NEGOTIATING WITH ENVIRONMENTAL ACTIVISTS IN THE SHADOW OF REGULATION

Abstract

We study interactions between firms and environmental activists that occur in the regulatory domain to examine the conditions under which they reach cooperative outcomes to pre-empt formal regulatory contestation. We argue that a munificent regulatory environment plays a central role in enabling cooperative outcomes by providing firms greater access to resources and regulatory flexibility that allows them greater discretion in addressing the demands of environmental activists. We further contend that regulatory munificence mitigates the effects of firms’ environmental impact, activists’ inclination to adopt contentious tactics, and pressures from competing stakeholders – attributes that hinder the ability of firms and environmental activists to achieve cooperative outcomes. We empirically test our predictions in the context of U.S. electric utility sector, where state-level regulatory proceedings provide stakeholders, including environmental activists, the opportunity to participate and influence regulatory outcomes. Statistical analysis of the outcomes of negotiations between firms and environmental activists in these state regulatory proceedings between 1990 to 2015 provides strong support for our predictions. Our study contributes novel insights to the research on firm-stakeholder relations by examining interactions that occur between them in the relatively understudied, but critical, regulatory domain.