Institute for Social, Behavioral, and Economic Research

Voluntary programs are now widely used by governments and other actors to improve the environmental performance of firms beyond regulatory compliance. However, it is important to understand the effectiveness and limitations of these voluntary approaches. This paper investigates the rationale for firms to ‘comply’ with or ‘resist’ the mandate of their customers to adopt the international certified management standard (CMS) ISO 14001 in the North American automotive industry. We argue that the effectiveness of such a mandate will vary according to the characteristics of the relationship between suppliers and customers. We contrast and test hypotheses based on both transaction costs economics and signaling theories to suggest that both suppliers marked by a dependent relationship with their customers as well as those marked by a distant relationship with their customers have incentives to comply with the requests of their customers but through different mechanisms. Our results, based on the analysis of the characteristics of 3,152 automotive suppliers located in the US, Canada and Mexico over the 2000-2003 period, indicate that suppliers with highly specialized assets as well as younger suppliers and those reporting to the Toxic Release Inventory are more likely to adopt the certified management standard ISO 14001.