Promoting Change from the Outside: Directing Managerial Attention in the Implementation of Environmental Improvements

Regulatory agencies, auditing firms, and supply chain partners externally promote change in firms. To this end, they commonly employ two different and somewhat contradictory intervention approaches. One approach uses punitive tactics to coerce firms to change, while the other approach uses supportive tactics to encourage change. Using the context of government agencies promoting environmental improvements in firms, we examine whether such punitive (e.g., regulatory inspections with possible sanctions) and supportive (e.g., environmental assistance, improvement recommendations) tactics can be administered in a complementary manner. Using a unique and novel longitudinal data set collected from two state-level environmental agencies in Minnesota, we analyze over 1,000 supportive environmental improvement (EI) projects in combination with intermittent (but currently uncoordinated) punitive tactics. One key finding from our research is that the timing, severity, and relatedness of punitive tactics is critical for directing managerial attention and thus improving the efficacy of supportive tactics (i.e., EI implementation). Contingent on their timing, inspections can increase EI implementation rates by up to 60% but can also reduce implementation rates by up to 50% compared with EIs in facilities that do not experience inspections. Classifying regulatory inspections as (1) either clean or adverse and (2) either related or unrelated allows us to further explain the influence of such punitive tactics on EI implementation. Finally, we provide evidence for a positive effect of successful EI implementation on long-term environmental compliance. The online appendix is available at https://doi.org/10.1287/mnsc.2017.2748 . This paper was accepted by Serguei Netessine, operations management.