Corporate Governance and Supplemental Environmental Projects: A Restorative Justice Approach

Abstract

Firms have traditionally responded to environmental violations by increasing information disclosure and/or communication to manage stakeholder perceptions. As such, these approaches may be symbolic in nature, with no genuine intention to improve the environment. We draw from restorative justice grounded in stakeholder theory and explore a relatively new approach in the form of supplemental environmental projects (SEPs) aimed at restoring the environment, and empirically examine the role of corporate governance (board structure) in firms’ decisions to undertake reparative actions. Using environmental violations and SEPs data from the US Environmental Protection Agency between 2002 and 2015, we find that firms with smaller boards are more likely to undertake SEPs. We also find that firms with higher board independence and CEO duality undertake SEPs more frequently; however, board gender diversity and the existence of a sustainability committee appear to have no impacts. These results are robust to propensity score matching and an alternative data source. We extend the scope of stakeholder theory by emphasizing a new approach—restorative justice—by which corporations can repair damaged relationships and also improve the environment. We also contribute to corporate governance and environmentalism literature by identifying governance structures that promote environmental restorative justice. Thus, our study will inform different stakeholders, including regulators, shareholders, and boards of directors, and will open new avenues for business ethics scholarship.

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Notes

  1. 1.

    As defined by FindLaw Attorney Writers, “an environmental violation occurs when an activity or an existing condition does not comply with an environmental law or regulation. Environmental violations can include (but are not limited to) smoke or emissions, improper disposal of hazardous waste, exceedances of pollutant limits” (for more, see https://corporate.findlaw.com/law-library/environmental-violation.html). Some recent and horrendous examples of corporate environmental violations include the Deepwater Horizon oil spill, Volkswagen’s emission scandal (violation of the Clean Air Act), and Wood Group PSN’s violation of the Clean Water Act.

  2. 2.

    The three core components (relationships) of restorative justice model are (a) the offenders feel the moral responsibility or harm of their offence and offer to make amends/moral repair, (b) victims acknowledge the amends and offer forgiveness, and (c) the offenders are reintegrated back into their communities.

  3. 3.

    Braithwaite (2002) presents the excellent example of the Colonial Mutual Life Insurance Company of Australia, which was involved in insurance frauds and cheated thousands of customers. The company later adopted a restorative justice approach and made amends by publicly expressing their guilt, compensated over 2000 policy-holders, and funded an educational trust. This example depicts all the stages involved in restorative justice, i.e. acknowledging the responsibility of the offence, offering amends, and rehabilitation.

  4. 4.

    In their rich discussion on restorative justice, Goodstein and Butterfield (2010) provide answers to when, who, and what matters in ethics. With regards to “when ethics matter”, ethics matter when an unethical activity has occurred. In the context of our study, ethics matter when firms violate environmental laws. Regarding “who matters in ethics”, all the stakeholders involved/affected, i.e. wrongdoers, victims, and those who can reintegrate the offenders. Finally, with respect to “what matters in ethics”, moral repair is necessary when a moral relationship is damaged.

  5. 5.

    In her rich discussion of moral repair under a restorative justice perspective, Walker (2006) suggests that moral repair is a responsibility that involves multiple parties. For example, the moral repair for offenders is making amends; for victims, it is offering forgiveness; and for the community, it is reintegrating the offender back into the community.

  6. 6.

    For more details, see https://www.epa.gov/history/epa-history-documents-about-agency-accomplishments.

  7. 7.

    For more details of this case, see https://www.epa.gov/enforcement/case-summary-avx-agrees-pay-366250000-towards-clean-new-bedford-harbor-mass.

  8. 8.

    See the revised EPA policy regarding SEPs at https://www.epa.gov/sites/production/files/2015-04/documents/sepupdatedpolicy15.pdf.

  9. 9.

    The US-EPA divides environmental violations into the following types. Clean Air Act (CAA), Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), Clean Water Act (CWA), Emergency Planning and Community Right-to-know Act (EPCRA), Federal Insecticide Fungicide, and Rodenticide Act (FIFRA), Marine Protection, Research, and Sanctuaries Act (MPRSA), Resource Conservation and Recovery Act (RCRA), Safe Drinking Water Act (SDWA), and Toxic Substances Control Act (TSCA).

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Acknowledgements

I would like to thank Associate Editor and two anonymous reviewers for their useful comments on the earlier version of this paper. I would also like to thank Professor David Lont for guiding remarks on data matching issues, Khurshid Ali for assistance in data collection, and Marianne Lown for proofreading. Any errors are my own.

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Appendix

Appendix

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Table 7 Variable definitions and data source

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Nadeem, M. Corporate Governance and Supplemental Environmental Projects: A Restorative Justice Approach. J Bus Ethics (2020). https://doi.org/10.1007/s10551-020-04561-x

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Keywords

  • Restorative justice
  • Stakeholder theory
  • Environmental violations
  • Corporate governance