Plum Creek Timber (A) (B) (C)
Teaching Note
Case Summary
This case explores a negotiation between Plum Creek Timber Company – formerly the nation’s sixth largest private timberland owner– and two agencies of the Federal Government – the Fish and Wildlife Services (FWS) and the National Marine Fisheries Services (NMFS). The case examines the prospects for a proposed Habitat Conservation Plan (HCP) designed to protect a “threatened species”, the Bull Trout, listed under the Endangered Species Act (ESA). The negotiation context is rich in complexity and highlights decision-making under uncertainty, the pervasive nature of institutional barriers to efficient negotiated agreements (i.e. regulations, politics, professional norms) and the roles that individual and organizational actors can assume in this process. The case examines the impact of the regulatory process on environmental negotiations and highlights the conflicting tensions of different rule regimes as well as the fact that many regulations yield sub-optimal results.
Plum Creek is portrayed as a company that has undergone significant organizational change, developing a very active environmental strategy. The (A) case concludes as they must decide to pursue an HCP for the Bull Trout as part of its ongoing mission and corporate policy of environmental forestry or forego the complex negotiation process. An HCP is described as a “creative partnership” between private landowners and the government that range in duration from 1-100 years. Plum Creek has recently completed a successful HCP to protect the Northern Spotted Owl and must consider the risks and rewards in pursuing another such strategic alliance for the Bull Trout and other species given the controversy over HCPs.
The (B) case follows Plum Creek’s decision to pursue the HCP, exploring the details of the negotiation and the tactics and strategies employed by the company. This segment further highlights the complexity and ambiguity present in the process and provides insights on how organizations, acting as institutional entrepreneurs, can overcome barriers in a negotiation. The final (C) case briefly describes the outcome of the negotiation, providing details on the final stage of the process, the public comment phase to the HCP proposed by Plum Creek and the government. The attached Teaching Outlines proposes two (2) alternative approaches for use of the case materials- Plum Creek (A) highlights “The Decision to Negotiate” while the use of the (A) and (B) segments collectively emphasizes “Confronting the Barriers to Negotiation.” Clearly, teaching formats that exceed 80 minutes offer a variety of other alternatives.
Note: Portions of this material are adapted from Overcoming Institutional Barriers to Efficient Negotiated Agreements: Institutional Entrepreneurship and The Plum Creek Habitat Conservation Plan co- authored by John G. Troast, Jr., Andrew Hoffman, Hannah Riley, and Max Bazerman. This paper was presented at Organizations, Policy and the Natural Environment, a conference sponsored by the Kellogg Research Center at Northwestern University, April 28-30, 2000.
Learning Objectives
The case is designed for courses in negotiation as well as business and government policy. It focuses on the:
· Need to understand institutional barriers to negotiation and to develop strategies to address them. These include endangered species regulation, scientific norms and competing belief systems about timber companies and the environment.
· Importance of mapping the various individual and organizational actors involved in a complex environmental negotiation.
· Need to gain an appreciation and understanding of the role of government in a mixed-motive negotiation. The case contrasts the role of government as both arbiter and facilitator of the rules.
· Decision-making strategies employed by companies when confronted by competing regulations. Habitat Conservation Plans represent a new form of regulation characterized by collaboration rather than traditional command and control regulatory forms of the ESA.
This teaching note examines how the management at Plum Creek Timber Company approaches the institutional barriers imposed by regulation and other factors and evaluates the essential elements needed to pursue a strategic alliance with the government over an extended period of time. The note is organized into five segments. The first describes the industry and the impact of regulation on the actions of timber companies. The second section focuses on the negotiation context and the importance of understanding the relationships in a multi-party negotiation. This section also describes the opportunities created by collaborative regulatory forms. The third section examines the institutional barriers to negotiation and represents a key underlying issue in the case. The fourth section explores the strategies that can be employed by organizations as they confront the negotiation aspects of strategic alliances. The final section offers some concluding thoughts.
Case Analysis
- Industry and Company Context- provides background on the timber industry and the regulatory environment, highlighting the tensions between the ESA and HCPs.
- Negotiation Context- details the multi-level, multi-party nature of business and government negotiations contrasting individual and organizational actors. This section also explores the importance of reconciling interests in a complex mixed-motive negotiation and describes the potential benefits of creating wiser regulation using collaborative forms like HCPs.
- Institutional Barriers to Negotiation- describes institutional barriers using four perspectives for discussion and highlights how these are interrelated and embedded in the process.
- Strategies Employed by Institutional Entrepreneurs- highlights the strategies used by Plum Creek leading up to and during the negotiation including the exchange of information within the broader institutional field and the effective use of integrative solutions like strategic alliances between business and government. Other strategies employed include the active management of innovative alternatives as private companies develop potential new dominant designs for endangered species protection as well as the importance of balancing efforts to create and claim value.
- Conclusion- argues that collaborative regulation like HCPs involves building a public-private partnership and creates different roles and opportunities for business and government. The decision to negotiate is crucial for individuals and organizations. Engaging the broader field of actors in order to build the institutional trust necessary for the longer-term relationship enhances the process.
The Paper and Forest Products Industry
Background
The paper and forest products industry, with annual shipments of more than $200 billion ranks as one of the nation’s ten largest industries. Revenues for paper and paperboard products comprise about 85% of the industry’s sales, while wood products account for the remaining 15%. U.S. firms generate approximately one-third of the global sales, and while the domestic market is significant, exports have been increasing steadily (Standard & Poors, 2000). The market structure of the industry ranges from giants like International Paper Company, with $23 billion in 1999 sales, to many smaller logging and manufacturing operations. The four largest paper and forest products companies are responsible for 34% of the total industry output. Most of this output constitutes homogenous products, generally viewed as commodities. Alternatively, many of the vertically integrated manufacturers like Plum Creek have sought to differentiate their products in effort to avoid extreme price volatility. Given the market structure and limited product differentiation, the paper and forest products industry is highly competitive.
Both paper and wood product prices have been subject to wide fluctuations similar to agricultural markets like grain farming. In addition, environmental spending is significant, accounting for 14% of all capital outlays made by the U.S. paper industry since the late 1980’s according to the U.S. Department of Commerce. Apart from being impacted by regulation, the industry is also effected by macroeconomic factors like foreign markets and interest rates. The Asian financial crisis severely limited exports and impacted prices beginning in the fall of 1997 (Standard & Poors, 2000). Price volatility has resulted in industry consolidations that have also helped to slow expansion in the paper products segment. Excess inventories built-up during boom cycles have historically contributed to major price declines. The last period of major price adjustments occurred in 1995-96. Wood product prices are also subject to extreme volatility and macroeconomic effects as the construction industry is very sensitive to rising interest rates. Steady increases in single family home construction since 1992 (with a brief downturn in 1995) have helped to maintain rising demand for wood products, but record demand pushed domestic sawmills into high production which, when coupled with the Asian market crisis, generated excess supply in 1997-98. Recent trends indicate that the sales of new single family homes reached record levels in 1999 exceeding 900,000 units (Standard & Poors, 2000).
Regulation
The paper and forest products industry is highly impacted by regulation. This is further complicated by the fact that environmental regulation involves multiple agencies having jurisdiction as well as state and local regulatory bodies. In many cases the requirements of these regulating bodies differ. The principal U.S. agencies impacting the industry include the Fish and Wildlife Services (part of the Department of Interior), the National Marines Fisheries and Wildlife Services (part of the National Ocean and Atmosphere Administration), the U.S. Forest Service (part of the Department of Agriculture) and the Environmental Protection Agency.
Timber companies are principally impacted by the Endangered Species Act which prohibits the “take” of any federally listed animal or plant species considered “endangered” or “threatened.” To “take,” as defined in the ESA, means to “harass, harm, pursue, hunt, shoot, wound, kill, trap, capture, collect or attempt to engage in such conduct” (ESA, Section 3(18)). “Harm” includes any habitat modification that impairs species reproduction. The provisions of the law appear to many private landowners as coercive, a violation of sacrosanct property rights, which contributes to the conception that environmental protection is at odds with economic interests (Hoffman and Ventresca 1999).
In 1982, Congress amended the ESA to allow for the creation of HCPs, designed to provide landowners with greater regulatory certainty in the future in exchange for a variety of conservation measures to benefit the endangered species. The Habitat Conservation Plan (HCP) variant was designed to promote dialogue and encourage “creative partnerships” (HCP Handbook) between private landowners and the government concerning protection of threatened or endangered species. This regulatory change seeks to reduce the potentially severe land-use restrictions that cause many landowners to legally or illegally destroy wildlife habitats to conceal evidence of the presence of listed species. One landowner vividly summarized this defensive maneuvering as “shoot, shovel, and shut up” (see Case, page 8).
HCPs have been regarded by some as an effective means to promote flexibility, improve science and technology and create greater regulatory certainty for private landowners. Others see HCPs as overly permissive and flawed in their longer-term design horizons. Sabel, Fung et al. (1999) suggest that in the absence of rigorous monitoring:
[The HCP process]…can lead to self-deluding celebrations of expert powers and … to under-estimation of the combined political, scientific, and practical complexity of large-scale ecosystem management. At the worst, it can undermine the democratic legitimacy of HCPs by transforming them into unprincipled backroom deals between regulators and the regulated” (Introduction to the (B) case).
HCPs offer a great deal of potential but they have not created the value expected. Logically, they provide an opportunity for all parties to do better as a whole than what would occur without an HCP, yet there are many problems with implementation. The case highlights many of the issues. The government offices authorized to create HCPs often have too little staff and too little training. Most companies affected by the ESA do not know enough about the HCP process. And, shifting political currents that serve to periodically strengthen or weaken the ESA; in turn influence many potential participants who spend more time trying to change the law rather than to act within it. Environmentalists often depict HCPs as a way for economic interests to circumvent the core of the ESA. Landowners often complain that HCPs create yet another costly web of government bureaucracy. In sum, HCPs have not yet achieved the intended objective to promote positive dialogue between environmental and economic interests. Plum Creek is challenged by a regulatory context where HCPs appear to offer a very costly, idiosyncratic and bureaucratic process rather than a more efficient means to reconcile interests.
The Negotiation Context
The approach to this material will vary greatly depending upon the nature of the course and the level of experience of the students. Some instructors might choose to approach the questions concerning the Plum Creek decision to pursue the HCP using a decision tree. Others might elect to identify the different parties to the negotiation and attempt to analyze their positions and interests. In either instance, the case is designed to provide a rich background to assess the relevant context of the negotiation. Students should be aware that the context of the negotiation shapes the structure and expectations of the parties which in turn, impacts behaviors and outcomes (Sebenius, 1997).
Figure 1 provides a “deal diagram” that depicts the central relationships in the case. Sebenius (1997) describes this as a useful tool to assess structural opportunities and barriers. In the discussion, it will be important to draw distinctions between the multiple constituencies as well as the parties within the various organizations. In this case, FWS and NMFS, acting as “the services”, are engaged directly in the negotiation with Plum Creek. Other interested parties like the environmental groups, the Clinton Administration and other particular interests have a less formalized role in the negotiation, yet are essential to a successful outcome and ultimately to the legitimization of HCPs. Clearly the interests in government vary across agencies and within the administration which is particularly evident in the (B) case. Furthermore the roles of the various parties within Plum Creek have different interests even if they appear to be focused on a shared goal to reduce regulatory uncertainty. The “deal diagram” enables the instructor to also explore aspects of key coalitions (Raiffa, 1982; Thompson, 1998) as well as the sequencing of contacts with the multiple parties (Sebenius 1996). Although the diagram depicts the nature of the HCP strategic alliance between Plum Creek and “the Services” it also highlights the importance of coalitions outside the formalized agreement. While the case does not provide sufficient data to evaluate coalitions in quantitative terms, clearly the minimum winning coalition lies outside the HCP agreement requiring a broader consensus. This underscores the importance of the need to study the broader institutional field and leads to the discussion of the related barriers (Troast et. al, 2001).