Heads Must Roll: How External and Internal Factors Combine to Improve Corporate Environmental Performance

Abstract

Despite decades of widespread corporate sustainability programs, corporate greening remains insufficient. What can drive firms to go greener? Drawing from an attention‐based view of the firm, we hypothesize that a significant external shock can draw greater organizational attention to greening. However, the increased attention will fail to produce improvement in environmental performance unless it is combined with an internal shock sufficient to disrupt established routines. Through an empirical test of a large longitudinal data set, we indeed find that the external shock of a large environmental fine shifts organizational attention toward environmental issues. However, this shift in attention does not lead to improved corporate environmental performance unless accompanied by an internal shock, CEO turnover. If the CEO remains after a large environmental fine, corporate environmental performance does not improve. These findings help to explain the disconnect between green talk and action after decades of corporate sustainability and points out the need for further investigation of the combination of external and internal factors that can drive further improvements in corporate environmental performance.