Perceived stakeholder influences and organizations’ use of environmental audits

Description
While the use of internal, external, and both types of environmental audits are becoming more pervasive in society, little
is known about the stakeholder influences associated with their use, in large part because previous research has viewed
them as a uniform type of management practice. This study draws on stakeholder theory to explore organizations’ use
of different types of environmental audits. It uses international manufacturing data to show that significant variations
in the use of environmental audits are associated with differences in stakeholder influences, and that a more nuanced treatment
is needed when evaluating these audits.

Perceived stakeholder in?uences and organizations’ use
of environmental audits
q
Nicole Darnall
a,
*
, Inshik Seol
b,1
, Joseph Sarkis
b,2
a
Department of Environmental Science and Policy, George Mason University, 4400 University Dr., MSN5F2, Fairfax, VA22030, United States
b
Graduate School of Management, Clark University, 950 Main Street, Worcester, MA 01610-1477, United States
Abstract
While the use of internal, external, and both types of environmental audits are becoming more pervasive in society, little
is known about the stakeholder in?uences associated with their use, in large part because previous research has viewed
them as a uniform type of management practice. This study draws on stakeholder theory to explore organizations’ use
of di?erent types of environmental audits. It uses international manufacturing data to show that signi?cant variations
in the use of environmental audits are associated with di?erences in stakeholder in?uences, and that a more nuanced treat-
ment is needed when evaluating these audits.
Ó 2008 Elsevier Ltd. All rights reserved.
Introduction
Over the last decade, the number of organiza-
tions relying on environmental audits has increased
exponentially. For instance, in the last 10 years
more than 88,000 organizations worldwide have
certi?ed their environmental management systems
(EMS) to ISO 14001 (Peglau, 2005), the interna-
tional EMS standard which requires external audits
as a condition of certi?cation. Outside of the ISO
14001 framework, many more companies have uti-
lized other types of external environmental audits,
implemented internal audits, or adopted both types
of auditing schemes.
Recently, Parker (2005) reviewed the research on
social and environmental accountability that was
published between 1988 and 2003 in six leading
interdisciplinary accounting journals. He found that
of the 233 published articles assessing social and
environmental accountability, 140 (66%) speci?cally
addressed environmental issues.
3
After further
0361-3682/$ - see front matter Ó 2008 Elsevier Ltd. All rights reserved.
doi:10.1016/j.aos.2008.07.002
q
The authors thank the Organization for Economic Co-
operation and Development (OECD) Environmental Directorate
and the US environmental Protection Agency, O?ce of Policy,
Economics and Innovation, for partial funding of this research.
Portions of this research were completed while Joseph Sarkis was
a visiting scholar supported by the European Commission’s
Erasmus Mundus program at the Central European University
and Lund University in their MESPOM program.
*
Corresponding author. Tel.: +1 703 349 1233/993 3819; fax:
+1 703 993 1066.
E-mail addresses: [email protected] (N. Darnall), iseol@
clarku.edu (I. Seol), [email protected] (J. Sarkis).
1
Tel.: +1 508 793 7748.
2
Tel.: +1 508 793 7659.
3
The six journals were Accounting, Auditing and Accountability
Journal, Accounting Forum, Critical Perspectives on Accounting,
Accounting, Organizations and Society, Social and Environmental
Accounting Journal, and Journal of the Asia Paci?c Centre for
Environmental Accountability.
Available online at www.sciencedirect.com
Accounting, Organizations and Society 34 (2009) 170–187
www.elsevier.com/locate/aos
evaluating these papers, Parker (2005) concluded
that, while scholarship recognizes environmental
accountability as an important research area, the
topic of environmental auditing is under-researched
by authors publishing in leading interdisciplinary
accounting journals. Even less is known about the
factors associated with organizations’ use of di?er-
ent types of environmental auditing practices.
Understanding these relationships is important
for several reasons. First, regulators do not require
organizations to utilize environmental audits. As
such, companies that rely on them do so voluntar-
ily, and often in the absence of coercive external
mandates. By examining organizations’ voluntary
use of environmental audits we may realize that,
despite the lack of coercive mandate, di?erent
types of stakeholder in?uences may be associated
with their implementation. Assessing these rela-
tionships therefore would o?er essential insights
about the global adoption of these environmental
management tools.
Second, while anecdotal evidence (Hillary, 1998;
Tilt, 2001) and empirical research (Khanna &
Anton, 2002) on organizations’ environmental
audits have viewed them as a uniform type of man-
agement practice, the landscape of environmental
audits is diverse in that organizations can imple-
ment internal or external audits, or both. Internal
audits generally use existing resources and are con-
ducted by an employee or team of employees who
typically have extensive tacit knowledge about the
organization and its internal processes. While these
audits often reveal speci?c operations and processes
needing improvement, they are criticized for lacking
external transparency and credibility.
By contrast, external audits are executed by inde-
pendent outside assessors who provide assurances
to the organization and its external stakeholders
about the business’s environmental management
practices. This approach, however, can be costly
and may not provide equivalent operational bene?ts
as those derived from internal audits. In still other
instances, researchers have suggested that organiza-
tions combine both auditing practices to gain max-
imum operational bene?ts and credibility (Stanwick
& Stanwick, 2001).
Given the variations in operational bene?ts and
credibility, we anticipate that there are fundamental
di?erences in the organizations that implement one
type of environmental auditing scheme over
another. An appreciation for these di?erences may
be essential to understanding an organization’s sub-
sequent changes in environmental performance and
stakeholder relations.
This study draws on stakeholder theory to evalu-
ate the relationship between perceived stakeholder
in?uences and organizations’ use of environmental
audits. More speci?cally, the research expands on
previous scholarship by considering how perceived
stakeholder in?uences are associated with manag-
ers’ decisions to implement one of four environmen-
tal audit options: no audit, internal audits only,
external audits only, and a combination of both
internal and external audits.
Further, this study extends prior research that
has evaluated environmental auditing studies that
have focused on larger ?rms (Khanna & Anton,
2002), a limited number of industrial sectors
(A
´
lvarez, Burgos, & Ce´spedes, 2001), and single
countries (A
´
lvarez et al., 2001; Watson & Emery,
2003). It utilizes data for both large and small
organizations in manufacturing sectors operating
in seven di?erent countries (Canada, France,
Germany, Hungary, Japan, Norway and the United
States (US)) to o?er a more complete perspective on
the extent to which stakeholder in?uences are asso-
ciated with the use of di?erent environmental audit-
ing practices.
Variations in environmental auditing
Over the past two decades many organizations
have responded to stakeholder in?uences in an
e?ort to become more environmentally responsible.
For example, some organizations have begun to
publicly disclose their environmental information
through a number of avenues including corporate
reporting either as part of their annual report or
stand-alone voluntary environmental reports.
Financial reporting requirements mandate full dis-
closures of real and potential environmental liabili-
ties. While predominantly used by publicly traded
companies, privately owned ?rms also rely on envi-
ronmental reporting. Private companies often use
environmental reporting in response to in?uences
from large corporate buyers, which are requiring
their suppliers to provide environmental informa-
tion as a condition to doing business (Darnall,
Gallagher, & Andrews, 2001). Environmental
reporting therefore is becoming a major feature of
all business activity (Gray & Bebbington, 2001).
Some organizations have gone a step further to
integrate environmental information into their deci-
sion making processes with a variety of programs
N. Darnall et al. / Accounting, Organizations and Society 34 (2009) 170–187 171
including voluntary certi?cations (such as ISO
14001) and other pervasive environmental manage-
ment systems. As a component of this operational
integration, organizations are utilizing environmen-
tal audits.
De?ning environmental audits
An audit (of any sort) requires a commitment to
the auditing philosophy, its social norms, and a
communal investment in this concrete technical
practice (Power, 1997). Society is increasingly com-
mitted to observing itself through various kinds of
auditing practice. The rationale for this commit-
ment is the notion that individuals must be account-
able for their actions and this accountability must
be veri?ed (Power, 1997). Related to the natural
environment, environmental auditing has evolved
from a tool for companies to ensure their compli-
ance with environmental regulations to a manage-
ment based style of self-assessment, emphasizing
systems and self-informing (Power, 1997). More for-
mally, an environmental audit has been de?ned as a
management tool that systematically documents
and periodically evaluates how well an organiza-
tion’s management practices and equipment are
safeguarding the environment (ICC, 1991). By
emphasizing objective review, environmental audits
are designed to help organizations achieve manage-
rial commitment and control of their environmental
practices, compliance with environmental regula-
tions (ICC, 1991; USEPA, 1986) and conformity
to company policies (ICC, 1991).
The application of environmental audits to an
organization’s operations is parallel to how compa-
nies have used quality auditing. In requiring a
commitment to continually improve process and
product quality, organizations that rely on quality
auditing ensure that quality is measured constantly
and appropriate corrective action is taken when-
ever defects occur (Corbett, Montes-Sancho, &
Kirsch, 2005). They also plan for the long-term
and assess their progress toward achieving desired
outcomes. Similarly, organizations that rely on
environmental audits of their internal operations
attempt to ensure that environmental impact is
measured continually, that goals are established,
and that corrective action is taken when problems
occur.
Environmental auditing is a voluntary activity
for most organizations. Organizations that conduct
environmental audits, therefore, have to manage a
tension between the incentives and disincentives
for completing these audits. Incentives for environ-
mental auditing relate to the fact that organizations
invest signi?cant internal resources to manage their
environmental issues. In complying with environ-
mental regulations alone, collectively organizations
spend millions of dollars annually installing pollu-
tion control technology, applying for operating
permits, and monitoring and reporting their envi-
ronmental discharges (Portney & Stavins, 2000).
Environmental audits may provide organizations
better protection of their investment since the audit-
ing process creates routines and systems that can
improve environmental management activities (de
Moor & de Beelde, 2005; Maltby, 1995; O’Dwyer,
2001; Pfa? & Sanchirico, 2000). Environmental
auditing also can lead to the early discovery of envi-
ronmental issues that organizations can address
before they become signi?cant problems (Stanwick
& Stanwick, 2001). By preventing signi?cant envi-
ronmental problems, organizations may reduce
their environmental liability, risk (Gilbert, 1999)
and remediation costs, while at the same time
improving their external image. As such, companies
that utilize environmental audits may be in a better
position to respond to address stakeholder concerns
for stronger environmental management.
However, there are disincentives for completing
environmental audits. Problems arise when the
audit identi?es an environmental non-compliance
or violation. In such instances, an organization is
required legally to report its discrepancies to envi-
ronmental regulators, which may lead to sanctions
including ?nancial ?nes or plant closures (Emery
& Watson, 2003). In addition, there are costs asso-
ciated with executing the audit, which relate to prep-
aration for the environmental audit, and dedicating
sta? towards completing the internal audit or hiring
an auditor for external audits.
Environmental audits – di?ering operational bene?ts
and credibility
Previous auditing research has generally focused
on the broader concept of auditing rather than envi-
ronmental auditing and its various forms. Of the few
studies related to environmental audits, all viewenvi-
ronmental audits as a uniformtype of environmental
management practice (e.g., Hillary, 1998; Khanna &
Anton, 2002; Tilt, 2001), and to our knowledge no
studies have assessed the factors associated with
the use of di?erent types of environmental audits.
172 N. Darnall et al. / Accounting, Organizations and Society 34 (2009) 170–187
However, there are at least four di?erent forms of
environmental audit, the ?rst form is no environ-
mental audit. An organization may choose the no
audit option even though it has adopted numerous
proactive environmental measures. Under this sce-
nario, the organization does not systematically doc-
ument and periodically evaluate how its operations
and processes a?ect the natural environment.
The second form of environmental audit is an
internal audit, which is implemented by the organi-
zation’s internal sta?. Internal audits are executed
generally by an employee or a team of employees
who are knowledgeable about environmental man-
agement practices and processes. These audits are
used to determine compliance with laws and regula-
tions, but they also can be used to develop recom-
mendations for how an organization can reduce its
environmental impacts beyond legal requirements.
Further, internal audits may be used to review the
organization’s provisions for contingent liabilities
and validate the propriety of the environmental
accounting process (Dittenhofer, 1995). Such
actions o?er valuable information for making deci-
sions concerning e?ective business operations.
Because internal audits are executed by employees
within the organization, the auditor or auditing
team develops extensive knowledge about the com-
pany’s internal operations and controls that can
inform the environmental assessment and recom-
mendations (Power, 1997). This expertise makes
internal audits especially responsive to internal
stakeholder concerns voiced by management and
non-management employees.
The third environmental audit is an external
audit. In performing an external audit, an organiza-
tion hires an outside independent assessor to exam-
ine its environmental practices. External audits are a
more recent occurrence and have arisen to attend to
stakeholder concerns regarding independent valida-
tion and reporting (Power, 1997). Similar to internal
audits, external audits may be used to determine
whether the organization is in compliance with envi-
ronmental regulations (Dittenhofer, 1995), espe-
cially when the organization lacks the internal
expertise to do the assessment internally. In such
instances, the external audit may not provide equiv-
alent operational bene?ts as those derived from
internal audits. External audits also investigate
how the organization’s environmental actions and
non-compliance activities a?ect its ?nancial state-
ments (Dittenhofer, 1995). The external audit there-
fore takes a broader view of the organization’s
operations and processes by considering its overall
business performance.
External audits have a greater appearance of
objectivity and independence (Karapetrovic & Will-
born, 2001) since an outside independent assessor
examines the organization’s environmental prac-
tices. Because of their increased objectivity, coupled
with a more expansive view, external audits bene?t
organizations by enhancing their environmental
image and conferring external legitimacy, especially
with external stakeholders (Solomon, 2000). Legiti-
macy refers to organizations’ actions that are con-
sidered desirable or appropriate within some
socially constructed system of norms, values, beliefs
and de?nitions (Suchman, 1995). While often di?-
cult to quantify, enhanced image and legitimacy
may lead to such things as increased sales, improved
ability to recruit talented employees, and enhanced
external relations (Kollman & Prakash, 2001). In
other instances, organizations that utilize external
audits may be able to more legitimately signal to
the marketplace, regulators and investors that they
are managing their environmental risks proactively
which may improve their reputation and increase
their attractiveness to customers and ?nanciers.
The fourth form of environmental audit utilizes
both internal and external audits. By employing
internal audits, these organizations are able to
respond more e?ectively to internal stakeholder
concerns voiced by management and non-manage-
ment employees and maximize operational bene?ts.
Moreover, they also bene?t from outside indepen-
dent assessors who examine the organization’s envi-
ronmental practices. This process can increase an
organization’s external credibility. For these rea-
sons, researchers believe that organizations which
rely on both internal and external audits may
receive the maximum bene?t from the auditing pro-
cess (Stanwick & Stanwick, 2001). Additional bene-
?ts of combining both types of audits include a
greater opportunity for increasing operational e?-
ciency and e?ectiveness (Watson & Emery, 2003)
because organizations can gain from their internal
expertise and also leverage external knowledge to
further improve upon their internal operations.
In sum, implementing internal audits bene?t
internal stakeholders and operations, and may be
less costly, but sacri?ce external credibility. External
audits o?er greater credibility with external stake-
holders and enhanced organizational bene?ts than
internal audits alone. However, they also require
additional costs, reduce internal control over audit
N. Darnall et al. / Accounting, Organizations and Society 34 (2009) 170–187 173
procedures, and increase liability associated with the
external disclosure of environmental information.
Strategies that rely on both internal and external
audits provide the greatest bene?ts from the audit-
ing process (Stanwick & Stanwick, 2001). This com-
bined approach provides greater credibility with
internal and external stakeholders and may o?er
superior overall organizational bene?ts as well,
although it is likely to be the most expensive audit-
ing option.
Variations in environmental audits, their credi-
bility and their focus on business performance
suggest that the typical approach of asking organi-
zations whether they utilize environmental auditing
or not fails to appreciate their diversity. A more
nuanced treatment therefore is needed when evalu-
ating these environmental management tools. By
considering the distinctions among di?erent types
of environmental audits we may gain greater insight
into how stakeholder in?uences relate to the use of
di?erent kinds of environmental audits. The follow-
ing sections discuss these in?uences.
Environmental audits and stakeholder theory
Organizations that utilize one type of environ-
mental audit over another are anticipated to be
associated with varying degrees of perceived
stakeholder in?uences. Stakeholders can be
de?ned as ‘‘any group or individual who can
a?ect or is a?ected by the achievement of an
organization’s objectives” (Freeman, 1984, p. 46).
In crafting this de?nition, Freeman (1984) took
the position that companies produce externalities
that a?ect many parties internal and external to
the organization. Externalities often cause stake-
holders to increase their in?uence on organiza-
tions to reduce negative impacts and increase
positive ones. Stakeholder theory asks which of
these groups of individuals deserve attention from
management and which do not (Mitchell, Agle, &
Wood, 1997).
Managers think about stakeholders based on
their perceptions (Donaldson & Preston, 1995)
and therefore serve as a critical interpreter of stake-
holder in?uence (Fineman & Clarke, 1996). After
assessing which stakeholders are salient (Mitchell
et al., 1997), managerial perceptions of stakeholders
subsequently establish how an organization should
respond (Donaldson & Preston, 1995; Fineman &
Clarke, 1996). Because of their central role, manage-
rial perceptions are the focus of this paper.
Internal stakeholders
In general, there are two groups of stakeholders
that in?uence organizations: internal and external
stakeholders. Internal stakeholders include manage-
ment and non-management employees (Waddock &
Graves, 1997). These internal stakeholders have a
direct economic stake in the organization and are
typically located within the organization (Freeman,
1984). Internal stakeholders are relevant to environ-
mental auditing because employees often are the ini-
tiators of an organization’s proactive environmental
activities (Daily & Huang, 2001; Hanna, Newman,
& Johnson, 2000; Ramus & Steger, 2000). Such ini-
tiative is rooted in employees’ specialized knowledge
and skills related to the organization’s activities and
how it relates with the natural environment. How-
ever, for employee commitments to advance, they
must have support from management. Support
and leadership from top-level managers is vital to
ensuring an organization-wide understanding of
and commitment to environmental issues (Tilley,
1999; Zutshi & Sohal, 2004). In particular, manage-
rial attitudes and views about the natural environ-
ment (Cordano & Frieze, 2000), in addition to
their interpretations in?uence management deci-
sions regarding the organization’s subsequent envi-
ronmental activities (Ramus & Steger, 2000;
Sharma, 2000). Also important is whether managers
commit to being environmental leaders within the
organization (Egri & Herman, 2000). Such commit-
ment is central to adopting new environmental pro-
grams and improving an organization’s
environmental performance over time. Combined,
these arguments suggest the following hypothesis:
Hypothesis 1. The type of environmental audit used
by organizations is positively associated with the
perceived in?uence of internal stakeholders.
External stakeholders
Unlike internal stakeholders, external stakehold-
ers have more limited control of critical organiza-
tional resources (Mitchell et al., 1997; Sharma &
Henriques, 2005). However, in some cases external
stakeholders have the ability to regulate the organi-
zation (Fineman & Clarke, 1996; Freeman, 1984).
For instance, organizations must comply with envi-
ronmental regulations or face the threat of regula-
tors levying legal action, penalties and ?nes
(Henriques & Sadorsky, 1996). Failure to yield to
174 N. Darnall et al. / Accounting, Organizations and Society 34 (2009) 170–187
regulatory stakeholders leaves organizations vulner-
able to individual or class action lawsuits. Such
threats, although infrequent, can be devastating to
an organization’s public image, customer relations
and external legitimacy (Power, 1997). As a conse-
quence, organizations may utilize environmental
audits as one means to preempt these regulatory
threats.
Some regulatory in?uences are less coercive and
more incentive-based. For instance, regulators are
o?ering incentives to encourage organizations to
use environmental audits. Regulators’ rationale for
providing these incentives is the belief that environ-
mental audits can prevent larger environmental mis-
haps (Sta?ord, 2005). These incentives may
encourage organizations that otherwise would not
consider utilizing environmental audits to do so.
In still other instances organizations yield to
stakeholder in?uences from regulators in an e?ort
to maintain or improve their informal relationships
(Sta?ord, 2005) and accrue political capital. For
example, by utilizing proactive environmental prac-
tices, organizations may be able to form collabora-
tive relationships with government more easily and
explore more non-regulatory ways in which
government can encourage greater environmental
improvements (Darnall, Henriques, & Sadorsky,
2008). These collaborations can promote environ-
mental learning, capacity-building (Darnall &
Edwards, 2006), and trust between organizations
and regulators (Ho?man, 2000). A good reputation
with regulators also may give organizations greater
political capital when negotiating with government
o?cials about the terms of forthcoming regulations.
Combined, these arguments lead to the following
hypothesis:
Hypothesis 2. The type of environmental audit used
by organizations is positively associated with the
perceived in?uence of regulatory stakeholders.
Other external stakeholder in?uences originate
from the broader social context (Henriques &
Sadorsky, 1999; Power, 1997; Wilmshurst & Frost,
2000). Drawing on previous research (e.g., Darnall
et al., 2008), we de?ned societal stakeholders as
interest groups that include environmental and
community groups (Etzion, 2007; Ho?man, 2000)
and professional organizations such as labor unions
(Etzion, 2007). Each of these groups have the capac-
ity to mobilize public opinion in favor of, or in
opposition to, the organization (Freeman, 1984).
These groups also generally utilize indirect
approaches to in?uence organizational behavior
(Sharma & Henriques, 2005). Such actions include
public protests, strikes, and calls for engagement.
For instance, unions may initiate public campaigns
and protests that increase external pressure for an
organization to improve its environmental perfor-
mance. Union interest in these issues relates to gen-
eral concerns about worker safety and the
environmental risks imposed on surrounding com-
munities where workers’ families reside (Holder &
O’Brien, 2007). Further, societal stakeholders may
publicize information that could persuade consum-
ers to favor the products of companies that have
demonstrated a stronger regard for the environment
(Gould, Schnaiberg, & Weinberg, 1996). In other
instances, societal stakeholders may encourage con-
sumers to boycott products of organizations and
neutralize attempts that these organizations may
take to promote their environmentally proactive
management practices. Societal stakeholders of all
sorts therefore provide organizations a ‘‘social
license” to operate (Gunningham, Robert, &
Thornton, 2004) and may be critical factors associ-
ated with an organization’s decision to utilize envi-
ronmental audits (Altman, 1999).
Hypothesis 3. The type of environmental audit used
by organizations is positively associated with the
perceived in?uence of societal stakeholders.
Other relevant external stakeholders include those
operating in the organization’s supply chain. Supply
chain stakeholders consist of all parties who are
involved (directly or indirectly) in ful?lling a cus-
tomer request including the suppliers, transporters,
warehouses, retailers, and customers themselves
(Cox, 1999). Increasingly, supply chain stakeholders
have been exerting in?uences on organizations to
improve their environmental performance and adopt
proactive environmental management practices (Zhu
& Sarkis, 2004; Zhu, Sarkis, & Geng, 2005). Related
to environmental audits, more than ever, corporate
customers are requiring that their suppliers provide
them with a written certi?cation of their compliance
with all environmental regulations (Darnall et al.,
2001). In other instances, corporate customers visit
their suppliers and require external audits of their
operations and procedures (Darnall et al., 2001).
In?uences such as these arise because corporate cus-
tomers wish to ensure that their purchases are of suf-
?cient environmental quality since doing so reduces
environmental liabilities associated with ?nal
N. Darnall et al. / Accounting, Organizations and Society 34 (2009) 170–187 175
product development (Hand?eld, Walton, Sroufe, &
Melnyk, 2002).
In still other instances, environmental audits can
be used to help organizations ensure that they will
have a consistent input source. For example, if an
upstream supplier has its operating permit revoked
because of environmental violations or if a critical
supplier shuts down (even temporarily) because of
an environmental accident, the entire supply chain
can come to a halt (Lamming & Hampson, 1996).
Requiring suppliers to utilize environmental audits
may be one way for corporate customers to ensure
that their suppliers avoid these catastrophic events
(Humphreys, Wong, & Chan, 2003; Noci, 1997).
Supplier requirements for environmental audits also
can help ensure the environmental quality of an
organization’s input sources by reducing its possi-
bility of utilizing product inputs that are marketed
as being environmentally sound when in fact they
are not (Green, Morton, & New, 2000). Conse-
quently, we hypothesize
Hypothesis 4. The type of environmental audit used
by organizations is positively associated with the
perceived in?uence of supply chain stakeholders.
Research methods
Data
To evaluate our hypotheses, we relied on data
collected from an international survey developed
and administered by the Organization for Eco-
nomic Co-Operation and Development (OECD)
Environment Directorate and academic researchers
from Canada, France, Germany, Hungary, Japan,
Norway and the US. The OECD survey was pre-
tested in France, Canada and Japan before it was
translated into each country’s o?cial language
and back-translated to ensure the accuracy of the
original translation (Johnstone, 2007). In 2003, sur-
veys were sent to individuals who worked in manu-
facturing facilities having at least 50 employees and
who were responsible for the facility’s environmen-
tal activities (Johnstone, 2007). The OECD sent
two follow-up mailings to prompt additional
responses and 4186 facility managers completed
the survey (Johnstone, 2007). The response rate
was 24.7% (Johnstone, 2007), which is similar to
previous studies of organizations’ environmental
practices (e.g., Christmann, 2000; Delmas & Keller,
2005; Melnyk, Sroufe, & Calantone, 2003), where
response rates were 20.1%, 11.2% and 10.4%,
respectively. About half of the sample consisted of
small- and medium-sized enterprises (.04 are statistically signi?cant at p < 0.05.
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a viable estimation technique, variables that can be
ordered should not necessarily be analyzed as ordi-
nal since they can be ordered for one purpose but
not ordered or ordered di?erently for another
(Miller & Volker, 1985). In applying the multino-
mial logistic model, organizations that implemented
no form of environmental audit were compared to
those that utilized internal audits only, external
audits only, and both types of audits. Prior to esti-
mating our empirical models, we assessed whether
or not the four audit categories were independent
using Wald’s Test for Independence of Categories
(Long & Freese, 2001). The test showed that there
were signi?cant di?erences in the relationship
between the independent variables and the di?erent
types of environmental audits (p < 0.0001), o?ering
further con?dence in our empirical approach.
Heteroskedasticity-robust standard errors were
computed for each coe?cient estimate. In interpret-
ing the relative risk ratios associated with each inde-
pendent variable, values greater than 1 indicate an
increased risk of relying on a particular environ-
mental audit compared to no audit, and values less
than 1 indicate a decreased risk. Relative risk ratios
equal to 1 indicate neither increased nor decreased
risk of utilizing a type of environmental audit com-
pared to no environmental audit. All empirical esti-
mations were performed using Stata 9 statistical
software.
Results
Table 3 describes the results of our empirical esti-
mations. Model 1 is our baseline model and shows
the results of a logistic regression comparing facili-
ties that had any type of environmental audit to
those with no audits. The likelihood ratio test statis-
tic indicates that the null e?ect of the independent
variables can be rejected at p < 0.001. The pseudo-
R
2
statistic is an approximation of the squared con-
tingency coe?cient, and ranges between 0 and 1,
approaching 1 as the quality of the ?t improves
(Aldrich & Nelson, 1984). The value of this statistic
is generally less than would be expected in a linear
model (Greene, 1997). Model 1 has a McFadden
pseudo-R
2
of 22.37%. The estimated coe?cient on
each of the stakeholder variables (except for societal
stakeholders) is positive and statistically signi?cant
(two of the estimated coe?cients are statistically sig-
ni?cant at p < 0.01 and two estimated stakeholder
coe?cients are statistically signi?cant at p < 0.05).
In all instances, coe?cients related to our stake-
holder variables are greater than 1, indicating that
the ‘‘risk” of implementing any environmental audit
increases as stakeholder in?uences increase. For
instance, the coe?cient associated with internal
stakeholders is 1.64 (p < 0.01) suggesting that as
perceived internal stakeholder in?uences increase,
facilities are associated with a 64% greater probabil-
ity of implementing any type of environmental
audit. These ?ndings suggest that greater perceived
stakeholder in?uences from internal, regulatory,
societal and supply chain stakeholders are associ-
ated with the use of environmental audits.
Comparisons across environmental audits
Our main estimation model (Model 2) compares
facilities that utilized internal, external, and both
types of environmental audits to those that did
not use any type of environmental audits. The log
likelihood statistic (À2150.97; p < 0.0001) indicates
su?cient model ?t. Model 2 has a McFadden
pseudo-R
2
of 20.87%.
The overall patterns of Model 2 illuminate how
managerial perceptions of greater stakeholder in?u-
ence are associated with di?erent types of environ-
mental audits. Only one of our independent
variables of interest (internal stakeholders) was sta-
tistically signi?cant in the no audit-internal audit
comparison. Compared to facilities that had no
environmental audits, those that utilized internal
audits were 31.0% more likely (p < 0.01) to be asso-
ciated with greater perceived in?uences from inter-
nal stakeholders. Facilities that relied on external
audits had a similar relationship with internal stake-
holders in that they were 33.9% more likely to be
associated with having greater in?uences from these
stakeholders. However, facilities relying on external
audits also had a 63.7% increased probability
(p < 0.05) of having stronger perceived in?uences
from public authorities.
Facilities that utilized both types of environmen-
tal audits were associated with a wider array of
stakeholder pressures in that they were more likely
to have greater perceived stakeholder in?uences
from internal, regulatory and supply chain stake-
holders. More speci?cally, managers in these orga-
nizations were 92% more likely (p < 0.001) to be
associated with having greater perceived in?uences
from internal stakeholders and had a 36.4%
increased probability (p < 0.05) of having more per-
ceived in?uences from public authorities than facil-
ities that implemented no environmental audits.
180 N. Darnall et al. / Accounting, Organizations and Society 34 (2009) 170–187
Table 3
Multinomial logit results – perceived in?uences of stakeholders and the use of environmental audits
a
Variable Model 1
b
Model 2
c
Any audit Internal audit only External audit only Both audits
Odds ratio SE Relative risk ratio SE Relative risk ratio SE Relative risk ratio SE
Hypothesized variables
Internal stakeholders 1.640
***
0.120 1.310
**
0.127 1.339
*
0.164 1.920
***
0.157
Inspection frequency 1.033
*
0.016 1.021 0.017 1.010 0.028 1.039
*
0.017
Public authority in?uences 1.343
**
0.147 1.142 0.176 1.637
**
0.325 1.364
*
0.176
Societal stakeholders 1.066 0.088 1.180 0.126 1.126 0.162 1.002 0.091
Supply chain stakeholders 1.213
*
0.116 1.075 0.131 1.037 0.183 1.328
**
0.141
Firm characteristics
Facility size (log) 1.794
***
0.111 1.416
***
0.110 1.197 0.141 2.207
***
0.150
Firm listed on stock exchange 1.684
**
0.297 1.297 0.283 1.958
*
0.560 1.748
**
0.321
Foreign head o?ce 1.680
**
0.307 1.194 0.269 1.518 0.602 2.114
***
0.404
Industry characteristics
Food, beverage, textiles ISIC 15-19 0.517
***
0.099 0.545
*
0.135 0.798 0.259 0.445
***
0.096
Pulp, paper, publishing, print ISIC 20-22 0.639
*
0.142 0.708 0.199 0.879 0.336 0.555
*
0.134
Nonmetallic minerals, metals ISIC 27-33 0.783 0.133 0.906 0.198 0.749 0.235 0.738 0.135
Machinery, transport equip. ISIC 29-35 1.069 0.178 1.119 0.250 1.048 0.310 1.025 0.184
Furniture, recycling ISIC 36-37 1.172 0.434 1.284 0.549 1.395 0.921 1.019 0.420
Country
Canada 0.152
***
0.049 0.184
***
0.064 0.510 0.344 0.120
***
0.041
France 0.292
***
0.104 0.180
***
0.071 3.137 1.944 0.262
***
0.098
Germany 0.126
***
0.035 0.127
***
0.037 0.278
*
0.172 0.114
***
0.033
Hungary 0.074
***
0.023 0.064
***
0.022 0.294 0.197 0.074
***
0.024
Japan 0.168
***
0.045 0.012
***
0.005 2.580 1.392 0.221
***
0.062
Norway 0.890 0.299 0.799 0.284 0.917 0.696 0.888 0.313
N 2249 2249
Likelihood ratio v
2
395.49 729.86
Prob > v
2
0.000 0.000
Log likelihood À1063.40 À2150.97
Pseudo-R
2
0.2237 0.2087
a
The excluded sector dummy is the petroleum, chemical, and plastics industries (ISIC 23-26); excluded country dummy is the US.
b
Model 1 is a logistic regression where environmental auditing is a binary variable equal to one if the facility engaged in any type of audit and zero otherwise.
c
Model 2 is a multinomial logistic regression evaluating the three types of environmental audits against the baseline of ‘‘no audit”. Sample size and model ?t statistics for Model 2
pertain to all three comparison categories.
*
p < 0.05.
**
p < 0.01.
***
p < 0.001.
N
.
D
a
r
n
a
l
l
e
t
a
l
.
/
A
c
c
o
u
n
t
i
n
g
,
O
r
g
a
n
i
z
a
t
i
o
n
s
a
n
d
S
o
c
i
e
t
y
3
4
(
2
0
0
9
)
1
7
0
–
1
8
7
1
8
1
Facilities that utilized both types of environmental
audits also had a marginally greater probability
(3.9%, p < 0.05) of being associated with larger
numbers of inspections and a 32.8% greater likeli-
hood (p < 0.01) of being associated with stronger
perceived supply chain in?uences than facilities that
implemented no environmental audits. Like facili-
ties that used internal audits only and external
audits only, facilities that relied on both types of
environmental audits were not associated with per-
ceived societal stakeholder pressures any more than
facilities that did not use environmental audits.
Similar patterns were found when considering the
results of our control variables. Our empirical anal-
ysis shows that, while all the estimated coe?cients
related to facility size, stock exchange listing, and
foreign head o?ce in Models 1 were greater than
1 and signi?cant, they were not signi?cant across
all types of environmental audits. For example,
facility size was positive and statistically signi?cant
for internal audit use (1.416, p < 0.001) and the
implementation of both audits (2.207, p < 0.001)
but not external audit use. On the other hand, stock
exchange listing was positively associated with
external audit use (1.958, p < 0.05) and the reliance
of both audits (1.748, p < 0.01) but not with internal
audit use. Finally, foreign head o?ce was positively
associated with the implementation of both audits
(2.114, p < 0.001) but not associated with either
internal or external audit use only.
Similarly, while most of the estimated coe?cients
for the food, beverage and textile sectors (ISIC 15–
19) as well as the pulp, paper, publishing and print
sectors (ISIC 20–22) in Models 1 were less than 1
and signi?cant, they were not signi?cant across all
types of environmental audits described in Model
2. The results presented in Model 2 indicate the
petroleum, chemicals, and plastics industries tend
to use both audits rather than using external audits
only (compared to the food, beverage, and textile
industries (ISIC 15–19) and the pulp, paper, pub-
lishing and print industries (ISIC 20–22)). The more
widespread use of environmental audits in the
petroleum, chemicals, and plastics industries is most
likely due to normative in?uences from industry
associations. For instance, the Canadian and the
US chemical industry associations mandate their
member companies to participate in voluntary pro-
grams that require internal environmental audits.
More recently, these programs have required exter-
nal audits as well. Companies operating within the
chemical sector therefore would be anticipated to
use internal auditing and both auditing procedures
to a greater degree.
In considering the remaining controls, again we
see greater variation in Model 2. That is, while esti-
mated coe?cients on the country dummies in Mod-
els 1 were less than 1 and signi?cant, they were not
signi?cant across all types of audits described in
Model 2. The estimated coe?cients for country
dummies in Model 2 were less than one and statisti-
cally signi?cant for internal audits only and both
audits indicating that facilities located in Canada,
France, Germany, Hungary and Japan, ceteris par-
ibus, were less likely (p < 0.001) to be associated
with using internal audits only and both types of
environmental audits than those located in the
US. However, with the exception of Germany
(p < 0.05), which was less likely to employ external
environmental audits than US facilities, facilities
operating in other countries were no more likely
to be associated with using external audits than
the US.
In sum, by comparing the results of Model 2 to
the results in Model 1, our ?ndings indicate that
aggregating the three types of environmental audits
into a single binary category of ‘‘any audit” loses
signi?cant information about how perceived stake-
holder in?uences and other factors are associated
with each type of environmental audit scheme,
and it would be easy to believe that stakeholder
in?uences a?ect each type of environmental audits
similarly. These ?ndings o?er evidence for a more
nuanced approach when examining organizations’
environmental audit usage.
Comparisons across stakeholder in?uences
In considering how our results inform our
research hypotheses, Model 2 o?ers evidence for
the notion that the type of environmental audit used
by organizations is related to perceived in?uence
from internal stakeholders (Hypothesis 1). More
speci?cally, perceived internal stakeholder in?u-
ences were associated with a 31% increased likeli-
hood (p < 0.01) that facilities used internal audits
only, a 33.9% greater probability (p < 0.05) that
facilities relied on external audits only, and a 92%
increased likelihood (p < 0.01) that facilities used
both audits.
In evaluating the relationship between audit type
and in?uences from regulatory stakeholders
(Hypothesis 2), facilities with more inspections were
no more likely to be associated with internal audits
182 N. Darnall et al. / Accounting, Organizations and Society 34 (2009) 170–187
only or external audits only as compared to facilities
utilizing no environmental audits. While they had a
3.9% greater probability (p < 0.05) of being associ-
ated with using both types of audits, this elevated
probability has less practical relevance because of
its small size. However, perceived facility in?uences
by public authorities had a stronger (and more var-
ied) relationship with environmental audit use.
These in?uences were associated with no increased
likelihood that facilities would utilize internal
audits, a 63.7% greater probability (p < 0.05) that
they would utilize external audits only, and a
36.4% increased likelihood (p < 0.05) that they
would utilize both audits. These ?ndings o?er some
support Hypothesis 2. Perceived societal stake-
holder in?uences, however, had no statistically sig-
ni?cant relationship with facilities that utilized
environmental audits of any kind, and fail to sup-
port Hypothesis 3, which states that the type of
environmental audit used by organizations is posi-
tively associated with the perceived in?uence of
societal stakeholders.
Finally, while there was no statistically signi?cant
relationship between supply chain stakeholders and
facilities’ use of either internal audits only and exter-
nal audits only, they were associated with facilities
utilizing both types of environmental audits. These
facilities were 32.8% more likely (p < 0.01) to utilize
both types of audits over no audit, o?ering some
support for Hypothesis 4, which states that the type
of environmental audit used by organizations is pos-
itively associated with the perceived in?uence of
supply chain stakeholders.
In sum, we found support for Hypotheses 1, 2,
and 4 – that the type of environmental audit used
by organizations was positively associated with per-
ceived in?uence from internal, regulatory and sup-
ply chain stakeholders. However, facilities’
environmental audit use was not related to the per-
ceived in?uence from societal stakeholders
(Hypothesis 3). Further, aggregation of environ-
mental audits into a single construct loses important
distinctions regarding the association between
stakeholder in?uences and environmental audit use.
Discussion
This research builds on prior studies evaluating
organizations’ environmental accountability. It
o?ers three contributions to theory and practice.
First, while previous scholarship recognizes envi-
ronmental accountability as an important research
area, studies about environmental auditing have
been lacking (Parker, 2005). This study o?ers evi-
dence that perceived in?uences from internal, regu-
latory, and supply chain stakeholders are positively
related to the use of environmental audits. These
?ndings are particularly interesting because most
organizations utilize environmental audits voluntar-
ily and often in the absence of coercive external
in?uences. Regardless, perceived in?uences from
internal, regulatory and supply chain stakeholders
are related to their utilization and o?er essential
insights about the use of these practices.
However, our results also show that perceived
in?uence from societal stakeholders have no associ-
ation with an organization’s use of environmental
audits. These ?ndings most likely are due to the fact
that in?uences from societal stakeholders can be
addressed in a variety of ways that may or may
not include environmental audits. For instance, an
organization can adopt a well-publicized pollution
prevention program or report its environmental per-
formance publicly using corporate environmental
reports instead of having some form of environmen-
tal audit. By contrast, in?uences from regulatory
stakeholders are more speci?c to environmental
audit usage due to possible incentives to organiza-
tions that rely on these environmental management
tools (Sta?ord, 2005). Similarly, perceived in?u-
ences from supply chain stakeholders to use envi-
ronmental audits may be more acute, especially as
more corporate customers require their suppliers
to certify their environmental procedures and com-
pliance with environmental regulations (Darnall
et al., 2001). By using environmental audits organi-
zations may be responding to perceived concerns
expressed by regulatory and supply chain stakehold-
ers. However, societal stakeholders who often live
near a company may have less interest in environ-
mental audits since they generally have access to
direct information to indicating whether or not
there is an environmental problem. In instances
where societal stakeholders express their concern,
organizations may respond by relying on other
types of environmental management practices.
The second contribution of this study is that it
illustrates the importance of using a more system-
atic approach when examining organizations’ envi-
ronmental audits. The landscape of environmental
audits is diverse in that organizations can imple-
ment internal, external or both- environmental
audit types. The stakeholder in?uences associated
with the use of these audits di?ers. For example,
N. Darnall et al. / Accounting, Organizations and Society 34 (2009) 170–187 183
organizations that adopt internal audits are associ-
ated more with perceived in?uences from internal
stakeholders, but not regulatory or supply chain
stakeholders. However, since the results of these
audits cannot be veri?ed by external parties they
may lack legitimacy with some external constituen-
cies. By contrast, organizations that utilize external
audits are more likely to be associated with greater
perceived in?uences from internal and regulatory
stakeholders. These types of audits o?er external
credibility that facility managers may believe is val-
ued by regulators. Finally, organizations that use
both types of audits are associated with greater
perceived in?uences from internal, regulatory, and
supply chain stakeholders. The relevance of supply
chain stakeholders is particularly interesting
since these stakeholders are increasingly exerting
in?uences on organizations to improve their
environmental performance, adopt proactive
environmental management practices (Zhu et al.,
2005; Zhu & Sarkis, 2004), provide certi?cation of
their compliance with environmental regulations,
and agree to onsite visits (Darnall et al., 2001).
Under these circumstances, organizations may ben-
e?t more by utilizing both types of environmental
audits to ensure maximum credibility and organiza-
tional bene?t. Combined, our results suggest that
variations in environmental audits are related to
di?erent degrees of stakeholder in?uence.
At the same time, our ?ndings emphasize the
importance of perceived in?uences from internal
stakeholders and their relationship with organiza-
tions’ use of all forms of environmental audits. In
the absence of these in?uences, organizations
appear less likely to utilize environmental audits of
any sort. While additional analysis is required to
determine a causal link, these results suggest that
enterprises wishing to initiate evaluations of their
organization’s environmental management practices
may ?rst need to direct their attention towards gain-
ing the support from internal stakeholders. By con-
trast, organizations’ use of external environmental
audits or both environmental audits is associated
with greater degrees of in?uence from external
stakeholders. These ?ndings o?er support for the
idea that organizations that implement internal
audits may be seeking more internal legitimacy,
whereas organizations that utilize external audits
and/or both types of environmental audits may be
seeking more external credibility. Because of their
more expansive view, external audits may o?er
greater credibility with external stakeholders. Simi-
larly, relying on both types of environmental audits
may enhance organizational bene?ts and improve
external credibility to a greater degree than any
other type of environmental audit.
Di?erences also existed among the use of envi-
ronmental audits as they related to our control vari-
ables. In particular, organizations’ use of one type
of environmental audit over another were associ-
ated with ?rm characteristics including organiza-
tional size, whether the head o?ce was listed on
the stock exchange, and whether the head o?ce
was located in a foreign country, in addition to
the organization’s country of operation. Moreover,
industrial sector is particularly salient because we
selected the petroleum, chemical and plastics indus-
try as our omitted sector and the US and Canadian
chemical industry associations mandate their mem-
ber companies to participate in voluntary programs
that require internal and external environmental
audits.
Collectively, these patterns illustrate important
distinctions among di?erent types of audits and
how considering them similarly may lead to inap-
propriate conclusions. By appreciating the nuances
among di?erent types of environmental audits, we
may gain a better understanding about an organiza-
tion’s subsequent changes in environmental perfor-
mance and stakeholder relations. Future research
might consider whether ?ner distinctions can be
made within each of these environmental audit cat-
egories. Additional research also should consider
whether the increased focus on accountability and
emphasis on management systems that are sup-
ported by environmental audits might actually lead
to a so-called ‘‘dead end” in accountability. Such a
proposition is raised by Power (1997), and if valid,
suggests that environmental audits may lead to little
improvement to the natural environment because of
their focus on documentation rather than on
enhanced outcomes. The countervailing viewpoint
suggests that companies manage what they measure,
and that the increased emphasis on measurement
brought forward by environmental audits may lead
to improved environmental performance. Addi-
tional research is needed to explore these important
issues further.
The third contribution of this research is that it
takes an important step in advancing our under-
standing of environmental auditing in the global set-
ting. By examining these relationships for facilities
in seven OECD countries, results of this study can
be generalized to a much broader international
184 N. Darnall et al. / Accounting, Organizations and Society 34 (2009) 170–187
setting thereby contributing to existing scholarship.
This research also points to the importance of addi-
tional scholarship related to whether the use of envi-
ronmental audits is in?uenced by national cultures.
For example, our empirical analysis indicates that
facilities located in Canada, France, Germany,
Hungary, and Japan, ceteris paribus, were less likely
to use internal environmental audits and both audits
than those located in the US. However, with the
exception of Germany, facilities in other countries
were no more or no less likely to utilize external
audits than facilities operating in the US. While
we controlled for these country di?erences in our
analysis, we did not model the sources of these dif-
ferences per se. Because the nature of the OECD
data limits us from assessing temporal, sub-national
and culture-based issues; however, these issues are
important and should be explored in future
research.
Finally, since the OECD data were for a panel of
companies at a single point in time, it is di?cult to
assess the predictive link between stakeholder in?u-
ences and the use of environmental audits. Instead,
our ?ndings show strong associations among our
variables of interest. Future research would bene?t
from using data that were collected longitudinally.
Time series panel data would allow for comparisons
among facility responses over multiple periods and
therefore account for the temporal ordering of spe-
ci?c events. Such information may o?er more rigor-
ous evidence for the relationships identi?ed in this
study.
Conclusion
This study evaluates whether perceived stake-
holder in?uences are associated with organizations’
use of environmental audits across multiple interna-
tional and organizational settings. It shows that the
use of environmental audits is related to both inter-
nal and external stakeholder in?uences and such
relationships are more complex than previously
recognized.
These ?ndings have important empirical implica-
tions for subsequent studies evaluating how envi-
ronmental audits are related to organizations’
environmental and business performance. Our
results suggest that facilities may be self-selecting
into one type of environmental audit over another,
which needs to be accounted for when considering
how environmental audits relate to environmental
and business performance. After controlling for
these issues, we may ?nd that di?erent types of envi-
ronmental audits create greater opportunities for
improved operational e?ciency and e?ectiveness
which could lead to superior business performance.
Understanding these relationships would contribute
signi?cantly to our knowledge of environmental
audits. Such understanding also would o?er greater
insight into how distinctions among environmental
audits contribute to environmental and social
accountability scholarship and management
practice.
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