An upper echelons view of the antecedents to effectiveness : the financial and environmental performance of oil refiners

Little systematic research has investigated the impact of the environmental movement on organizational performance and the limited evidence is often regarded as contradictory and inconclusive. The debate has recently been renewed with vigor as some contend that the environmental movement harms the economic vibrancy of U.S. businesses whereas others contend that it has provided a new source of competitive advantage. This research seeks to understand the relationship between two important types of organizational performance — financial performance and pollution performance — and to identify their antecedents. Both types of performance are argued to be part of organizational effectiveness. Upper Echelons theory (Hambrick & Mason, 1984) was extended and applied to predict these two types of organizational performance within the U.S. oil refining industry. The refining industry has generally reduced pollution but exhibited high variability in both the levels of pollution produced by firms and the rates at which those levels were reduced. It was concluded that the Upper Echelons model is suitable for investigating organizational effectiveness issues and was capable of revealing the tradeoffs in decision making for effectiveness. Older and long-tenured top managers tended to reside in firms that produced higher pollution levels and had lower profitability. Two strategy variables, strategic flexibility and modernization strategy, best revealed the tradeoffs inherent in decision making for organizational effectiveness. Results suggested that in choosing flexible processes in this industry, refineries produced higher pollution levels but were able to make much larger reductions in pollution levels. Flexible processes were also associated with higher gains in profitability during times of generally declining profitability for the rest of the industry. Results also suggested that investing in more modem facilities resulted in lower pollution levels but further reductions in those levels became difficult. Additionally, modernization depressed current profitability but the trend in profitability growth was greater than for refiners with older facilities. Reduced pollution levels were associated with increased profitability but only for those firms that made large reductions in pollution relative to their initial pollution levels. Thus, pollution reductions appear to be a source of competitive advantage.