Sweeping it under the rug: Positioning and managing pollution‐intensive activities in organizational hierarchies

Research SummaryMany corporate groups have multiple layers with parent companies owning subsidiaries, which own other subsidiaries, and so forth, in a pyramid‐like ownership structure. We argue that corporate groups perform their pollution‐intensive activities at the lower levels of the corporate hi...

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Bibliographic Details
Published in:Strategic management journal Vol. 45; no. 6; pp. 1151 - 1179
Main Authors: Lee, Juyoung, Bansal, Pratima
Format: Journal Article
Language:English
Published: Chicago Wiley Periodicals Inc 01.06.2024
Subjects:
Business
Chemical industry
Companies
Environmental regulations
Groups
Hierarchies
Liability
Limited liability
Manufacturers
Manufacturing
Organizational effectiveness
Organizational research
Organizational structure
Outsourcing
Ownership
Parent companies
Parents & parenting
Pollution
Positioning
Regulation
Risk management
Subsidiaries
United States > US
ISSN:0143-2095, 1097-0266
Online Access:Get full text
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Summary:Research SummaryMany corporate groups have multiple layers with parent companies owning subsidiaries, which own other subsidiaries, and so forth, in a pyramid‐like ownership structure. We argue that corporate groups perform their pollution‐intensive activities at the lower levels of the corporate hierarchy to buffer the parent from pollution‐related regulatory risks. Our analysis of 7400 US‐based business establishments owned by the 67 largest US‐headquartered chemical manufacturing corporate groups supported this argument. We also found that they were even more likely to do so in states with greater environmental stringency, whether it be in the home state of the parent or the host state of the subsidiary. Our research calls into question the effectiveness of environmental regulations if companies have the opportunity to shift polluting activities lower in their corporate hierarchy.Managerial SummaryMany commentators assert that firms offshore or outsource pollution‐intensive activities to avoid environmental regulations. In this research, we suggest a third approach in avoiding environmental regulations: locating pollution lower in the hierarchy of multilayered corporate groups, which are companies that own subsidiaries that own other subsidiaries and so on. By analyzing data on the 67 largest US‐headquartered chemical manufacturing corporate groups, we found support for this assertion. We also found that pollution is more likely to be located lower in multilayered corporate groups when they are subject to stringent environmental regulations. The multilayered corporate form allows parent companies to insulate themselves from the regulatory risks of pollution‐intensive activities of their subsidiaries through their limited liability status.
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ISSN:0143-2095
1097-0266
DOI:10.1002/smj.3582