Organisational Change in Response to the Environmental Agenda:
Some Developments
Carol Ann Tilt
School of Commerce
Flinders University
GPO Box 2100
Adelaide SA 5001
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SCHOOL OF COMMERCE
RESEARCH PAPER SERIES: 99-3
ISSN: 1441-3906
The author wishes to thank Professors Lee Parker, Rob Gray and Richard Laughlin for their useful comments and suggestions when this paper was in its (very) early stages of development.
Comments are welcome. All errors are the responsibility of the author.
Organisational Change in Response to the Environmental Agenda:
Some Developments
Abstract
Gray et al.’s (1995) paper in Critical Perspectives on Accounting uses and develops Laughlin’s (1991) model of organisational change to link empirical observations of UK (and NZ) companies to corresponding levels of organisational change. They assert that this model provides “...a framework for analysis of the current levels of organizational change in response to the developing environmental agenda”, or a research heuristic (Gray et al., 1995, p. 215). The model is a self-purported “first step” in the exploration of the environment and organisational change (Gray et al., 1995, p. 218). This paper attempts to refine the model, to include other elements that are discussed by Gray et al. (1995) but not explicitly contained in the model. The result is a dynamic model of organisational change that includes expected outputs from the organisation in response to disturbances. These outputs are in the form of strategies and disclosure, and are incorporated into the model using a socio-political framework.
Introduction
The contentious issue of the need for a cohesive theory for corporate social and environmental accounting has been discussed, debated and developed in the literature for a number of years (Matthews, 1997). The problem has been approached from a variety of perspectives. There are ‘macro’ theories that attempt to explain the fundamental processes or reasoning behind social reporting and accounting. The ‘micro’ theories attempt to highlight specific areas such as strategy or disclosure and provide models or frameworks for examining firms’ activities. Debates are influenced by varying philosophical views about the purpose of research, the nature of society and the importance of the issues covered by social accounting. The result is a series of issues that represent pieces in the vast puzzle being put together to achieve enlightenment, and perhaps change, in the complex world of social and environmental accounting.
This paper tries to put a few more pieces in place. It concentrates on environmental reporting as a sub-set of social reporting. Most environmental reporting models appear to be focussed on business ‘strategy’, or on environmental ‘disclosure’ in annual reports. Many models are prescriptive, concentrating on outputs, in that they provide standards or benchmarks for good environmental performance (eg. Steger, 1990; Simpson, 1991; Ford, 1992; James, 1992). Others attempt to determine why organisations develop environmental strategies or disclose environmental information, examining influences on behaviour (eg. Ledgerwood et al., 1992; Stikker, 1992; Vandermerwe & Oliff, 1990; Welford & Gouldson, 1993). One model, developed by Gray et al., appeared in Critical Perspectives on Accounting in 1995 and attempts to describe both the influences (inputs) on organisations and their response in the form of organisational change. While the paper provided a discerning analysis of the dynamics of organisations’ interaction with the environment, it did not take the next step and consider the responses (outputs) produced by the various levels of change that have taken place. This is however, implied in the paper, as the authors use the results of other studies to make an assessment of the level of change undergone by companies in the UK (and New Zealand) have undergone.
This paper argues that the two issues, strategy and disclosure, which have previously been considered in isolation, are in fact related and it is possible to develop a model that includes both. This paper uses the model of organisational change (Laughlin, 1991; Gray et al., 1995) described above, a strategic response model (Roome, 1992), and a disclosure model (Elkington, 1993) to demonstrate this relationship. A summary of the relationship explored in this paper is provided by Figure 1.
Figure 1.
Simple Model
The paper is structured as follows: First, the three major ‘macro’ theoretical positions are outlined, followed by an explanation of the stance taken in this paper. Next, a brief review of the business response literature is provided. The organisational change framework is then considered in detail, leading to the final section where the framework is developed to include both strategy and disclosure elements.
Theoretical Stances
In order to clarify the debates in the environmental (and social) accounting literature, each piece of research must be considered in light of the philosophical stance of the writer. The various positions taken by writers of social and environmental accounting literature, are commonly seen as fitting into three categories (Mathews, 1984; 1987; Parker, 1995; Tinker et al., 1991; Gray et al., 1996; Hackston & Milne, 1996). First, there is the functionalist or neo-classical economic paradigm, characterised by decision usefulness studies (eg. Spicer, 1978; Belkaoui, 1980; 1984; Dierkes & Antal, 1985). These studies rely on market explanations for all business activity, including social and environmental reporting. Second, there is the interpretive or ‘middle of the road’ paradigm, where the status quo is accepted but reasons other than market forces are explored as explanations for social reporting (eg. Gray et al., 1988; Laughlin, 1990). Finally, the radical, critical or socio-political paradigm is where social reporting cannot be considered without acknowledgment of the social and political nature of the society within which firms exist (eg. Cooper, 1980; Tinker, 1980; Tinker et al. 1991; Mathews, 1984; Gray, 1992; Lehman, 1995).
This paper is informed by the socio-political approach, as it considers social disclosures to be one form of discourse between competing sectors of society. By responding to environmental stimuli, organisations are extending their traditional boundaries to incorporate other elements of society (Llewellyn, 1994; Gray et al., 1995). Thus, they disclose, or account for, information beyond the confines of the purely financial. The paper also contends that disclosure is in part an attempt to discharge the accountability of organisations. It considers that firms that are responding to environmental stimuli do so in various forms, including strategic changes, policy development, and reporting. Thus, disclosure, or ‘providing an account’ of activities, should not be considered in isolation from models of organisational behaviour. The next section outlines some of the research into the various business responses before describing the model used in this paper.
Business Response
In the literature on business and the environment, many frameworks and models have been developed that explain how organisations have reacted to various environmental pressures. These frameworks can be classified into two major categories. First, those that attempt to classify organisations along an ‘environmental continuum’. For example, Simpson (1991) considers that organisations can be identified as “Why Me’s”, that observe only regulations; “Smart Movers”, that adopt marketing ploys to their advantage; or “Enthusiasts”, that adopt “…a company wide environmental policy” (Bansal, 1993b, p. 2). Steger (1990), Ford (1992) and James (1992) provide other examples. These frameworks are generally developed from an ‘external’ perspective and attempt to evaluate a company’s performance with respect to the environment. They have been criticised because, amongst other things, they classify organisations into a hierarchy of commitment to environmental issues and they fail to recognise that organisations have the choice of pursuing more than one strategy (Bansal, 1993).
The second category is those models developed from a ‘managerial’ perspective (eg. Bansal, 1993; Ledgerwood et al., 1992; Stikker, 1992; Vandermerwe & Oliff, 1990; Welford & Gouldson, 1993). These are intended for management to use to examine past performance and determine future directions for dealing with environmental concerns. Roome (1992, p. 11) developed a ‘Strategic Options Model’ which outlines the “…options available to business in formulating and implementing environmental management policies and systems”. He maintains that the options a company chooses will be determined in part by the public perceptions about the company’s effect on the environment, and by scientific evidence of that effect. This, in conjunction with the companies’ perceptions about the state of the environment (discussed below and in Table 1), will determine the environmental strategy chosen. He “…suggests that most companies are reactive to various shades of environmental threat” (Roome, 1992, p. 18). Roome’s (1992) five options are outlined in Table 1.
Table 1
Roome’s (1992) Strategic Options Model
Non-compliance / Strategy is to choose not to comply with environmental legislation due to cost constraints etc.
Compliance / The organisation chooses a reactive strategy
Compliance Plus / Companies take a pro-active stance on environmental management
Commercial and Environmental Excellence / Strategy based on the premise that “environmental management is good management”
(Roome, 1992, p. 19)
Leading Edge / Company sets the standard for others and encourages the workforce to “work towards an environmental ethic” (Roome, 1992, p. 22)
Both types of framework have in common the characteristic of placing the organisation along a spectrum from poor or no environmental performance to excellent performance. At the left of the continuum, the least commitment is demonstrated by the organisation doing nothing, or having no reaction to environmental influences. The right of the continuum depicts a level of excellence and total commitment to environmental concerns. This continuum could be described as showing a ‘change’ from organisations being ‘non reactive’ to being ‘reactive’ in their response to environmental influences and further, to being ‘proactive’ - rather than simply responding to influences, they strive to be ahead of changing public perceptions or upcoming legislation.
Laughlin (1991) uses the literature on the different levels of organisational change to examine the response to environmental issues. These levels vary from “no change”, where the organisation seeks to remain as they are and not respond to the particular environmental issue; to “second order change”, where organisations freely choose to change in response to the issue (Gray, et al., 1995, pp. 216-217). This theory is considered more suitable for assessing business response than any of those addressed above as it has appeared to be robust when considering other stimuli for change (than environmental) and encompasses most of the different frameworks described above. This theory therefore has a more ‘macro’ nature than most of the others. If the relationship between society and organisations is examined within the socio-political paradigm, and disclosure considered to be not only a form of discharging accountability but also a medium for discourse between organisations and other societal groups, then some form of measuring the reciprocal effects of such discourse is needed. The theory of organisational change provides such a measure as it considers the various levels of change in organisations’ corporate philosophy or beliefs and their expression in strategy and operations.
In addition to these frameworks, of literature has also emerged that addresses the amount of environmental disclosure produced by organisations in response to the environmental agenda. Studies vary according to country and industry, and range from 97% of the sample producing environmental disclosure (UN, 1994), to 24% (Rankin, 1996). Elkington (1993) developed the most well known model for environmental disclosure. He attempts to identify the level of business response to environmental issues from an external viewpoint and provides a typology of environmental reports that reflect the level of commitment to the environment reached by an organisation. The ‘Five stages of the Evolution of Corporate Environmental Reporting’ are outlined in Table 2 below.
Table 2
Elkington’s Five Stages of Development in Environmental Reporting
Stage 2 / One off environmental report often linked to first formal policy statement.
Stage 3 / Annual reporting linked to environmental management systems, but more text than figures.
Stage 4 / Provision of full TRI-style[1] performance data on annual basis. Available on diskette or online. Environmental report referred to in annual report.
Stage 5 / Sustainable development reporting linking environmental, economic and social aspects of corporate performance supported by indicators of sustainability.
Source: Elkington (1993)
An international study using this model found that 39% of companies were still at stages 1 and 2 (green glossies or one-off reports), 25% were at stage 3 (annual reporting), 5% at stage 4 (performance data and reporting in annual report) and none had reached stage 5 (sustainable development reporting) (UNEP IE, 1994). Elkington’s (1993) five-stage model is discussed further in the following sections.
While disclosure is mentioned occasionally, most of the two types of framework described earlier (external and managerial) ignore the issue. Through the addition of some form of disclosure to a model of business response to the environment, these two types of framework can be brought together. In particular, it considers the reasons behind the various strategic stances that may be taken in the managerial frameworks, ie. the change undergone in response to external stimuli can be included. Thus, Gray et al.’s (1995) model of organisational change is used as a basis for this paper. It is outlined in the next section, followed by this paper’s developments.
Organisational Change
Laughlin (1991) outlines a dynamic model of organisational change in which he first describes a model of organisations where the organisation is conceptualised as “…an amalgam of ‘interpretive schemes’, ‘design archetypes’ and ‘sub-systems’…” (Laughlin, 1991, p. 211). The ‘interpretive schemes’ are those values and beliefs that underlie the organisation - the organisation’s ‘culture’ or ‘ideology’. The ‘design archetype’ element of the model includes the organisation structure, decision processes and communications system, and relate to a set of “…underlying … values and beliefs” (Laughlin, 1991, p. 212). Finally, the ‘sub-systems’ are described as the tangible aspects of the organisation, eg buildings, people, machines, etc., and the behaviours of these (Laughlin, 1991).
Within the literature on organisational change, there has been the assumption that organisations are naturally change resistant. This assumption indicates that they will only change when forced to by some kind of disturbance or ‘kick’, and in fact they would prefer not to change at all, that is, to remain in their natural state, or display ‘inertia’ (Laughlin, 1991). Laughlin (1991) uses this model to track the pathways of organisational change. A disturbance or ‘kick’ will lead to transitions and/or transformations by the organisation and cause differing changes (Gray et al., 1995). Laughlin (1991, p. 214), using the work of Smith (1982) and Robb (1988), describes the changes as being either first-order (morphostatic) or second-order (morphogenetic):
…morphostatic changes involves ‘making things to look different while remaining basically as they have always been’ (Smith, 1982, p. 318), … morphogenesis … ‘penetrates so deeply into the “genetic code” that all future generations acquire and reflect these changes’ (Smith, 1982, p. 318)
First and second order changes contain two sub-sections. First order changes consist of either ‘rebuttal’, where the organisation may change slightly but then revert after the disturbance, or ‘reorientation’, where the disturbance cannot be rebutted and must be “…internalised … [by the] … organisation, but in a way that the real heart of the organization (the interpretive schemes) is basically unaffected by the disturbance” - affecting perhaps only the ‘sub-systems’ of the organisation (Laughlin, 1991, pp. 217-218).
Second order changes can involve either ‘colonisation’ or ‘evolution’ and will cause changes to all three elements of the model of the organisation described above (sub-systems, design archetype and interpretive schemes). Colonisation occurs when a change is forced upon an organisation, “formulating a totally new underlying ethos” (Laughlin, 1991, p. 219), while evolution is a change that is chosen by the organisation, and is “accepted by all participants freely and without coercion” (Laughlin, 1991, p. 220).
Laughlin (1991) recognises that this is a simple model which cannot fully detail the changes within organisations, and requires much further research and in particular, case studies, to improve upon it. Other characteristics must also be considered which provide potential for change, for example, the strength of the firm’s ideologies, the magnitude of the disturbance, the power relationships within the organisation, and the “competencies and capabilities” within the organisation (Laughlin, 1991, pp. 222-223). Gray et al. (1995) summarise the levels of change described by Laughlin into the typology shown in Table 3.
Table 3
Laughlin’s Typology Of Organisational Change
FIRST ORDER CHANGE / (ii) “Rebuttal”
(Morphostatic) / (iii) “Reorientation”
SECOND ORDER CHANGE / (iv) “Colonisation”
(Morphogenetic) / (v) “Evolution”
Source: Gray, Walters, Bebbington & Thomson (1995), p. 216.
Laughlin’s framework is employed by Gray et al. to examine the influence of the “greening of organisations” (1995, p. 217). They also attempt to overcome some of the weaknesses they identify in Laughlin’s framework. For example, how to identify disturbances a priori. Gray et al. (1995, p. 217) redefine Laughlin’s model of the organisation in a less rigid way, drawing on the work of Llewellyn (1994), seeing it as “…essentially fluid, increasingly transparent and with shifting boundaries”. They investigate the environment as an agent for organisational change, in that challenging the traditional boundaries of an organisation results in the enactment of a process of change (Llewellyn, 1994). Organisational response to the natural environment suggests that the notion that the environment is ‘outside’ the organisation is being challenged. Gray et al. (1995) identify a priori, four groups of environmental disturbances producing that challenge:
Institutional Framework: changes in law, EC directives, price and taxation changes.
Changes in Organisational Participants: changing trading arrangements; green consumerism; attitudes of present and future management and employees.
External Social Pressures: actions of environmental groups; changing public opinion; changing moral/ethical positions.
Long-term Forecasting: if the more gloomy environmentalists are correct then ‘business’ will find itself severely constrained/offered ‘new business possibilities’ by direct environmental action in the relatively near future. This will be factored into business planning.
(Gray et al., 1995, p. 219)
Gray et al. (1995) relate these disturbances to Laughlin’s typology by discussing the level of organisational response likely for each potential disturbance (informed by their empirical work). Thus, Gray et al. (1995) have extended Laughlin’s (1991) model to identify some of the possible disturbances that may result in organisational change – the ‘inputs’ in Figure 1 above.