sharing may already have a legacy strategic platform, and supplemental know-how with others may not seek tactical operational approaches to reduce yield any social capital benefits, if the firms their environmental footprint (Gupta & Zhang, cannot be trusted to reciprocate favors. On the 2019). There may be adjustment gaps in the contrary, such sharing may potentially strengthen tactical integration of green approaches within competitors, and have adverse competitive effects the organization, and its translation into value for the sharing firm. Thus, green organizational proposition for the serviced customers. There identity may not be positively associated with the may also be the temporality factor of leads and trading of green know-how. lags between when the firm investing in green We observed that the green capability programing and when it targets customer groups of firms will be deployed in two forms: first, who are environmentally conscious and have the embodied in the products and services that the capacity to appropriately value green initiatives. firm markets and gets compensated for (firm Further, firms may not always develop green green complementarity or corporate effect); and strategic programing together. Some of the second, disembodied, in that the firm will trade green programing may evolve independently freely with its strategic partners, as part of its of the strategic programing, and these two social capital development effort (green trading). types of programing may come together at a [Of course, firms may be able to design some future time as the firms discover cost-effective hybrid solutions as well]. In practice, firms may greener alternatives. Consequently, a firm’s not fully deploy their green capability. Some of actual investments in green programing may their green capability may be tacit and reside not align fully with its green servicing and the as organizational slack in their human capital complementarity of its green initiatives. and/or internal networks buffered from external We also noted that firms would be willing interactions with their business partners (Lecuona to trade their supplementary green know-how that & Reitzig, 2014). Furthermore, some of a firm’s they do not know how to exploit as part of their green capability may be latent, residing outside its strategic business model and customer servicing. boundaries, and lie with its social partners, who In practice, firms may face ambiguity about may be willing to share their experiential know- the dimensions of green know-how that their how with it as they may not be in a position to 19 Rev. Bras. Gest. Neg., São Paulo, v.22, n.1, p. 5-28, jan/mar. 2020. Vipin Gupta / Yi Zhang

fully capture the commercial value of that know- effect – the more conscious and aware they are of how on their own. the need for environmental accountability, the We also noted that the green exchange of more motivated they will be to search for and firms includes two dimensions. The first, servicing mobilize green know-how from the market. We dimension is where firms offer green products and noted that a firm’s green capability is an aggregate services to their customers in exchange for direct of this green trading and the investments that compensation. The second, trading dimension the firm has made in green initiatives that are is where firms share green know-how with their complementary to its strategic business model constituents, particularly strategic partners, in (i.e. its green corporate effect). If the firm invests exchange for potential future benefits. In practice, in green initiatives that are not complementary firms may not have full control over their green to its strategic business model, then such exchange. Some of the exchange might take place investments are unlikely to generate sustainable through informal mechanisms, such as employee green organizational learning for it. If the green turnover, and not offer the possibility for the firm investments are peripheral to the firm’s business to capture the value from this exchange either strategy, then such investments are likely to be directly or indirectly. Nevertheless, such informal ad hoc, opportunistic, and difficult to sustain. exchanges (spillover or diffusion leakages) may Accordingly, we investigated Friedman’s doctrine strengthen the local network capacity for strategic that a firm’s profit maximization motive should green initiatives, and offer a tertiary channel for be an appropriate guide for its green programing. developing new pathways for green revenues In our empirical model tested for a 2015 (Roper, Love, & Bonner, 2017). sample of small and medium enterprises in China, we demonstrated that the profit maximization 4.1 Discussion motive is positively associated with green Building on the fundamentals of the programing, but there are two factors that make strategic theory of the firm, we advanced the this motive an inadequate guide to the appropriate understanding of the management problem level of green programing. First, as the profit facing leading firms, as they seek to respond to aspiration level rises (a proxy for the exhaustion the increased societal sensitivity and demands of complementarity opportunities) it becomes increasingly more challenging for firms to sustain for environmental programing. Since (most) their green programing – especially if they have leading firms have not historically invested in an aggressive profit maximization motive. Second, or developed green programing (routines), they as firms embrace transformational leadership (a likely need to develop green programing. Firms proxy for the green organizational culture effect), have two options for developing green programing it becomes more challenging to sustain green – internal investments and external trading. We programing if they have an aggressive profit observed that many non-leading firms are likely to maximization motive. We noted that firms may have superior green capability, and many leading be able to mitigate these inadequacies (arising incumbent firms are likely to be a follower in from inappropriate behavioral biases) through green programing because of their founding and stronger linkages with the emergent social green legacy effects. The leading firms may trade green culture. Our findings confirmed that the ties with know-how from these firms through outright formative product-market opportunities (a proxy acquisitions or other forms of trading, such as for the green social culture effect) are positively purchasing green intermediate inputs or absorbing associated with green programing. and internalizing their green knowledge through In formative product-market contexts, various pathways for organizational learning. We firms enjoy more fodder for learning and noted that the green trading of firms is likely to experimentation. Social imprinting research be a function of their green organizational culture suggests that the new generation of product 20

Rev. Bras. Gest. Neg., São Paulo, v.22, n.1, p. 5-28, jan/mar. 2020. Investigating Environmental Performance Management markets is more likely to be in tune with the newer know-how of other firms, particularly smaller social values and expectations (Martínez-Cañas, firms that often lack resources to fully leverage Ruiz-Palomino, Linuesa-Langreo, & Blázquez- their proprietary and unique green know-how. Resino, 2016). Our findings suggest that firms First, they may trade green services with outside that operate proportionately more in formative vendors on competitive terms (green trading). product-market contexts tend to have greater Second, they may develop a reputation for green programing. reciprocity and being a trustworthy partner, so We also find that the profit aspiration that outside vendors are motivated to freely trade level of firms is negatively associated with their supplemental green know-how with them their green programing. If the firms have been (green countertrading). Third, they may develop growing rapidly, then they may assume that green a local presence and place-based interactions programing is not essential to their growth and has with other firms that are willing to share their at best supplemental benefits. As the status theory green know-how for supra-strategic reasons. suggests, such firms may also develop a sense of Therefore, we refer to this third way as green local insecurity about their growth, and seek to rely on endowment. riskier non-responsible pathways for sustaining An additional implication is for managers it (Krishnan & Kozhikode, 2015). Thus, their to recognize three ways to profit from green motivation to sustain green programing is exchange. First, they may trade green knowledge reduced, and the motivation to pursue alternatives to accrue strategic benefits from relationships with to green programing is enhanced. However, when their other partners (green diffusion). Second, the firms have a weaker profit maximization they may use this knowledge for immediate motive, then they are less influenced by these competitive advantage (green servicing). Third, adverse motivations. they may seek to not take accountability for We also find that transformational all their environmental costs. The ability and leadership is positively associated with green willingness of firms to avoid full accountability programing. As firms embrace transformational is a proportionate function of their linkages with leadership, they become more conscious of national institutional voids. For instance, firms that environment as a strategic imperative, that have linkages with astute accountants and and are more likely to seek green programing attorneys may be able to avoid their accountability – even if it does not appear to have immediate by instead investing in accounting and legal commercial (servicing) benefits. However, when linkages. When there are national institutional firms have a strong profit maximization motive, voids, the nation as a whole evidently compensates then transformational leadership may act to for the green costs not internalized by firms, such inspire members to focus only on those (limited as in the form of green subsidies or healthcare, environmental) initiatives that have a clear low quality of life, and other types of costs of business case in terms of immediate commercial a negative environment, incurred either in the benefits, in order to realize profit expectations. present or in the future. Therefore, we refer to Our findings suggest that the profit maximization this third way as the green national effect. motive negatively moderates (i.e. behaviorally Finally, with the ongoing reduction in the biases) the effects of transformational leadership barriers to free trade across national borders, firms on green programing. should be able to achieve higher levels of green development than what might be expected only 4.2 Managerial implications from their green planning efforts. However, even The main implication for managers is to though globalization factors, such as improved recognize three ways to benefit from the green cross-cultural exchange, communication, digital

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technologies, transportation, and socio-economic positive ecological impact. Dematerialization is integration, has helped dramatically reduce about automating the rehumanized method by international barriers to knowledge trading, trading a cost-effective system (machine) for a organizations are at varying stages of capability positive economic impact. Our findings suggest development to engage fully in this global that by prioritizing trading green programing exchange. For a firm, the world is not entirely work culture practices from proficient workforces flat – it is still barely globalized – with, on average, of small and medium enterprises in emerging 80% of trade still done within domestic borders global geographies such as China, even large (Ghemawat, 2007). We refer to the firm-level firms in mature global markets such as the USA globalization of green knowledge trading as the can potentially develop formative capability green international effect. for creating supernormal method (process) and machine (product) value, without investing any 4.3 Academic implications of their manpower energy or material power. Our study has major implications for We refer to this as the neosocialization pathway. three emerging academic streams within the Neosocialization is about creating targeted bipolar inter-disciplinary environmental performance social linkages, by exchanging energy to be management literature. diffused in a proliferating unipolar culture effect The first is the research on managing (the alternative paleo-socialization pathway). The industrial ecology using the natural system- unipolar culture effect comprises the infinity of inspired performance perspective. Scholars multipolar innovative linkages that eventually observe discordance between the cost-escalating compress freedom energy and consequently waste-oriented industrial ecology and the value- generate vicissitudes of amplifying frequency accruing exchange-oriented natural systems, and in both macro (national level) as well as micro have highlighted the need to develop a natural (psychological) well-being. system-inspired performance perspective (see, Second, there is the research on managing e.g., Socolow, Andrews, Berkhout, & Thomas, environmental costs using the institutional 1994). Industrial manufacturing technology regulatory programing perspective. Scholars generates supernatural waste of manpower observe concordance between the social cost- energy (many processes are routine and can escalating regulatory programing of environmental cost-effectively be automated, but are not due to cost mitigation standards at the local, national, socially inefficient material distribution), as well and/or international levels, and the social as material power (many products are made from benefit multiplier of such programing (see, materials that outlive their consumer value and e.g., Ferris, Garbaccio, Marten, & Wolverton, need to be recycled using cost-escalating processes, 2017). The U.S. government data show that the many with significant additional costs to mitigate national investment in institutionally programed and prevent their negative environmental environmental performance rose from 1.6% of effects). Natural systems, on the other hand, GDP in 1990 (about $100 billion) to 2.7% of generate supernatural process value (which is the GDP in 2000, and then fell to 0.2% of GDP primary subject of scientific research seeking to in 2005 (about $27 billion), as the rising green create social value) as well as product value (in cultural consciousness encouraged compensatory the form of desirable fire, water, air, and earth cultural planning to activate green profit-making factors), without wasting any manpower energy opportunities (United States Census Bureau, (rehumanization pathway) or material power 2008). The predominant factor in the increasing (dematerialization pathway). Rehumanization cultural planning benefits is the increasing social is a method of servicing a human touch for a consciousness about the rising human costs of

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Rev. Bras. Gest. Neg., São Paulo, v.22, n.1, p. 5-28, jan/mar. 2020. Investigating Environmental Performance Management ecological costs – in terms of both rising morality in material cost due to conscious efficient use and rates (premature death of not only children and reuse initiatives), and marketing power (entropy the elderly, but also working age adults) as well in negative ecological-impact gross value added). as rising morbidity rates (sickness, translating Consequently, the entire industrial organization into rising costs of personal sick days and family system as a whole experiences increasing capital medical leave). The dominant factor in the costs and decreasing operating benefits. As a decreasing institutional programing costs is the result, green transformation makes sense only increasing human motivation to economically under a conscious organizational planning value the quality of life benefits of preventing scenario, where the institutions (formal and or mitigating ecological costs. These include informal) and the organizations (small and increasing compensatory consumption of healthy medium enterprises as well as large firms) work ecology recreation decisions (Phaneuf & Smith, individually towards a common national vision 2005), as well as increasing preventive investment of promoting psychological consciousness among in environment-protecting technologies such the citizens about the social benefit multiplier as at home and in transportation (Palmquist, of investments by the industrial organization 2005). Our findings suggest that the deciding sector. In that scenario, citizens become willing factor in increasing green performance value with to increase their compensatory consumption of decreasing institutional and management costs green products, contributing to increasing the may be the formative trading of cost-effective value of manpower (growth in green jobs for green technologies (both methods and machine) servicing the entire global universe), material with small and medium enterprises. This trading power (freedom from rising material cost is mediated by the international networks and constraints, because of efficient use and reuse), strategically-planned supply-chain transparency and marketing power (value premium for being initiatives of industrial organizations. It includes green), and reducing the cost value of machinery positive impact materials (with embodied power (lower life cost of machinery due to machine value) traded from emerging market energy-efficient designs) and method power vendors, as well as cost-effective transformation (savings from positive ecological processes). The of negative impact products (that previously dynamic conscious planning cycle of exchanging had to be disposed of in non-tradable dumps at increasing economic costs of proactive green increasing costs) into recyclable products (that the programing for increasing economic benefits small and medium enterprises in emerging global of active green performance may break down if geographies proficient in green recycling methods global institutions and/or industrial organizations are willing to exchange and even compensate). put disproportionate weight on frontloaded costs, The third is the research on managing and disproportionately discount exchange costs green transformation using the conscious because of nationalistic concerns that are typical organizational planning perspective. Scholars in vibrant democratic conditions. Our findings observe that green transformation entails both suggest that global institutions and industrial capital as well as operating investments (United organizations may potentially be able to free Nations Environment Program, 2011). Green themselves from the upfront cost of increasing transformation motivates industrial organizations green technological investment (comprising of to increase the value of their machinery power machinery and method powers) and of decreasing (green capital investment) and method power non-green technological growth (comprising of (green process investment), and reduce the man, material, and marketing powers), if they value of their manpower (entropy in negative develop strategic awareness about the green ecological-impact jobs), material power (entropy technological capability of the small and medium

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Authors: 1. Vipin Gupta, Ph.D., California State University, San Bernardino, USA. E-mail: [email protected] ORCID 0000-0002-6808-0110 2. Yi Zhang, Ph.D., Zayed University, Abu Dhabi, UAE. E-mail: [email protected] ORCID 0000-0002-0452-7446

Contribution of each author

Contribution Vipin Gupta Yi Zhang 1. Definition of research problem √ 2. Development of hypotheses or research questions (empirical studies ) √ 3. Development of theoretical propositions (theoretical Work) √ 4. Theoretical foundation/Literature review √ 5. Definition of methodological procedures √ 6. Data collection √ 7. Statistical analysis √ 8. Analysis and interpretation of data √ 9. Critical revision of the manuscript √ 10. Manuscript Writing √ 11. Other (please specify which)

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