Voluntary Standards Offer Reputation Insurance

Voluntary Standards Offer Reputation Insurance

Lauren Rakowski August 30, 2010
This study examines the chemical industry's Responsible Care Program and evaluates whether it improved member firms' environmental performance relative to their peers. The authors find firms that adopt Responsible Care do not make environmental improvements faster than other firms-possibly because non-compliance is not punished. Yet, managers may still benefit by adopting such programs because they provide information on best practices, help promote a positive image and act as reputation insurance against negative events.

Background

The Responsible Care Program was implemented by the Chemical Manufacturing Association (CMA) in 1990 in response to declining public confidence in the industry (which fell from 30 percent to 14 percent approval from 1980-1990). The program outlines broad environmental and safety standards for managing facilities and interacting with the community, suppliers and customers. Though CMA members must adopt the standard and submit progress reports, companies choose how to achieve goals and non-compliance is not punished.

Findings

Implications for Managers

Implications for Researchers

This article extends theoretical and empirical analysis of self-organized regulation to trade association-sponsored standards. We suggest research can explore why Responsible Care did not lead to improvements across firms since best practices would be shared? As well, did the program lead to improvements in specific firms, and if so what characterizes these firms?

Methods

This study looked at 3606 facilities belonging to 1500 firms in the chemical industry from 1987-1996. There were 160 CMA member firms that participated in Responsible Care. The sample consisted of 22,476 observations at the facility level and 12,829 observations at the firm level. Firm environmental performance was measured using data from EPA's Toxic Release Inventory.
King, Andrew, & Lenox, Michael. (2000). Industry self-regulation without sanctions: The chemical industry's responsible care program. Academy of Management Journal, 43(4): 698-716. 

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